Havells India (Q4 FY12)

CMP Rs547, Target Rs532, Downside 2.7%

• Net sales for Q4 FY12 at standalone level stood at Rs10.5bn, a jump of 24% on yoy basis led by robust growth in the volumes across all the segments for the company. Sequentially, standalone revenues surged by 17%. On the segmental basis, Switchgears division registered 18.8% yoy increase in revenues, while cables and wires reported healthy 32% growth. Led by successful acceptance of recent launches in the small appliances segment, electrical consumer durables division witnessed 18% growth in the revenues for Q4 FY12, despite sluggish 4-5% growth reported in the fan sales. Lighting and Fixtures segment clocked in 20.1% yoy revenue growth.
  
• Operating profit margin of the standalone business for Q4 FY12 expanded by 228bps on yoy basis, aided by 327bps decline in purchase of traded goods cost as % of sales. At segmental level, EBIT margin for the cables & wires and Lighting & Fixtures division expanded by 4.4pps and 6.9pps respectively on yoy basis. Depreciation cost for Q4 FY12 more than doubled compared to Q4 FY11 on account of incremental depreciation charged for the 3-shift working in cables and wires division. Interest cost was higher on back of inclusion of certain part of foreign exchange loss on the ECB loans for the quarter.  
  
• Sylvania reported flattish revenues (€ terms) both on yoy and sequential basis. Geographically, strong 7.6% yoy revenue growth in America was offset by 4% de-growth in the European region. Normalized EBIDTA margin for Sylvania stood at 8.5%, highest in past 12 quarters.  Expansion in EBIDTA margin was attributed to continuing improvement in efficiency and rise in utilization levels leading to benefits of operating leverage. The company has guided for 8.5-9% EBIDTA margins over FY12-FY13.
  
• We expect strong growth in revenues for the standalone business to continue over FY12-14 coupled with steady expansion in OPM. For Sylvania, we expect revenue to report flattish growth. However we believe EBIDTA margin for Sylvania would expand to 8.5-9% levels over next two years backed by cost rationalization and benefits of operating leverage as capacity utilization levels increase. We maintain our recommendation of Market Performer with a revised target price of Rs532. Although we remain bullish on the long term business potential of the company, we see limited upsides from the current levels.