havells india
DESCRIPTION
An in depth qualitative and quantitative analysis of Havells India Ltd to ascertain its stock movement in long and medium term.TRANSCRIPT
Equity Research Project
Havells India Limited
Havells India Limited
Restructuring
Global Presence It operates across Europe, Latin America & AfricaInvestor’s Consideration
Investor’s Consideration
Havells India Limited
Market Leadership
Growth Rate Estimated revenue growth at 15% CAGR for FY 11-13E
Strong competitive positioning
The Big Picture The growth in the domestic electrical equipments industry on account of increasing electricity supply
Restructuring Restructuring exercise aimed at cost savings.Their strategy has paid off with Havells set to realize cost benefits to the tune of € 25mn over FY10-CY11
Profitability
Global Presence
Future Potential Aggressive expansion plans as seen before in international markets
ISO: 9001-2000, Relevant UL , CE, ISI certificationsQuality Standard
It operates across Europe, Latin America & Africa
Strong CAGR of 26% in FY11-13E period
Beta 0.9 (Showing marginally lower volatility than the market)
Investor’s Consideration
Havells India Limited
ATTRACTIVE!!Rating - BUYTarget –Rs. 539
Havells India Limited
Company Profile
Company Profile
Havells India Limited
Established in 1971
Promoted by Qimat Rai Gupta
One of the largest & fastest growing ECD, electrical & power distribution equipment manufacturer
Owns well known brands like Crabtree, Sylvania, Concord, Luminance, Linolite & SLI Lighting
11 state of the art manufacturing plants in India & operates 7 state of the art manufacturing plants across Europe, Latin America & Africa
Global network spans 91 branches & offices, with over 8,000 employees in over 50 countries backed by a strong global network of 20,000 distributors
Company Profile
Havells India Limited
Company Profile
62%
27%
2%2% 7%
Share Holding Pattern (%) as on Mar’11
Promoters FII/NRI InstitutionsPrivate Corp Public
Company Profile
Havells India Limited
17%
27%
17%
39%
Revenue Mix over FY11-13E
ECD SwitchgearLighting Cables & Wires
Company Profile
Havells India Limited
62%
27%
2%2% 7%
Share Holding Pattern (%) as on Mar’11
Promoters FII/NRI InstitutionsPrivate Corp Public
Havells India Limited
Segments
Market Growth
Average no. of competitors
Competitive Positioning
Revenue
Operating Margin
Company Profile
Havells India LimitedCompany Profile
Source : Indiabulls
Havells India Limited
Investment Rationale
Investment Rationale
Havells India LimitedWhy Invest in Havells ?
Varied Product Stream –
diversified revenue stream & aggressive brand- building initiatives resulted in 25% revenue CAGR over the last 5 years on a standalone basis
Investment Rationale
Havells India LimitedWhy Invest in Havells ?
PAT to witness strong CAGR of 26% in FY11-13E period led by improvement in Sylvania profitability due to its aggressive restructuring activities in FY10 and FY11
Investment Rationale
Havells India LimitedWhy Invest in Havells ?
Investment Rationale
Revenue stability & profit growth –
Sylvania is expected to contribute significantly to profitability from FY12E. Havells is expected to grow its revenue at a CAGR of 15% and PAT at 25% CAGR over FY11-FY13E
Havells India Limited
Restructuring Plan –
Why Invest in Havells ?
Investment Rationale
Havells India Limited
Restructuring Plan –
Why Invest in Havells ? Sylvania operating cash flows to turn positive FY12E onwards Sylvania to generate cash flows of Rs 866mn in FY12E and Rs 1,211mn in FY13E.
Investment Rationale
Strong positioning to leverage demand potential –
1. Growing disposable income with Indian households
2. Preference for premium products due to evolving lifestyle patterns
3. Strong sustainable demand for consumer electrical products
4. Demand towards energy saving products
5. 4,300 wholesalers and 25,000 retailers in India. In addition, it is also setting up unique Havells Galaxies
Havells India LimitedWhy Invest in Havells ?
Investment Rationale
Strong positioning to leverage demand potential –
1. Growing disposable income with Indian households
2. Preference for premium products due to evolving lifestyle patterns
3. Strong sustainable demand for consumer electrical products
4. Demand towards energy saving products
5. 4,300 wholesalers and 25,000 retailers in India. In addition, it is also setting up unique Havells Galaxies
Havells India LimitedWhy Invest in Havells ?
Investment Rationale
Havells India LimitedWhy Invest in Havells ?
One of the lowest per capita consumption of electricity in the world
Investment Rationale
Havells India LimitedWhy Invest in Havells ?
