Havells India Ltd (Q1 FY15)

Havells continued to beat estimate on the topline on the back of strong performance in the cable & wire and electrical consumer durable segments.

Jul 31, 2014 09:07 IST India Infoline News Service

CMP Rs1,212, Target Rs1,277, Upside 5.4% 

  • Havells’ topline of Rs12.8bn is higher than our estimate on the back of strong performance from the cables and consumer durable division

  • Revenue from the cables and wires division jumped 32% yoy due to a weak base in Q1 FY14 and strong growth in industrial cables

  • Operating profit of Rs1.6bn was higher than our estimate on the back of higher revenue and strong performance in switch gear division

  • The company has increased its topline growth guidance from 15-18% to 17-20% in the standalone business

  • Growth momentum to pick up; Recommend accumulate with a revised price target of Rs1,277

Result table
(Rs mn) Q1 FY15 Q1 FY14 % yoy Q4 FY14 % qoq
Net sales 12,769 10,513 21.5 13,100 (2.5)
Material costs (6,919) (5,484) 26.2 (7,287) (5.1)
Purchase of traded goods (848) (907) (6.5) (778) 9.0
Personnel costs (734) (539) 36.3 (647) 13.5
Other overheads (2,658) (2,250) 18.2 (2,705) (1.7)
Operating profit 1,610 1,334 20.7 1,683 (4.3)
OPM (%) 12.6 12.7 (8) bps 12.8 (24) bps
Depreciation (208) (156) 33.4 (160) 29.9
Interest (33) (56) (41.3) (67) (50.8)
Other income 115 32 260.6 141 (17.9)
Extra ordinary items 11 - - 89 (87.7)
PBT 1,496 1,154 29.6 1,685 (11.3)
Tax (423) (207) 104.0 (316) 33.8
Effective tax rate (%) 28.3 18.0 1031 bps 18.7 952 bps
Reported PAT 1,073 947 13.3 1,369 (21.7)
Adj. PAT margin (%) 8.4 9.0 (60) bps 10.5 (205) bps
Ann. EPS (Rs) 34.4 30.4 13.3 43.9 (21.7)
Source: Company, India Infoline Research

Topline growth continues to beat estimate

Havells continued to beat estimate on the topline on the back of strong performance in the cable & wire and electrical consumer durable segments. The cables & wires division outperformed for the second consecutive quarter as last year sales were impacted by unavailability of copper and lower demand. Topline of Rs12.8bn was higher by 21.5% yoy and quite above our estimate of Rs11.1bn. All the segments registered double digit growth in revenues on account of some increased spending in the domestic market. The electrical consumer durables segment which has been registering lower than expected growth in the last one year managed to register 21.2% yoy growth in revenues. Increased product and revival in domestic spending led to an increase in sales in consumer durables. The company has increased the domestic sales growth for FY15 from 15-18% yoy to 17-20% yoy on the back of strong volume boost in Q1 FY15. Sales of fans during the quarter were quite strong adding to the outperformance in topline.

  

Outperformance in operating profit curtailed by one-time costs

Standalone operating margins for the quarter were lower by 10bps yoy at 12.6% due to onetime costs and margin squeeze in the consumer durables business. The company had incurred costs related to payments to a consulting firm involved in cost rationalization exercise. The cost is expected to impact earnings in Q2 FY15 too. Overall margins in most of the segments improved on the back of strong sales volume and change in product mix. Cables & wires division EBIT improved by 99bps yoy to 11% on account of change in product mix. The company has been increasing its focus in this segment resulting into margin expansion. EBIT margins for the switch gear division improved by 38bps yoy and that for the lighting & fixtures segment improved by 89bps yoy.


