Havells India - Decent Domestic Growth; One-time Gain in Sylvania; Maintain BUY - Karvy

Decent growth in Havells Domestic Business: Havells India's stand-alone business top-line grew by 13% YoY to Rs. 9,642mn as top-line of lighting, consumer durables, switch gears and cables grew 14%, 33%, 15% and 6% YoY, respectively. EBITDA, excluding forex gains, of stand-alone business grew by 3% YoY to Rs. 1,192mn. The lower growth in EBITDA is due to onetime realization of higher customs duty over the last five years in this quarter. EBIT of lighting, consumer durables, switch gears and cables grew 4%, 9%, 1% and 24% YoY respectively. Reported and adjusted net income increased by 24% and -8% YoY, respectively. Reported net income was higher due to forex gain in this quarter vs forex loss in the same quarter last year. We believe delayed festival season will help sales growth in consumer durables and lighting in Q3FY13.

Slight de-growth in top-line and margin pressures in Sylvania: Sylvania's top-line de-grew by 5% YoY due to 9% de-growth in Europe revenue. EBITDA margin de-grew by 440 bps YoY to 3.3% in Q2FY13 due to sluggishness in Europe. Sylvania reported negative adjusted net profit of €1.7mn in Q2FY13 from €2.8mn in Q2FY12 due to margin pressures. However the company's reported net income grew by ~13x to €22.8mn due to one-time gain from an agreement with Osram Sylvania. We believe the recent price hikes will help Sylvania register EBITDA margin of 6% in FY13E.

Settlement with Osram Sylvania; resulting in one-time gain of $38mn: Management has informed that Sylvania has entered an agreement with Osram Sylvania that both parties will be entitled to manufacture and brand products in each otherʹs territories, provided the products are destined for sale in their own territories. In light of the allocation of rights, Havells Sylvania has received a one-time fee of US $ 38 million.

Outlook & Valuation: We believe that the Company will register 11% CAGR in revenue in next two years. We also believe the adjusted net income will grow by 5% and 38% in FY13E and FY14E, respectively. At CMP of Rs. 568, the stock trades at 18.2x of FY13E and 13.2x of FY14E earnings. We maintain our "BUY" recommendation and revised up our price target to Rs. 646, which has a potential upside of 14%. We revised up our target price due to lower debt levels in Sylvania.

Source : Equity Bulls

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