Significant investments in building power infrastructure by the Govt. of India
Havells India Limited
Potential Risks
Potential Risks
Havells India Limited
In FY10, copper accounted for 26% of total domestic business raw material costs and aluminum accounted for 17% of the domestic raw material costs
Potential Risks
Havells India Limited
In FY10, copper accounted for 26% of total domestic business raw material costs and aluminum accounted for 17% of the domestic raw material costs
Potential Risks
Havells India Limited
Every 1% change in copper prices impacts FY12E earnings by 1.3%, while every 1% change in aluminum prices impacts earnings by 0.7%
Potential Risks
Havells India Limited Delay in restructuring of Sylvania
Sylvania is expected to turn PAT positive in FY11 as against loss reported in FY10
Delay in complete turnaround of Sylvania, continued weakness in European markets and slow growth in LATAM and Asia has adversely impacted revenues and profits
Potential Risks
Havells India Limited Delay in restructuring of Sylvania
Sylvania‘s debt obligations of around € 40million that are due for repayment in 2012-13 would need to be refinanced
Potential Risks
Havells India Limited
Rise in domestic competition
Competition in the form of technology upgradation
Price wars in certain segments like industrial switchgears, fans, cables & wires, CFL
New segments like water heaters and appliances are highly competitive markets
Heightened competition from unorganized sector or Chinese players
Potential Risks
Havells India Limited
Adverse movements/fluctuations in F/X
Sylvania operates in Asia, Europe and LATAM markets, exposing it to multiple currency risk
Havells has increased the outsourcing of components of Sylvania from emerging markets like India and China
Havells India Limited
Financial Analysis
Financial Analysis
FY09 FY10 FY11 FY12E FY13E0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.61.41
1.151.26 1.27 1.33
0.850000000000001
0.630000000000001
0.750000000000001
0.740000000000001 0.78
Current Ratio Quick Ratio
Havells India LimitedLiquidity
Financial Analysis
High debtor collection ratio
Speedy and effective mechanism in place showing extremely efficient operations
Reduce dependence on short term loans
FY07 FY08 FY09 FY10 FY1105
101520253035404550
19.42
43.25
28.83 29.74 31.46
Debtor Turnover ratio
Havells India Limited
Financial Analysis
Havells India Limited
Debt/Equity to decline from 2.3x in FY10 to 0.4x by FY13E
No further investments in Sylvania are expected except for maintenance capex
Financial Analysis
Havells India Limited
Capital Efficiency to improve with Sylvania turnaround
ROCE to improve from 7.6% in FY10 to 26.8% in FY13E and ROE to improve from 17.4% in FY10 to 45.7% in FY13E
Profitability
Havells India Limited
Price in 5 years =
Estimated Dividends in 5 Years
D1 = 2.50 D2 = D1 x (1.20) = 3 D3 = D2 x (1.20) = 3.6Valuation
Valuation
Havells India Limited
Current mkt price is Rs. 425 per share, an expected dividend per share next year of Rs 2.50, an EPS of Rs 20, expected EPS growth of 20% per year, and a P/E ratio of 17. Target rate is 10%. Investment Horizon is five years. Payout is Constant.
Price in 5 years = P/E x EPS x (1+g)^5 = 17x20x(1.20)^5 = 846
Estimated Dividends in 5 Years
D1 = 2.50 D2 = D1 x (1.20) = 3 D3 = D2 x (1.20) = 3.6
D4 = D3 x (1.20) = 4.32 D5 = D4x (1.20) = 5.18
Po = 2.50 + 3.00 + 3.6 + 4.32 + 5.1+846 = 539 1.10 1.10^2 1.10^3 1.10^4 1.10^5
Hence, the current intrinsic value is Rs. 539 giving a MOS of (539-425=114). MOS% of 27%
Valuation
Havells India Limited
Current mkt price is Rs. 425 per share, an expected dividend per share next year of Rs 2.50, an EPS of Rs 20, expected EPS growth of 20% per year, and a P/E ratio of 17. Target rate is 10%. Investment Horizon is five years. Payout is Constant.
Price in 5 years = P/E x EPS x (1+g)^5 = 17x20x(1.20)^5 = 846
Estimated Dividends in 5 Years
D1 = 2.50 D2 = D1 x (1.20) = 3 D3 = D2 x (1.20) = 3.6
D4 = D3 x (1.20) = 4.32 D5 = D4x (1.20) = 5.18
Po = 2.50 + 3.00 + 3.6 + 4.32 + 5.1+846 = 539 1.10 1.10^2 1.10^3 1.10^4 1.10^5
Hence, the current intrinsic value is Rs. 539 giving a MOS of (539-425=114). MOS% of 27%
Valuation
Havells India Limited
Current mkt price is Rs. 425 per share, an expected dividend per share next year of Rs 2.50, an EPS of Rs 20, expected EPS growth of 20% per year, and a P/E ratio of 17. Target rate is 10%. Investment Horizon is five years. Payout is Constant.
Dividend Discount Model
Price in 5 years = P/E x EPS x (1+g)^5 = 17x20x(1.20)^5 = 846
Estimated Dividends in 5 Years
D1 = 2.50 D2 = D1 x (1.20) = 3 D3 = D2 x (1.20) = 3.6
D4 = D3 x (1.20) = 4.32 D5 = D4x (1.20) = 5.18
Po = 2.50 + 3.00 + 3.6 + 4.32 + 5.1+846 = 539 1.10 1.10^2 1.10^3 1.10^4 1.10^5
Hence, the current intrinsic value is Rs. 539 giving a MOS of (539-425=114). MOS% of 27%
Valuation
PEG Ratio
Havells India Limited
Havells FY13 PEG Ratio –> 9.8/20 = 0.49
Crompton FY13 PEG Ratio –> 17.5/15 = 1.16 -
Bajaj FY13 PEG Ratio –> 10.5/15 = 0.7 -
Philips FY13 PEG Ratio –> 10.7/15 = 0.7-
Valuation
PEG Ratio
Havells India Limited
Havells FY13 PEG Ratio –> 9.8/20 = 0.49
Crompton FY13 PEG Ratio –> 17.5/15 = 1.16 -
Bajaj FY13 PEG Ratio –> 10.5/15 = 0.7 -
Philips FY13 PEG Ratio –> 10.7/15 = 0.7-
Valuation
ROE/PE Ratio
Havells India Limited
Havells Crompton Bajaj Phillips
FY11E 0.7 1.36 1.73 0.75
FY12E 1.59 1.42 2.34 0.72
FY13E 2.06 1.5 2.45 0.84
Havells India Limited
Credit Rating
Credit Rating
ICRA Rating
Havells India Limited
Thank You!!
Havells India Limited
By:
Ankesh PanjwaniMadhav SudNikhil MarwahNitin BhallaP. SrivastavaRidhika Seth