institutional equity research havells india€¦ · havells is ranked amongst top-5 organised and...

Havells IndiaCMP* (Rs) 559

Upside/ (Downside) (%) 16

Bloomberg Ticker HAVL IN

Market Cap. (Rs bn) 349

Free Float (%) 40

Shares O/S (mn) 625

Capital Goods | India

Institutional Equity Research

Initiating Coverage | June 11, 2018

1

BUYTarget Price: Rs650

Share price (%) 1 mth 3 mth 12 mth

Absolute performance 0.9 10.0 9.6

Relative to Nifty 0.4 4.9 (2.0)

Shareholding Pattern (%) Mar'18 Dec’17

Promoter 59.6 61.6

Public 40.4 38.4

1 Year Stock Price Performance

Note: * CMP as on June 11, 2018

Research Analyst: Arafat Saiyed

Contact: 022 3320 1192

Email: [email protected]

Research Analyst: Rupesh Sankhe

Contact: (022) 3320 1606

Email: [email protected]

Getting Deeper into Homes...

Key Financials (Rs mn) FY17 FY18 FY19E FY20ESales 65,861 82,603 92,833 108,337

EBITDA 8,340 10,493 12,152 14,700

Net Profit 5,967 7,006 8,665 10,691

EPS (Rs) 9.5 11.2 13.9 17.1

DPS (Rs) 8.7 7.5 6.9 8.6

P/E (x) 58.5 49.9 40.3 32.7

P/B (x) 10.7 9.3 8.4 7.4

EV/EBITDA (x) 39.3 31.8 27.1 22.1

ROE (%) 16.5 19.1 20.8 22.7

Dividend Yield (%) 1.5 1.3 1.2 1.5

Source: Company, RSec Research

Havells India – founded in 1983 – is one of the largest electrical equipment companies in India. It owns some of the most prestigious Indian brands like Havells, Lloyd, Crabtree, Standard Electric and Promptech, while ~90% of revenue comes from in-house production. We believe incremental scalability post Lloyd acquisition and launch of premium products would help Havells to report improved performance in the long-term, while likely up-tick in discretionary spend over the medium-term. We initiate coverage on Havells with a BUY rating and Target Price of Rs650 (Valuing at 38x FY20 earnings).

Vast Product Basket – Strategic Focus on Household SegmentOver the years, Havells has shifted its focus to household segment (B2C) from industrial switchgear and Cables & Wire segment (B2B). Its consumer-facing offerings are spread across domestic switchgear, lighting, fans and other household electrical and appliances. Though Havells is ranked amongst Top-5 organised and large players, we envisage enough headroom for meaningful expansion in market share by taking away share from the unorganised players.

Portfolio Expansion & Niche Strategy to Drive GrowthOver the last two decades, Havells continued to focus on new consumer-centric products and acquisition to drive growth. It has significantly strengthened its management team by adding 43 employees of leadership grade. With a view to creating technological platform to support sales/capital efficiencies and improve employee capabilities, it has focused on platforms like IOT and home automation.

Lloyd Acquisition – New Growth Avenue

Foraying into fast growing consumer durable segment, Havells acquired consumer durable business of Lloyd Electric – the third largest player in room AC segment – for Rs16bn. Lloyd – which enjoys ~12% market share and ranked amongst Top-5 players in room AC market – derives ~75% of sales from ACs, while the rest comes from TVs and washing machines. With this acquisition, Havells enter into big-ticket consumer durable business.

Outlook & ValuationLooking ahead, we expect Havells’ revenue and PAT to clock 15% and 24% CAGR, respectively through FY18-20E led by new products, up-tick in industrial activity and acquisition of Lloyd’s CD business. With strong cash flow from core business and healthy balance sheet in place, we believe incremental scalability post Lloyd acquisition and launch of premium products would help Havells to report improved performance in the long-term, while likely up-tick in discretionary spend over the medium-term. We initiate coverage on Havells with a BUY rating and Target Price of Rs650.

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Havells IndiaInitiating Coverage | India


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CMP* (Rs) 559




Exhibit 2: FY11 Revenue Mix: largely B2B Exhibit 3: FY18 Revenue Mix: Shift to B2C from B2B


Investment RationaleVast Product Basket – Strategic Focus on Household Segment

Over the years, Havells has shifted its focus to household segment (B2C) from industrial switchgear and cables & wire segment (B2B). Its consumer-facing offerings are spread across domestic switchgear, lighting, fans and other household electrical and appliances, while with the acquisition of Lloyd, the Company has forayed into $15bn consumer durable segment.

