Buy Havells India - TP Rs.600 - Emkay

Buy, Target Price Rs 600 Distribution led growth story

Domestic revenues to be driven by distribution growth and market share gains: Domestic revenues saw healthy growth of 24% yoy in Q4FY12 led by rising distribution network. Expect 17% revenue CAGR in FY12-FY14E led by rising distribution network (Tier II and Tier II cities), market share gains and new product introductions across segments.

Standalone EBIDTA margins to sustain on the back of improved product mix and reduced outsourcing: Product mix change in favour of low margin segment impacted EBIDTA margins in Q4FY12 to 12%. However, we expect EBIDTA margins to be maintained at 12.5% in FY13E-FY14E led by reduced outsourcing and richer product mix.

Profit growth in Sylvania to continue led by operational efficiencies: Sylvania revenues declined 1.2%, while EBIDTA margins improved 50bps to 8.5% in Q4FY12. Muted performance in LATAM has led to cautious revenue growth outlook of 3-4%, while profit growth would be driven by operational efficiencies and reduced interest cost.

Sylvania business becoming self sustainable along with cash flow generation: Post restructuring in FY11, Sylvania has turned profitable led by better operational performance with APAT of € 10.2mn in FY12. Despite muted revenues, steady rise in profitability has made Sylvania a self sustainable business. Expect 21% APAT CAGR over FY12-FY14E.

Near term catalyst and earnings performance: Consolidated earnings growth at 18% CAGR in FY12-FY14E period aided by distribution led revenue growth and improving profitability in Sylvania is near-term catalyst. New product introduction, market share gains to additionally drive growth in domestic business, while Sylvania business becoming self sustainable with cash flow generation. Emkay's earnings forecast are Rs 34.8/share and Rs 41.5/share for FY13E and FY14E respectively. Valuations at PER of 13.6x FY14E and EV/EBIDTA of 7.9x FY14E EBIDTA.

Source : Equity Bulls

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