Havells India - Consortium

Key takeaways of detailed interaction with the senior management and top dealers of Havells: -

We had firm confidence in the branding and marketing leadership of Havells. Post visit, we believe Havells has benchmarked themselves to global leaders in terms of quality (lower tolerances), testing (above industry requirement), tooling (higher productivity) and R&D strength (reverse engineering). The company enjoys good support from the dealers empowered by transparent schemes and incentives (cash and kind) supplemented by after-sales support addressing all SKUs. Foray into new segments (Reo) and introduction of new differentiated electrical appliances will drive market penetration and augment growth. Dark clouds over Sylvania continues to hurt the overall performance, however, management is pulling all levers to improve profitability with additional control over the operations and putting in synergies wherever possible. The effervescent leadership and focus towards quality and manufacturing augurs well for the sustainability of margins and earnings growth. Given the improved growth visibility and bottoming out of Sylvania we upgrade to Buy with a revised SOTP target price of Rs 705 (17x FY14E standalone earnings and 8x EV/EBITDA for Sylvania), implying 16.8x consolidated earnings (earlier Rs 592, on 15x consolidated PER).

Introduction of "Reo" to open new vistas of growth - Havells has recently launched "Reo" to address the mass market in switches dominated by Anchor with a total market of Rs 10 bn. Reo confirms to the premium tag of Havells with higher finish and quality compared to peers, leveraging on this, Havells will extend its product offerings in this segment.

Dealer delight supported by after-sales support - Havells takes care of dealers by providing transparent universal incentive schemes with timely payment by system orientation with SAP. The company has the best after-sales support catering to the full portfolio of products leveraging on technology with multi-lingual support.

Manufacturing focus supplemented by innovative R&D - All the factories have high tech machine with automation wherever possible. Factories have extensive tooling department to gear up towards productivity with quality supported by innovative R&D focusing on future technologies. Rs 1.2 bn capex earmarked for FY13E, Rs 800 mn spent.

Sylvania, steadying ship amidst turbulent waters - Troubled by European demand concerns and peer competition Sylvania continues to tread through tough times. However, management is putting all efforts with more control and working out all possible synergies to improve performance of the subsidiary. Management guides at 7-8% margins during FY14E. Debt reduction, low capacity utilisation, to improve cash flows - Recent debt restructuring of Sylvania, minimal capex requirement given the lower utilisation across facilities are expected to improve cash flows and management to continue with its healthy dividend policy (dividend payout increased to 25% from 12% during FY12).

Source : Equity Bulls

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