Exhibit 1: Products profile

Market Size (Rs bn)

Market Share (%)

Revenue FY17 (Rs bn)

Ranking Penetration Peers

Switchgear 15

MCB 20 27-28 1 High Legrand, Schneider

Switches 22 14-15 3 Medium Panasonic, Legrand

Cables & Wires 24

Domestic 80 16 3 Low Finolex, Polycab

Industrials 120 10 3 Low Polycab, KEI

Lighting & Fixtures 65 10-14 10 2-4 Medium Philips, Crompton, Bajaj, Wipro

Electric Consumer Durable 14

Fans 70 15 3 High Crompton, Orient, Usha

Water heaters 15 9 4-5 Low Racold, AO Smith

Other appliances 50 2-3 Low Bajaj, Philips

Source: Company, Industry, RSec Research

I. Switchgear SegmentIndia’s household switchgear market is relatively consolidated with a few large players. Havells is the market leader in domestic switchgear market with >50% market share. Though the Company is ranked amongst Top-5 organised and large players, we envisage enough headroom for meaningful expansion in market share by taking away share from the unorganised players.

Switchgears 25

Cable and wires 43

Lighting and fixtures 15

Electrical consumable durables 16 Switchgears 17

Cable and wires 32

Lighting and fixtures 14

Electrical consumable durables 19

Lloyd 17



3

CMP* (Rs) 559




Exhibit 6: Strategy in MCB & Electric Wire Industry Exhibit 7: B2B Sales: Commercial & Industry

MCB & EWA Segment Cables Flexible Cables

Expanding to Non Residential

Enhancing share of B2B sales

Focus on west India through distribution model.

Expand market share from 10% to 30% in 3 year

Increase share of export revenue from 2% to 10% of total sales

Target south market with specific regional policies

Enter new price segments

Enhance market share in western region from 12% to 20% of total sales

Increase direct connect in towns with population above 50K

Focus on new product categories, applications – 10% of portfolio in next 2-3 years

Entry into EHV cable market

Continue focus on Project, B2B & telecom tower business

Strengthen West and South regions with specific policies

Continued thrust on network expansion

Increase capacity of Multi Core/Higher Sizes & Flat Cable.


Exhibit 4: Operating Margin Trend (FY11-18) Exhibit 5: Significant Improvement in RoCE


Over the last couple of years, Havells has strengthened its switchgear range with the launch of several new concepts including unified base and independent door in distribution board category, wide range of distribution board and new category of “Reo Armour” primarily targeted towards rural markets. Notably, Havells continues to remain strong in this segment with ~25% share in Reo switchgear segment and ~14% share in Reo switch segment. Expecting this new affordable segment to drive the growth, the Company looks forward to clock Rs3bn revenue (Rs2bn from “Reo switchgear” and Rs1bn from “Reo switch”).

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Switchgears Cable & wires Lighting & fixtures Electrical consumable durables

Lloyd

(%)

FY11 FY18

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Switchgears Cable & wires Lighting & fixtures Electrical consumable durables

Lloyd

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CMP* (Rs) 559




Exhibit 8: Client-mix in Electrical Wire Accessories (EWA) Segment Exhibit 9: Industry Growth in FY17


Havells continues to be the market leader in household switchgear market with >50% market share, while in MCB and switch segments it enjoys ~28% and 15% market share, respectively. Switchgear segment – the cash cow for Havells – also offers the highest margin and RoCE. The key competitors are especially the MNCs i.e. Legrand and Schneider who rather more active in industrial segment compared to household segment. Again, most competitors do not typically offer full range of household electrical needs.

Exhibit 10: Switchgear – 9% Revenue CAGR over FY11-18 Exhibit 11: Switchgear – Sharp margin expansion in last 4 years


Residential52%

Commercial21%

Hospitality8%

Healtcare4%

Govt/Infra11%

Other4%

II. Cables & Wires Segment Havells entered in Cables & Wires segment in 1996 by acquiring a sick manufacturing plant at Alwar, Rajasthan, followed by acquisition of Standard Electricals in late 1990s. Notably, though this segment contributes the largest chunk to Havells’ revenue, it offers the lowest margin. This business also gets a reasonable contribution from industrial segment largely SMEs, which witnessed a sharp slump led by slowdown in investment cycle over the last couple of years. However, growth in domestic wires business extended support to the segment albeit partially. We believe that entry into EHV cable market along with continued focus on improving B2B revenue, network expansion, enhancing market share in western region to 20% augurs well for Havells.

