Havells India (Q1 FY13)

Net sales for Q1 FY13 at standalone level stood at Rs10.3bn, a jump of 29% on yoy basis led by robust growth in the volumes across all the segments for the company. Sequentially, standalone revenues were marginally down by 1.3%. On the segmental basis, Switchgears division registered healthy 28.8% yoy increase in revenues, while cables and wires reported 21% growth. Revenues for the Electrical Consumer Durable division jumped by 57% on yoy basis aided by strong growth in the in the sales of small appliances. Lighting and Fixtures segment clocked in 23.8% yoy revenue growth.

Operating profit margin of the standalone business for Q1 FY13 expanded by 160bps on yoy basis, aided by 453bps decline in other overheads cost as % of sales. At segmental level, EBIT margin for the Switchgears and Lighting & Fixtures division contracted by ~2pps on yoy basis. For electrical consumer durable division EBIT margin declined sharply from 31.1% in Q1 FY12 to 25.3 in Q1 FY13. The precipitous fall in margin was attributed to a) sharp depreciation of rupee resulting into higher cost for imports, b) higher raw material cost, c) higher advertising spend during the quarter, d) price hikes not sufficient to offset the entire cost increase. For cables and wires division, EBIT margin expanded by 110bps backed by better product mix in favour of wires to cables. Growth in the low margin cables business has been sluggish against strong growth in high margin wires business in the past few quarters resulting into change in the product mix.   

Sylvania reported paltry 1.9% yoy growth in revenue (€ terms), while on sequential basis revenues were down by 3.6%. Geographically, strong 10.2% yoy revenue growth in America was offset by 4.5% de-growth in the European region. Operating profit margin for Sylvania stood at 5.4%, decline of 200bps on yoy basis. Slowdown in Europe coupled with higher raw material cost and adverse product mix were the key factors for decline in margins for the quarter. The company has guided for 7-7.5% EBIDTA margins over FY13-FY14.

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 7-7.5% levels over next two years backed by cost rationalization and benefits of operating leverage as capacity utilization levels increase. We upgrade our estimate to factor in higher growth in the domestic market and maintain our recommendation of Market Performer with a revised target price of Rs598. Although we remain bullish on the long term business potential of the company, we see limited upsides from the current levels.