Cost analysis
As a % of net sales Q1 FY15 Q1 FY14 bps yoy Q4 FY14 bps qoq
Material costs 54.2 52.2 202 55.6 (144)
Purchase of traded goods 6.6 8.6 (199) 5.9 70
Personnel Costs 5.8 5.1 62 4.9 81
Other overheads 20.8 21.4 (58) 20.7 17
Total costs 87.4 87.3 8 87.2 24
Source: Company, India Infoline Research

Segmental results
(Rs mn) Q1 FY15 Q1 FY14 % yoy Q4 FY14 % qoq
Revenues
Switch Gears 3,073 2,760 11.4 3,204 (4.1)
Cables and Wires 5,348 4,049 32.1 5,591 (4.3)
Lighting & Fixtures 1,654 1,482 11.6 1,993 (17.0)
Electrical Consumer Durable 2,693 2,223 21.2 2,313 16.5
Total 12,769 10,513 21.5 13,100 (2.5)
EBIT
Switch Gears 1,120 996 12.5 794 41.1
Cables and Wires 588 405 45.1 720 (18.4)
Lighting & Fixtures 430 372 15.6 559 (23.1)
Electrical Consumer Durable 683 597 14.5 638 7.2
Total 2,822 2,370 19.1 2,711 4.1
EBIT Margin (%)
Switch Gears 36.5 36.1 38 bps 24.8 1168 bps
Cables and Wires 11.0 10.0 99 bps 12.9 -189 bps
Lighting & Fixtures 26.0 25.1 89 bps 28.1 -207 bps
Electrical Consumer Durable 25.4 26.9 -149 bps 27.6 -220 bps
Blended 22.1 22.5 -44 bps 20.7 140 bps
Source: Company, India Infoline Research

Sylvania results impacted by provision related to pension liability

Revenues (€ terms) from its overseas subsidiary (Sylvania) remained flat on a yoy basis due to challenges in countries like Argentina and Columbia. Latin America region sales were subdued during the quarter due to challenges in the above mentioned countries. This impact was negated by the strong sales in the European region. The European region managed to register revenue growth of 6.3% yoy due to a change in the economic sentiments of the region. OPM for the quarter stood at 4.3%, 37bps higher on a yoy basis.


Sylvania’s Q1 FY15 result snapshot
(€mn) Q1 FY15 Q1 FY14 % yoy Q4 FY14 % qoq
Revenues 107 107 0.2 115 (6.8)
Operating Profit 4.6 4.2 9.5 7.7 (40.3)
OPM (%) 4.3 3.9 37 bps 6.7 -240 bps
PBT 1.4 (0.2) - (1.4) -
PAT 0.3 (0.8) - (3.3) -
NPM (%) 0.3 (0.7) 103 bps (2.9) 315 bps
Source: Company, India Infoline Research

Growth to continue going forward; Recommend Accumulate

The management has increased its guidance of 17-20% yoy growth in FY15 for standalone business led by stronger growth in the consumer business and a revival in consumer spending. 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 during the quarter. We have also upgraded our FY15 estimates for the Sylvania after the turn around witnessed over the last two quarters and the positive guidance given by the company. We believe earnings growth to pickup from H2 FY15 on the back of the change in sentiment in the sentiments of the consumer. We recommend an accumulate rating with revised target price of Rs1,277.


Financial Summary
Y/e 30 Jun (Rs m) FY13 FY14 FY15E FY16E
Revenues 72,479 81,858 92,189 103,773
yoy growth (%) 11.2 12.9 12.6 12.6
Operating profit 6,744 7,425 9,863 11,461
OPM (%) 9.3 9.1 10.7 11.0
Pre-exceptional PAT 3,870 4,463 6,347 7,589
Reported PAT 5,814 4,463 6,347 7,589
yoy growth (%) 57.2 (23.2) 42.2 19.6
         
EPS (Rs) 31.0 35.8 50.9 60.8
P/E (x) 39.1 33.9 23.8 19.9
Price/Book (x) 10.5 9.1 7.0 5.5
EV/EBITDA (x) 23.0 20.3 15.3 12.7
Debt/Equity (x) 0.6 0.5 0.2 0.0
RoE (%) 32.3 28.7 33.2 31.0
RoCE (%) 28.2 27.5 34.4 37.5
Source: Company, India Infoline Research

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