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LV HV Control Cables

(%)

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Switchgears Growth (%)

37.0 36.1

33.9 33.1

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39.6 39.0 39.3

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Switchgears EBIT Margin (%)



5

CMP* (Rs) 559




Exhibit 12: Cable & Wire Segment –10% Revenue CAGR over FY11-18 Exhibit 13: Cable & Wire Segment – Margin Expansion Continues


We expect this segment to clock 12% CAGR over FY18-20, as the household demand for cables and wires continues remain robust while the industrial demand for cables and wires is expected to witness meaningful growth with the visible signs of pick-up in industrial activities. Backed by steady uptick in capex in core manufacturing sectors, augmentation of power T&D infrastructure, Smart City projects, Metros, thrust on renewable energy, faster infrastructural development (highways, railways, ports, mines), we believe the demand for cable and wires will witness exponential growth.

III. Lighting & Fixtures SegmentMarket size of India’s lighting industry – which consumes 20% of the total power consumption – is pegged at Rs176bn, which we expect lighting & fixtures segment of Havells to clock 16% CAGR in revenue over FY18-20. In past couple of years, India’s lighting segment has witnessed a shift to LED lights from CFLs. Thus, Havells currently focuses on LED lights, which contributes >80% of lighting sales. On the backdrop of government’s thrust on local manufacturing of LED lights, Frost & Sullivan expects the LED lighting market to grow to Rs350bn from Rs53bn by FY22 (46% CAGR). Being the only Indian manufacturer of fixtures, Havells is the market leader in this high-margin segment and ranked amongst Top-5 players in lighting sector.

Exhibit 14: Lighting & Fixtures – 14% Revenue CAGR over FY11-18 Exhibit 15: Margin on Track after Dip in FY16


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Cable and wires Growth (%)

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Cable and wires EBIT Margin (%)

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Lighting and fixtures Growth (%)

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Lighting and fixtures Margin (%)



6

CMP* (Rs) 559




Exhibit 16: Key Trends in LED Lighting in India


Key growth drivers Key barriers Emerging trends

Awareness among domestic consumer Entry of new entrants & unorganized players leading to glitches in LED functionality impacts customer confidence

IOT compliant lighting solutions in smart cities

Investment in Infrastructure development like road , Metro and commercial spaces

High dependence on import for LED lighting, Contributing to ~ 60 % of Volumes

Rapid conversion of CFLi & GLS to LED lamps in domestic Lighting Markets

Government is supporting adoption of LED lighting through various Policies & Regulations

Specifiers management & ESCOs will influence decision making

IV. Electrical Consumable Durables (ECD) SegmentThe ECD segment is the fastest-growing segment for Havells in terms of revenue with margin of 26-27%. The segment clocked ~20% CAGR during FY11-18 led by introduction of new products and rising market share in premium fan segment. Looking ahead, we expect the segment to clock 16% CAGR through FY18-20%.

Havells currently enjoys 16% market share in electric fans segment, which it intends to increase to 20% in next 3 years. Its range of super premium fans includes “Octet” with 8 blades, “Futuro” (Wi-Fi-controlled and Bluetooth-enabled) and “Efficiencia” (energy-efficient BLDC fans). Notably, the Company is the largest player in premium fans segment with 25% share, while other players i.e. Crompton, Orient and Bajaj continued its focus on mass categories.

Exhibit 17: Leading player in Fan and Water heater Exhibit 18: Market Share is likely to rise in next 3 years

Product Market Size

(Rs bn)

Market Share

(%)

Positioning Existence Years

Competitors

Fans 70 16 Top 3 13Crompton, Usha, Bajaj

Water heaters

15 14 Top 3 5Racold,

V-Guard, AO, Bajaj

Small Appliances

50 4-5 5Bajaj, Philips

Pumps 35 3-4 2Crompton,

CRI, Kirloskar

Electonic Consumer Durable

Product Market share target (%)

Time Frame Market Size (Rs bn)

Electric Fans 20 3 Years 70

Water Heater 20 3 Years 15

Small Domestic Appliance

10 3 Years 50


Havells sells a wide range of water heater i.e. storage water heaters, instant water heaters, instant gas water heaters and solar water heaters. Looking ahead, it aims to become Top-2 player in this segment and gain 20% market share with increased focus of southern and western markets.



