Havells - Q2 FY14 - Market Performer - IIFL

CMP Rs750, Target Rs692, Downside 7.8%

- Havells managed to register a strong volume growth of 21.8% yoy and 11.7% qoq to Rs11.7bn on the back of strong performance across all segments. The company attributed this growth to a weak base of Q2 FY13 and also due to weaker performance in Q1 FY14. The growth was largely witnessed in North and East India. West and South region sales volume were flat on yoy basis. Pricing for most of the products remained flat. Segmentwise, cables and wires registered the higher growth with 24.8% yoy as previous quarter volumes were impacted by unavailability of copper. Switch gears managed to register a growth of 22.9% followed by Electrical consumer durables at 19% and Lightings at 15.2%. On a half yearly basis, the company has managed to register a growth of 11% and has guided that they would end the year with a revenue growth of 12-12.5% yoy, higher than 9-10% guided in Q1 FY14.

- Operating profit margin in the standalone business for Q2 FY14 witnessed an expansion of 208bps on yoy basis largely attributed to 335bps and 474bps increase in EBIT margin for Switch gears and Electrical consumer durables segment respectively. EBIT margin for lightings segment contracted by 58bps yoy. The expansion in OPM was also due to a decline in advertisement spends during the quarter. The company spent Rs150mn in Q2 FY14 against Rs500mn in Q1 FY14.

- Revenues (€ terms) from its overseas subsidiary (Sylvania) decreased by 2.4% yoy, with 6% decline in revenues from Latin American market. Volatile currency in the Latin American market was the key factors for the decline in revenues. Operating profit margin for Q2 FY14 contracted by 48bps to 2.8%. The management expects revenue to grow by 2% and foresees 5.5-6% OPM for Sylvania in FY14.

- The management has increased its guidance of 12-12.5% revenue growth for standalone business in FY14 led by stronger growth in the consumer business, been offset partially by slowdown in the industrial business. Profitability is expected to remain strong on the back of a) higher share of manufacturing v/s outsourcing and b) various initiatives taken by the company to improve efficiency. We have upgraded our estimates for the standalone business after the strong growth in topline reported by the company in Q2 FY14. At current valuations, we believe the stock is fairly valued and recommend Market Performer with revised target price of Rs692.

Source : Equity Bulls

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