1
May 15, 2018
Havells India Ltd
Industrials - Capital Goods
Havells India Ltd
India Research - Stock Broking
BUY
Bloomberg Code: HAVL IN
Recommendation (Rs.)
CMP (as on May 15, 2018) 544
Target Price 640
Previous Target Price 673
Upside (%) 18
Stock Information
Mkt Cap (Rs.mn/US$ mn) 340206 / 5007
52-wk High/Low (Rs.) 593 / 434
3M Avg. daily volume (mn)
1.2
Beta (x) 1.0
Sensex/Nifty 35544 / 10802
O/S Shares(mn) 625.1
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 59.6
FIIs 24.9
DIIs 4.5
Others 11.0
Stock Performance (%)
1M 3M 6M 12M
Absolute (1) 5 8 6
Relative to Sensex (4) 2 (1) (10)
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 53783 61353 82603 96642 113125
EBITDA 7549 8241 10493 13047 15837
EBITDA Margin (%) 14.0 13.4 12.7 13.5 14.0
Net Prot 7120 5390 7125 8707 10698
EPS (Rs.) 11.4 8.6 11.4 14.0 17.1
RoE (%) 24.1 16.5 19.1 20.9 21.4
PE (x) 28.3 54.2 42.8 39.0 31.8
Source: Company, Karvy Research; *Represents multiples for FY16 & FY18 are based on historic market price
Margins Expansion Across All Segments
Revenue of Havells missed our estimates by 7% due to at performance by
switchgear and cables segment. There was growth across the segments except for
cables (1.1%) and switchgear (0.9%) segments. The switchgear and cables had a
at performance due to subdued demand in real estate sector. The revenue growth
of 38.4% YoY was driven by Lighting and ECD segment which has grown by 14.0%
and 17.0% respectively. The Lloyd division has almost shown a 100% growth as
compared to Q3Fy18. There was a margin expansion across all segments leading
the EBITDA to grow by 55.8% YoY with margins improving by 158bps to reach 14.1%.
Lighting and Electronic Consumer Segment drove the growth: ECD
and lightning segment have shown a good growth of 14.0% and 17.0% YoY
over the corresponding quarter last year. The ECD segment grew by 10.5% for
full-year majorly due to growth in fans segment which contributed 70% of total ECD
business followed by water heaters contributing 17-18% of ECD business. Havells
lead the market in the premium fans segment and contributes more than 65% of
fans business. The company has grown the fans business by 11% wherein the
industry growth was at which indicates an increase in the market share in the fans
segment. The margin improvement was to the tune of 562 bps to reach 27.2%.
The lighting segment managed to grow by 14.3% which majorly comprises LED
business. The segment is deriving growth due to replacement demand of CFL to
LED. The lighting segment also has seen a growth in margins by 268bps YoY on the
back of warranty provisions written back. Switchgear and cables businesses were
merely at due to tepid real estate sector. The company is witnessing opportunities
in B2B business for switch gears.
Valuation and Risks
We expect the revenues to grow at 17.0% CAGR during FY18-20E. We revise
down the revenues due to expected at performance from cables and switchgear
segments. We expect next leg of growth to be driven by ECD, Lighting and AC
segment. The plans to set up manufacturing facilities for AC would give Havells an
upper hand in controlling cost and improving margins. We expect the margins to be
reaching its standard level of 14-15% in 2019. The good business prospects with
plans for backward integration of AC’s, makes us value the stock at P/E of 37 (3yrs
average PE) to FY20E EPS for a target price of Rs. 640 representing an upside
potential of 18%.
Earnings Revision (%)
YE Mar FY19E FY20E
Sales (%) (1.7) 0.4
EBITDA (%) (1.7) 0.4
PAT (%) (8.9) (5.6)
Source: Karvy Research
L
L
L
L
L
L
Company Update
Analyst Contact
Ankit Soni
040 - 3321 6274
soni.ankit@karvy.com
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May-18
Havells India Ltd
Sensex
2
May 15, 2018
Havells India Ltd
Flat Lloyd Consumer segment:
Lloyd consumer division has clocked revenue of Rs. 5841mn which is almost double as
compared to Q3Fy18. For full-year revenues were at due to pre-buying and delayed
summer. The company has adopted a modern style of reaching to its customers by
tying with Reliance and Croma. The company also intends to set up an integrated
manufacturing facility for room ACs in Gehlot in FY19 without any strain on balance
sheet along with scaling up other products like washing machines and LED TVs
over the long-term. The company is willing to do a capital expenditure of Rs. 3000mn
for setting up a manufacturing facility with an annual capacity of 600000 units. The
integrated manufacturing would help the Lloyd business to become more lucrative.
Key takeaways from quarterly earnings
The company is looking for setting up an integrated manufacturing unit for Room
ACs for a capital expenditure of Rs.3000mn with a capacity of 600000 units. The
plant shall be operational by Q4 FY18.