7

CMP* (Rs) 559




Exhibit 19: Growth Strategy of Fans: 4 Pillars of Growth


Manufacturing

CommunicationChannel

Products

f First Mettalic, ES, Electro Fans

f Technology

f Aesthetics

f Fully integrated Manufacturing . plant

f Quality

f Consistency

f Existing tier 1-2 f Expansion tier 3-4 f Alternate channels like

-MFR, E-Com, f Institutions,projects

f Reginal focus

f Association with Cricket

f Focus on BTL



8

CMP* (Rs) 559




Portfolio Expansion & Niche Strategy to Drive Growth

Over the last two decades, Havells continued to focus on new products and acquisition to drive growth. On the backdrop of rising disposable income, Havells continues to focus on consumer-centric products. It has significantly strengthened its management team by adding 43 employees of leadership grade. With a view to creating technological platform to support sales/capital efficiencies and improve employee capabilities, it has focused on platforms like IOT and home automation.

Exhibit 20: Key Acquisitions & JVs Exhibit 21: Launches of New Products

Year Product Acquisition/JV

Company

1983 Energy meters Acquisition Towers and Transformers1987 MCB JV Christian Geyer, Germany1997 Cables & wires Acquisition Surya Cables

1997Customized packaged solutions

AcquisitionElectric Control & Switchboards

1998 High-end meters JV DZG, Germany

2000 Electronic meters Acquisition Duke Arnics Electronics2000 Switchgear, lighting Acquisition Standard Electricals2001 MCCB Acquisition Crabtree India2007 Lighting Acquisition Sylvania, Germany2008 Motors JV Lafert, Spain

2016 Streetlights AcquisitionPromptec Renewable Energy Solutions

2017 Consumer durable Acquisition Lloyd


Exhibit 22: Industry Size Exhibit 23: Product Penetration


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Colour TV Refrigirators Washing Machine Room AC

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9

CMP* (Rs) 559




Exhibit 24: Key Milestone

Year Expansion Remark

1996 Forayed in Cables and Wire business1st expansion Beyond SwitchgearAcquired a sick manufacturing unit in AlwarConstitute 40% of Havells buisness

2000 Acquisition of Standard Electricals Was amongst top 5 switchgear brands with strong South footprints

2003 Consumer centric product extensionLaunched ‘consumer facing’ fans and lightingFocus on brand and its affinity with channel/customers

2004 Baddi Plant CommisionedShift to large scale and efficient productionEuropean quality; Chinese costs12 plants; 93% in-house production

2005 No ‘Economy Segment’ fansA bold decision to provide a superior quality experience to consumersPremiumization trend initiated

2007 Acquisition of Sylvania An audacious acquisition with a 50-country footprint2008 global recession led to significant lossesStabilized operations in 2011, profitable since then

2012 Introduction of Water Heaters

2013 Introduction of Domestic Appliances

2013 Introduction of Pumps

2015 Sylvania divestmentDecision driven by changing industry dynamicsA time bound divestment with receipt of ~Rs 1200 crores

2016 Introduction of Air cooler

2017 Introduction of Water Purification

2017 Lloyd AcquistionA foray into high potential Large Consumer durablesAligned with ‘Deeper into Homes’


Havells continues to maintain strong focus on expanding distribution network, which consists of 7,500 direct dealer, 1 lakh retailers and >2 lakh electricians. Notably, the Company intends to deepen its penetration in Tier-II/III cities/towns and expand footprints in western and southern India.

Havells launched “Galaxy Stores” in 2011 to offer an exclusive one-stop shop for entire portfolio of household electrical products. Though these stores operate on franchisee model, Havells take care of design, standardisation and after-sales customer care. Havells has expanded the Galaxy Stores to 400 currently from 79 in FY11. The company expects to add another 200 galaxy stores in next 3 years.

Exhibit 25: Havells has 400+ Galaxy Store Exhibit 26: Galaxy Contributes 18% of Non-Industrial Revenue


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CMP* (Rs) 559




Lloyd Acquisition – New Growth Avenue

Foraying into fast growing $15bn consumer durable segment, Havells acquired the consumer durable business of Lloyd Electric & Engineering – the third largest player in room AC segment – for an enterprise value of Rs16bn. Lloyd had a network of >10,000 direct/indirect dealers spread across 34 sales branches, 485 authorised service centres and 31 company-owned service centres. Lloyd – which enjoys ~12% market share and ranked amongst Top-5 players in room AC market – derives ~75% of sales from ACs, while the rest comes from TVs and washing machines. With this acquisition, Havells has enter into big-ticket consumer durable business.

