Havells India Limited - Pedigree reflected in price - Antique

Key highlights

Domestic operations - A cash generating machine

Havells India Ltd.'s (HIL) standalone business has long been a driver of revenues. From a monthly revenue run rate of ~INR1bn in FY06, the company is currently at INR3bn, having maintained OPM at 10-12% with a negligible to negative working capital profile. By our calculations, we believe that HIL's Indian operations generate ~INR2bn of cash flows annually.

International operations have conclusively turned the corner

Post operational re-organisation at Sylvania in Jun-Sep'10, HIL's continued preference on operational profitability as opposed to revenue growth, is reflected in the improved cash flows and increasingly comfortable debt profile of the entity. With comfortable cash flows, the prospect of recapitalisation from the Indian operations has now been laid to rest.

Valuation and outlook

While we retain our assumptions for FY12e and FY13e as well as our confidence in the company's business model at home and overseas, we feel that at the current price of INR540, the stock is fairly valued. We hence downgrade our recommendation to HOLD and maintain our price target of INR535.

Upside risks to valuations

- An unexpected recovery in Europe in the near term would boost the earnings for Sylvania's European operations and also result in an upward revision of profitability multiples.

- An untoward appreciation of the INR vs. USD and Euro in the short term would result in savings in interest outgo, thereby posing an upside risk to our profit estimates for HIL in FY12e and FY13e.

Source : Equity Bulls

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