The A.C business was tepid due to pre-buying of stock and delayed summer in
northern regions. But Lloyd business had lower volumes but with better margins.
The company has gained market share in fans and water heaters by growing above
the market.
The company is looking for a modern point of sale by roping in Reliance and Croma
for Air conditioners.
The switchgear and cable segment were at due to low demand from the real estate
sector. But some green shoots were visible in the B2B business for switchgear
segment.
The advertisement expenses for Lloyd as well as non AC business shall be in the
range of 6-7% of sales.
Plans to set up an
integrated manufacturing
plant for Room ACs for a
capex of Rs. 3000mn with
a capacity of 600000 units
The volume growth for
Lloyd Ac was at for full
year but margins have
expanded.
Strong growth in revenues
turned up due to robust
performance from ECD
and Lighting segment.
Exhibit 2: Q4FY18
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Turnover 25349 19658 29.0 18315 38.4
Op. Expenditure 21772 17036 27.8 16019 35.9
EBITDA 3577 2622 36.4 2296 55.8
Depreciation 347 363 (4.3) 308 12.9
Interest 84 55 52.3 71 17.7
Other Income 257 278 (7.3) 419 (38.6)
PBT 3404 2482 37.1 2337 45.7
Extraordinary income (91) 210 (143.2) (768) (88.2)
Tax (net) 1055 748 41.1 622 69.6
PAT 2258 1944 16.2 947 138.4
EBITDA Margin (%) 14.1 13.3 77 bps 12.5 158 bps
EBIT Margin (%) 12.7 11.5 125 bps 10.9 188 bps
Net Prot Margin (%) 8.9 9.9 (98) bps 5.2 374 bps
Source: Company, Karvy Research
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May 15, 2018
Havells India Ltd
Switchgears and cables
performance was at
whereas ECD and Lighting
segment performed well.
Exhibit 3: Segmental Financials
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Segment-wise revenues
Switchgears 3946 3443 14.6 3913 0.9
Cable 7689 6256 22.9 7601 1.1
Lightning and Fixtures 3227 2871 12.4 2831 14.0
Electrical consumer durables 4646 4158 11.7 3970 17.0
Lloyd consumer division 5841 2930 99.4 - NA
Segment-wise Contribution
Switchgears 1523 1380 10.4 1441 (4.2)
Cable 1318 1070 23.1 875 22.3
Lightning and Fixtures 998 818 22.0 731 11.9
Electrical consumer durables 1262 1230 2.6 951 29.3
Lloyd Consumer Division 1283 480 167.4 - NA
Segment-wise Contribution Margin (%)
Switchgears 38.6 40.1 (149) bps 36.8 326 bps
Cable 17.1 17.1 3 bps 11.5 560 bps
Lightning and Fixtures 30.9 28.5 243 bps 25.8 268 bps
Electrical consumer durables 27.2 29.6 (242) bps 24.0 562 bps
Lloyd Consumer Division 22.0 16.4 559 bps - NA
Source: Company, Karvy Research
Exhibit 4: Segment-wise Revenue - Q4FY18
Source: Company, Karvy Research
Exhibit 5: Segment-wise Revenue - Q4FY17
Source: Company, Karvy Research
Switchgear
15.6%
Cables
30.3%
Lighting and
fixtures
12.7%
Electrical
consumer
durables
18.3%
Switchgear
21.4%
Cables
41.5%
Lighting and
fixtures
15.5%
Electrical
consumer
durables
21.7%
Exhibit 6: Change in Earnings Estimates
YE Mar - Standalone (Rs.
Mn)
FY19E FY20E
Comments
Old New % Change Old New
%
Change
Net Sales 98352 96642 (1.7) 112712 113125 0.4
The revenues for Fy18 have been revised
down due to lower business from Switchgear
and cables business.