Exhibit 27: Foray into Consumer Durable Segment Lloyds Acquisition


Clocking 28% CAGR, Lloyd’s consumer durable business stood at Rs14bn in FY18 from Rs4.1bn in FY13. It had >10,000 touch points and >900 service points spread across India. Looking ahead, Havells aims to healthy revenue growth few years by introducing new products, expanding existing AC product portfolio, washing machines and LED TVs and increasing dealer network and targeting large format stores.



11

CMP* (Rs) 559




Strong Financials

Havells India’s PAT surged by 38% YoY in 4QFY18, aided by higher margin across segments. Revenue grew by 38% YoY to Rs25.4 bn mainly driven by Lloyd (ex-Lloyd: +7% YoY), 35% growth in Lighting & Fixtures and 17% growth in ECD segment. EBITDA margin rose by 160bps YoY to 14.1%, with healthy margin in ECD (+440bps to 30.9% on higher utilisation) and Cables & Wires (+560bps YoY to 17.1% on higher realisation) segments.

For FY18, Havells reported 25% growth in revenue at Rs82.6 bn, and 17% growth in PAT at Rs7 bn, while stabilising the margin at 12.7%.

Lloyd Revenue up 11% YoY to Rs18.7bn in FY18: Lloyd’s revenue grew by 11% YoY to Rs18.7bn in FY18, whilst it remained flat at Rs5.8bn in 4QFY18 owing to pre-buying in the previous quarter ahead of revised efficiency norms. The Management is looking for low double-digit growth in revenue in FY19E led by delayed summer and rains in North India. It expects to sustain the current margin of 8% in FY18, which is expected to expand thereafter. Lloyd intends to adopt omni-channel strategy similar to Havells with increasing presence in modern retail formats.



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CMP* (Rs) 559




4QFY18 Segmental Performance

Switchgears: Switchgear sales grew by just 5% YoY in 4QFY18 (flat in FY18) impacted by low demand in new construction and real estate projects. The growth was led by new orders from Hyundai Electric and B2B sales. Contribution margin rose by just 20bps YoY to 38.6% on the back of low-margin exports.

Exhibit 28: Switchgear – Revenue up 5% YoY Exhibit 29: Switchgear – Margin up 20bps YoY


Looking ahead, we expect switchgear segment to clock 11% CAGR over FY18-20 on the back of new products launches, leveraging tie-up and strengthening western and southern operations

Cables: Revenue improved 13% YoY led by 6% YoY and 7% YoY growth in volume and value in 4QFY18, respectively owing to sharp improvement in underground cables and household wires. Revenue grew by 9% in FY18 purely driven by pricing, as volume remained flat. Margin improved by 420bps YoY to 17.1%.

Exhibit 30: Cables & Wires – Revenue up 13% YoY Exhibit 31: Cables & Wires – Strong YoY Margin Expansion


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Cable & Wire Sales Sales growth (%, RHS)

11.0 12.0 11.8

13.6 14.1

12.1 12.6

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Cable & Wire EBIT Margin (%)



13

CMP* (Rs) 559




Looking ahead, we expect this segment to clock 12% CAGR over FY18-20 on the back of robust household and industrial demand.

Lighting: Lighting revenue grew by 20% YoY led by strong replacement demand for technology upgrade to LEDs and wide distribution reach. The Management is looking at ~30% margin in FY19E, from 30.9% in 4QFY18 led by adjustments of warranty provisioning.

Exhibit 32: Lighting – Revenue up 20% YoY Exhibit 33: Lighting – Margin at All-time High


Looking ahead, we expect lighting segment to clock 13% CAGR over FY18-20 led by introduction of innovative products, and governments thrust on local manufacturing which will help Havells to expand its products portfolio.

ECD: ECD revenue grew by a robust 20% YoY in 4QFY18 on the back of improved market share in fans and water heaters segment led by new launches and increased deeper penetration. Notably, fans revenue grew by 18% in FY18, while industry growth remained flat. Water heater revenue grew by 10% YoY, while the industry witnessed a decline. Small home appliances also gained traction albeit on low base. Havells launched new products i.e. water purifiers in FY18, which witnessed encouraging initial response. Margins improved by 270bps YoY to 27.2% in 4QFY18.

Exhibit 34: ECD – Revenue up 20% YoY Exhibit 35: ECD – Margin Declines on QoQ Basis


The segment clocked ~20% CAGR during FY11-18 led by introduction of new products and rising market share in premium fan segment. Looking ahead, we expect the segment to clock 16% CAGR through FY18-20%.

