>HAVELLS INDIA: Sylvania: Focus on profitability stays; Europe holds the key

We met the management of Havells India (HAVL) to get an update on the company’s business. Amidst tough times, management reiterated 15‐20% growth in domestic business in FY13 as it looks to double appliances sales. Sylvania is expected to post margin in the 7‐8% range in Europe, even as currency impact is likely to put margins under pressure in Latin America. Profitability and new markets like Africa and China are Sylvania’s prime focus. We maintain ‘BUY’ with a revised TP of INR 612.


Lighting, appliances to aid domestic business; imports to reduce
HAVL expects to double appliances turnover to ~INR1.5bn‐1.7bn during FY13E. The company has seen strong traction in fans sales in April‐May 2012 and expects to clock 10‐15% revenue growth during FY13E. Lighting and luminaries are expected to grow 20‐25%. Switchgear sales slowed due to slower sales in the UK market and the company does not expect major pick up in the export market. HAVL is looking to increase domestic sourcing to cushion the volatile currency impact.


Sylvania: Focus on profitability stays; Europe holds the key
European sales are expected to decline even as margins are likely to be maintained between 7% and 8% in FY13E. Profitability could be under severe pressure only if the revenue decline is beyond 10% in Europe. In Latin America, while sales growth has moderated, margin could be under pressure due to depreciation in local currency given large imports. HAVL expects maintenance capex of EUR10‐12mn (EUR3‐4mn every year) over the next three years in Sylvania in addition to EUR10mn‐12mn capex towards its JV in China during the same period.


Outlook and valuations: Positive; maintain ‘BUY’
With continued focus on profitability in Sylvania and expansion of product portfolio/geographical reach in domestic business, we believe HAVL in on the right track. We have increased growth assumptions by 2‐3% in FY13E and FY14E for domestic business. On revised consolidated EPS, the stock is trading at 14.6x and 12.7x FY13E and FY14E, respectively. We maintain ‘BUY/ SO’ with revised TP of INR612 (earlier INR594).


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