Reduce Havells India - Kotak

Our channel check and interaction with the company's management highlights that demand for consumer appliances has been resilient especially in the premium segment.

- Pricing pressure and competition has been more intense in the economy segment which is primarily dominated by the unorganized sector. Havells operates in the premium segment and is well poised to grow on back of strong brand franchise and robust distribution network.

- HIL's management has also recognized improving demand outlook in the LATAM region whereas Europe has been observing sluggish demand. We believe that the company would likely maintain margins in Sylvania in FY13 aided by 1) higher operating leverage 2) continued cost rationalizing across verticals and 3) pick-up in demand in new geographies.

- We tweak FY13 earnings estimate to factor in favourable domestic demand outlook and elongated summer in Northern India. However, we believe that company's stock is adequately valued at current levels. We highlight that the stock has underperformed the broader market in the last three months. In view of the potential downside to our target price, we maintain our 'Reduce' rating on company stock with a DCF based revised price target of Rs 520 (Rs 500 earlier).

Source : Equity Bulls

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