26.0 26.9

27.6

25.7

21.4 22.5

24.6 24.5 24.9

26.6

28.5 27.3

28.6

27.0

28.5

30.9

20

22

24

26

28

30

32

-

200

400

600

800

1,000

1,200

1Q F

Y15

2Q F

Y15

3Q F

Y15

4Q F

Y15

1Q F

Y16

2Q F

Y16

3Q F

Y16

4Q F

Y16

1Q F

Y17

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

(Rs m

n)

Lighting & Fixtures EBIT Margin (%)

21.2 24.9

11.7

24.0

7.8 5.5

25.1

7.2

24.6 21.2

19.0

26.5

1.6 4.2

21.0 19.5

(7)

0

7

14

21

28

-

1,000

2,000

3,000

4,000

5,000

1Q F

Y15

2Q F

Y15

3Q F

Y15

4Q F

Y15

1Q F

Y16

2Q F

Y16

3Q F

Y16

4Q F

Y16

1Q F

Y17

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

(Rs m

n)

Electrical Consumer Durables Sales Sales growth (%, RHS)

25.4 24.9 24.4 25.5 25.2

21.8

25.2

27.9

25.2

26.6

23.6 24.5

22.2

27.8

29.6

27.2

20

22

24

26

28

30

32

-

200

400

600

800

1,000

1,200

1,400

1Q F

Y15

2Q F

Y15

3Q F

Y15

4Q F

Y15

1Q F

Y16

2Q F

Y16

3Q F

Y16

4Q F

Y16

1Q F

Y17

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

(Rs m

n)

Electrical Consumer Durables EBIT Margin (%)

11.6 7.7

0.3

(5.7)(2.9)

6.3

13.9

23.3

28.6

15.2

1.7

15.6

5.4

21.0

27.7

20.4

(8)

0

8

16

24

32

-

600

1,200

1,800

2,400

3,000

3,600

1Q F

Y15

2Q F

Y15

3Q F

Y15

4Q F

Y15

1Q F

Y16

2Q F

Y16

3Q F

Y16

4Q F

Y16

1Q F

Y17

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

(Rs m

n)

Lighting & Fixtures Sales Sales growth (%, RHS)



14

CMP* (Rs) 559




Outlook & Valuation

Looking ahead, we expect Havells’ revenue and PAT to clock 15% and 24% CAGR, respectively through FY18-20E led by new products, up-tick in industrial activity and acquisition of Lloyd’s CD business. With strong cash flow from core business and healthy balance sheet in place, we believe incremental scalability post Lloyd acquisition and launch of premium products would help Havells to report improved performance in the long-term, while likely up-tick in discretionary spend over the medium-term. We initiate coverage on Havells with a BUY rating and Target Price of Rs650.

Exhibit 36: Trading at 1+SD Exhibit 37: Continues PE Expansion


Exhibit 38: Revenue CAGR of 18% during FY10-18 Exhibit 39: EBITDA CAGR of 17% during FY10-18

Exhibit 40: PAT CAGR of 15% during FY10-18 Exhibit 41: ROE & ROCE


10

15

20

25

30

35

40

45

50

50

150

250

350

450

550

650

Mar

-11

Jun-

11Se

p-11

Dec-

11M

ar-1

2Ju

n-12

Sep-

12De

c-12

Mar

-13

Jun-

13Se

p-13

Dec-

13M

ar-1

4Ju

n-14

Sep-

14De

c-14

Mar

-15

Jun-

15Se

p-15

Dec-

15M

ar-1

6Ju

n-16

Sep-

16De

c-16

Mar

-17

Jun-

17Se

p-17

Dec-

17M

ar-1

8

Price TTM Mean PE

24,7

35

28,8

17

36,15

6

42,2

50

47,19

7

52,3

87

57,7

54

65,8

61

82,6

03

92,8

33

108,

337

13

16

25

17

12 11 10

14

25

12

17

-

5

10

15

20

25

30

-

20,000

40,000

60,000

80,000

100,000

120,000

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

E

FY20

E

(Rs m

n)

Revenue Growth (%, RHS)

3,10

8

3,40

6

4,55

7

5,35

7

6,41

6

6,99

1

7,54

9

8,34

0

10,4

93

12,15

2

14,7

00

12.6

11.8

12.6 12.7

13.613.3

13.1

12.7 12.7

13.1

13.6

11.0

11.5

12.0

12.5

13.0

13.5

14.0

-

3,000

6,000

9,000

12,000

15,000

18,000

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

E

FY20

E

(Rs m

n)