EBITDA 13278 13047 (1.7) 15780 15837 0.4
EBITDA Margin (%) 13.5 13.5 0 bps 14.0 14.0 0 bps
Margins to be at.Adj . PAT 9554 8707 (8.9) 11335 10698 (5.6)
EPS (Rs.) 15.3 14.0 (8.8) 18.2 17.1 (5.8)
Source: Karvy Research
4
May 15, 2018
Havells India Ltd
Exhibit 7: Havells - 3yr PE Band
Source: Bloomberg, Karvy Research
Exhibit 8: 5yr PE Band Nifty Consumption Sector
Source: Bloomberg, Karvy Research
0
200
400
600
0
10
20
30
40
50
Apr-15
Sep-15
Feb-16
Jul-16
Dec-16
May-17
Oct-17
Mar-18
Average PE
1SD
-1SD
Price (Rs.) (RHS)
0
2000
4000
6000
0
30
60
90
120
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Average PE
1SD
-1STD
Price (Rs.) (RHS)
5
May 15, 2018
Havells India Ltd
Financials
Exhibit 9: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Revenues 53783 61353 82603 96642 113125
Growth (%) (1.1) 12.8 34.6 17.0 17.1
Operating Expenses 46234 53111 72110 83595 97287
EBITDA 7549 8241 10493 13047 15837
Growth (%) 0.2 9.4 27.3 24.3 21.4
Depreciation & Amortization 1049 1196 1395 1692 1797
Other Income 694 1343 1170 1287 1416
EBIT 6500 7045 9098 11355 14041
Interest Expenses 127 122 240 204 173
PBT 9090 7688 10028 12438 15283
Tax 1970 2298 3022 3731 4585
Adjusted PAT 7120 5390 7125 8707 10698
Growth (%) (1.2) (25.2) 32.2 22.2 22.9
Source: Company, Karvy Research
Exhibit 10: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Cash & Equivalents 13652 19538 15425 10905 18979
Sundry Debtors 1576 2285 3254 3451 4040
Inventory 7844 9284 16217 19328 22248
Loans & Advances 944 1630 1754 1789 1824
Investments 4727 4026 589 589 589
Net Block 11881 12658 13017 16243 15946
CWIP 205 119 241 241 241
Miscellaneous 60 60 14914 13886 12858
Total Assets 40890 49604 65410 66432 76726
Current Liabilities & Provisions 10403 13610 24402 21156 23316
Debt 0 1981 1080 945 829
Other Liabilities 950 1274 2540 2587 2639
Total Liabilities 11353 16864 28023 24688 26784
Shareholders Equity 625 625 625 625 625
Reserves & Surplus 28912 32115 36736 41119 49317
Total Networth 29537 32740 37361 41744 49942
Total Networth & Liabilities 40890 49604 65410 66432 76726
Source: Company, Karvy Research
We expect the revenues to
grow by 17% CAGR with
margins reaching 14% due
to backward integration set
up of manufacturing ACs.
The company is sitting
with a huge cash of
Rs.15000mn which will be
used to set up a new plant
for manufacturing room
ACs.
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May 15, 2018
Havells India Ltd
Exhibit 11: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
PBT 9090 7688 10147 12438 15283
Depreciation 1049 1196 1395 1692 1797
Interest 61 91 0 204 173
Inc/dec in Net WC (2406) (729) (310) (9046) (5919)
Other Income (82) (76) 0 0 0
Other non cash items (2494) (360) (579) (1287) (2435)
Cash ow from operating activities 5218 7811 10653 4001 8900
Inc/dec in capital expenditure (1703) (2358) (1520) (5000) (1500)
Inc/dec in investments 550 (664) 4930 2970 1025
Others 371 758 0 1287 1416
Cash ow from investing activities (782) (2264) 3410 (743) 940
Inc/dec in borrowings (434) 1533 (901) (135) (116)
Issuance of equity 29 93 0 0 0
Dividend paid (4511) (2256) (2500) (2500) (2500)
Interest paid (63) (93) 0 (204) (173)
Cash ow from nancing activities (4978) (724) (3401) (2839) (2790)
Net change in cash (541) 4822 10663 419 7050
Source: Company, Karvy Research
Exhibit 12: Key Ratios
YE Mar FY16 FY17 FY18 FY19E FY20E
EBITDA Margin (%) 14.0 13.4 12.7 13.5 14.0
EBIT Margin (%) 12.1 11.5 11.0 11.7 12.4
Net Prot Margin (%) 13.2 8.8 8.6 9.0 9.5
Dividend Payout Ratio (%) 52.6 34.7 26.3 21.5 17.5
Net Debt/Equity (x) (0.5) (0.5) (0.4) (0.2) (0.4)
RoE (%) 24.1 16.5 19.1 20.9 21.4
RoCE (%) 22.0 20.3 23.7 26.6 27.7
Source: Company, Karvy Research
Exhibit 13: Valuation Parameters
YE Mar FY16 FY17 FY18 FY19E FY20E
EPS (Rs.) 11.4 8.6 11.4 14.0 17.1
DPS (Rs.) 6.0 3.0 3.0 3.0 3.0
BVPS (Rs.) 44.8 47.4 56.1 63.3 73.4
PE (x) 28.3 54.2 42.8 39.0 31.8
P/BV (x) 7.2 9.9 8.7 8.6 7.4
EV/EBITDA (x) 24.9 33.4 27.7 25.3 20.3
EV/Sales (x) 3.5 4.5 3.5 3.4 2.8
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
We expect the net change
in cash to be positive even
after incurring a capex of
Rs. 5000 mn.
7
May 15, 2018
Havells India Ltd
Stock Ratings Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
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certify (ies) that the views expressed herein accurately reect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his
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