Havells India - Consumer Durables upbeat; overhang in Europe - Religare

Our interaction with the HAVL management highlighted its focus on strengthening the company's brand positioning by providing premium products across the value chain. While the management maintained its FY13E guidance, we upgrade our FY14E EPS estimates by 3.3% owing to higher growth in the Consumer business. We roll over to a Sep'13 TP of Rs 675 (HAVL 15x; Sylvania 12x one-year fwd.) from a Mar'13 TP of Rs 575. Maintain HOLD on limited upsides from current levels.

- Profitability in Sylvania expected to soften on demand weakness: In line with its commentary for Q1FY13 results, the management maintained that Sylvania's margin profile is likely to weaken in FY13E on a YoY basis. However, we anticipate margin improvement in Europe as the (1) Euro has appreciated against the USD in Q2FY13 and (2) the company has taken price hikes across product lines in this market. As per the management, Latin American markets have seen a marginal improvement in sentiment along with other EMs in Q2FY13.

- Growth in Consumer Durables to remain upbeat: In our view, HAVL's Consumer business is likely to post strong growth in FY13E on the back of increased brand building and new product launches (such as coolers). However, we believe growth in fans is likely to moderate sequentially (Q1 growth at 42% YoY).

- Increased domestic sourcing to alleviate concerns on currency fluctuations: The management emphasised its plan for reducing domestic and international procurements. HAVL has added capacity for fans and fixtures in Haridwar and Neemrana respectively.

- Maintain HOLD: Based on SOTP methodology, we ascribe a value of Rs 625 (~15x target PE) and Rs 50 (~10x target PE) to HAVL's domestic operations and Sylvania respectively. HOLD.

Source : Equity Bulls

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