EBITDA Margin (RHS)

2,28

2

2,41

5

3,05

4

3,71

4

4,78

7

4,64

9

5,09

6

5,96

7

7,00

6

8,66

5

10,6

91

57

6

26 22

29

(3)

10

17 17 24 23

(10)

-

10

20

30

40

50

60

70

-

2,000

4,000

6,000

8,000

10,000

12,000

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

E

FY20

E

(Rs m

n)

PAT Growth (%, RHS)

20 18 19 20

22

17

24

16 19

21 23 24

22 24 23

26 24 24 23

25 27

30

-

5

10

15

20

25

30

35

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

E

FY20

E

ROE (%) ROCE (%)

10

15

20

25

30

35

40

45

Mar

-11

Jul-1

1

Nov

-11

Mar

-12

Jul-1

2

Nov

-12

Mar

-13

Jul-1

3

Nov

-13

Mar

-14

Jul-1

4

Nov

-14

Mar

-15

Jul-1

5

Nov

-15

Mar

-16

Jul-1

6

Nov

-16

Mar

-17

Jul-1

7

Nov

-17

Mar

-18

Fwd PE Mean 1+SD 1-SD



15

CMP* (Rs) 559




Key Risks f Lower consumption demand and lower discretionary spending.

f Substantial rise in commodity prices and inability to pass on the same.

f Delayed synergistic benefits of Lloyd integration.

Company OverviewHavells India – founded in 1983 – is one of the largest electrical equipment companies in India. Its range of products and services includes industrial and household circuit protection switchgear, industrial/domestic cables and wires, motors, fans, power capacitors, LED lamps, lighting for domestic/commercial/industrial applications, modular switches, wiring accessories, home and kitchen appliances and energy meters i.e. static and electromechanical meters. It has 12 manufacturing plants across 7 locations in India and 23 branches/representative offices with >6,000 professionals in >50 countries. It has a network of 7,500 direct dealers and 1 lakh retailers and owns 398 exclusive stores under the brand Galaxy across India. Havells owns some of the most prestigious Indian brands like Havells, LLoyd, Crabtree, Standard Electric and Promptech, while ~90% of revenue comes from in-house production.

Exhibit 42: Top Management Exhibit 43: Shareholding

Members Designation

Anil Rai Gupta CMD

Surjit Kumar Gupta Non Executive

Ameet Kumar Gupta Executive Whole-time Director

Rajesh Kumar Gupta Group CFO

Avinash Prakash Gandhi Independent Director

Sunil Behari Mathur Independent Director

Vijay Kumar Chopra Independent Director

Surendar Kumar Tuteja Independent Director

Dr Adarsh Kishore Independent Director

Pratima Ram Independent Director

TV Mohandas Pai Non Executive, Non-Independent

Puneet Bhatia Non Executive, Non-Independent

Holding (%)

QRG Enterprises 30.4

QRG Investments 11.0

Nalanda India Equity Fund 5.3

Gupta Vinod 5.0

Gupta Anil 4.9

Gupta Surjit 4.6

Government Pension Fund - Global 2.8

Gupta Qimat Rai 2.2

Norges Bank 2.1

Capital Research Global Investor 1.4

Vanguard Group Inc 1.3

Blackrock Fund Advisors 1.2

Capital World Investors 1.2

Tiaa Cref Int Eq Fund 1.1

Sbi Funds Management 1.0

Mirae Asset Global Inv India 1.0

Dsp Blackrock Investment Manager 0.9

Gupta Shalini 0.6




16

CMP* (Rs) 559




Profit & Loss StatementY/E Mar (Rs mn) FY17 FY18 FY19E FY20E

Net Sales 65,861 82,603 92,833 108,337

Total operating income 65,861 82,603 92,833 108,337

Growth (%) 14.0 25.4 12.4 16.7

Total Expenditure 57,521 72,110 80,680 93,638

Cost of Materials 36,485 49,808 56,758 65,761

Employee costs 5,008 6,497 7,241 8,125

Others 16,028 15,805 16,681 19,751

EBITDA 8,340 10,493 12,152 14,700

Growth (%) 10.5 25.8 15.8 21.0

EBITDA Margin (%) 12.7 12.7 13.1 13.6

Depreciation 1,196 1,395 1,492 1,596

EBIT 7,144 9,098 10,661 13,104

EBIT Margin (%) 10.8 11.0 11.5 12.1

Growth (%) 9.9 27.4 17.2 22.9

Interest 122 240 162 162

Other Income 1,243 1,170 1,537 1,907

Exceptional items (578) 119 - -

PBT 8,265 10,028 12,035 14,848

Growth (%) 17.0 21.3 20.0 23.4

Tax 2,298 3,022 3,370 4,158

Effective Tax rate (%) 27.8 30.1 28.0 28.0

Adjusted PAT 5,967 7,006 8,665 10,691

Fully Diluted EPS (Rs) 9.5 11.2 13.9 17.1

Growth (%) 17.1 17.4 23.7 23.4

Reported PAT 6,546 6,887 8,665 10,691



17

CMP* (Rs) 559




Balance SheetY/E Mar (Rs mn) FY17 FY18 FY19E FY20E

Share capital 625 625 625 625

Reserves 32,115 36,766 41,099 46,444

Net worth 32,740 37,391 41,724 47,069

Total borrowings 1,981 1,080 1,080 1,080

Long term liability & Provision 107 471 471 471

Deferred tax 1,138 2,070 2,070 2,070

Total liabilities 35,965 41,012 45,345 50,690

Gross block 16,862 27,885 29,837 31,926

Less: Acc. depreciation 2,108 3,503 4,995 6,591

Net block 14,754 24,382 24,842 25,334

CWIP 119 241 216 195

Goodwill - 3,105 3,105 3,105

Investments 4,450 955 955 955

Current assets 31,749 36,740 42,169 49,744

Inventories 9,284 16,217 16,532 17,809

Debtors 2,285 3,254 3,815 4,452

Cash 19,375 15,261 19,533 24,812

Loans and advances 60 80 254 297

Other Current Assets 744 1,929 2,035 2,375

Current liabilities 14,005 22,870 24,162 26,713

Provisions 1,102 1,541 1,780 1,929

Net current assets 16,642 12,330 16,227 21,101

Total Assets 35,965 41,012 45,345 50,690



18

CMP* (Rs) 559




Cash Flow StatementY/E Mar (Rs mn) FY17 FY18 FY19E FY20E

PBT 8,265 10,028 12,035 14,848

Add: Depreciation 1,196 1,395 1,492 1,596

Add: Interest 122 240 162 162

Less: taxes paid (2,298) (3,022) (3,370) (4,158)

Add: other adjustments 2,869 3,628 - -

Less: working capital changes 2,385 198 375 404

Total operating cash flows 12,540 12,467 10,694 12,853

Cash flow from investing activity

Capital expenditure (3,446) (11,145) (1,928) (2,067)

Change in investments 177 3,495 - -

Change in Goodwill - (3,105) - -

Total investing cash flow (3,269) (10,754) (1,928) (2,067)

Cash flow from financing activity

Change in borrowings 1,981 (901) - -

Dividend (5,407) (4,687) (4,333) (5,345)

Interest payment (122) (240) (162) (162)

Total financing cash flow (3,548) (5,827) (4,495) (5,507)

Net change in cash 5,723 (4,114) 4,272 5,279

Opening cash & CE 13,652 19,375 15,261 19,533

Closing cash & CE 19,375 15,261 19,533 24,812

Key RatiosY/E Mar FY17 FY18 FY19E FY20E

Valuation Ratio (x)

P/E 58.5 49.9 40.3 32.7

P/CEPS 48.7 41.5 34.3 28.4

P/BV 10.7 9.3 8.4 7.4

Dividend yield (%) 1.5 1.3 1.2 1.5

EV/Sales 5.0 4.0 3.6 3.0

EV/EBITDA 39.3 31.8 27.1 22.1

Per Share Data (Rs)

EPS 9.5 11.2 13.9 17.1

Cash EPS 11.5 13.5 16.3 19.7

DPS 8.7 7.5 6.9 8.6

Book Value 52.5 59.9 66.9 75.4

Returns (%)

RoCE 23.3 25.0 26.9 29.6

RoE 16.5 19.1 20.8 22.7

Turnover ratios (x)

Asset Turnover (Gross Block) 3.9 3.0 3.1 3.4

Inventory / Sales (days) 51 72 65 60

Receivables (days) 13 14 15 15

Payables (days) 78 101 95 90

Cash conversion cycle (days) (13) (15) (15) (15)



19

CMP* (Rs) 559




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Rating GuidesRating Expected absolute returns (%) over 12 months

BUY >10%

HOLD -5% to 10%

REDUCE >-5%

institutional equity research havells india€¦ · havells is ranked amongst top-5 organised and...

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