Havells India Ltd (Q4 FY14)

Topline of Rs13.1bn was higher by 12% yoy and marginally above our estimate of Rs12.8bn.

May 31, 2014 04:05 IST India Infoline News Service

CMP Rs941, Target Rs1,017, Upside 8.1% 

  • Led by strong performance in the cables business, topline increases 12% yoy and 10.6% qoq

  • Revenue from the cables and wires division jumped 21% yoy due to a weak base in Q4 FY13 and strong growth in industrial cables

  • Operating profit of Rs1.7bn was inline with our estimate as the impact of higher EBIT from the cables division was offset by a weaker performance in its switch gears division

  • Switch gear division EBIT margin shrunk 657bps yoy to 24.8% due to a one-time provisioning of Rs400mn

  • Growth to continue going forward; Maintain Market Performer rating with a price target of Rs1,017

Result table
(Rs mn) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Net sales 13,100 11,696 12.0 11,844 10.6
Material costs (7,287) (6,281) 16.0 (6,505) 12.0
Purchase of traded goods (778) (1,202) (35.3) (848) (8.3)
Personnel costs (647) (416) 55.5 (527) 22.9
Other overheads (2,705) (2,309) 17.2 (2,332) 16.0
Operating profit 1,683 1,488 13.1 1,633 3.1
OPM (%) 12.8 12.7 12 bps 13.8 -94 bps
Depreciation (160) (156) 2.6 (161) (0.8)
Interest (67) (27) 153.0 (85) (20.9)
Other income 141 34 314.5 107 31.8
Extra ordinary items 89 - - 66 33.9
PBT 1,685 1,340 25.8 1,559 8.1
Tax (316) (243) 30.1 (345) (8.3)
Effective tax rate (%) 18.7 18.1 62 bps 22.1 -335 bps
Reported PAT 1,369 1,097 24.8 1,215 12.7
Adj. PAT margin (%) 10.5 9.4 107 bps 10.3 20 bps
Ann. EPS (Rs) 43.9 35.2 24.8 38.9 12.7
Source: Company, India Infoline Research

Strong volumes boost topline

Topline of Rs13.1bn was higher by 12% yoy and marginally above our estimate of Rs12.8bn. The impact of strong performance in the cables division was offset by a weak performance in the switch gear division. Revenue from the switch gear division stood at Rs3.2bn, increasing by 2.8 % yoy, on account weaker demand in the domestic market. Cables division registered a 21% yoy growth in revenue to Rs5.6bn on the back of strong sales in the industrial cables segment (27% yoy) and an improvement in their flexi cable by 14% yoy. The company managed to register a growth of 8.3% yoy to Rs2.3bn in the Electrical consumer durable division on the back of never products introduced during the quarter. Lightings & Fixtures division registered a 9.3% yoy growth in revenue, steady state achieved in Q3 FY14. For FY14, Havells registered a topline growth of 11.7% yoy, in line with the management guidance. The company expects growth to pick up further in FY15 on the back of increased spending in the domestic economy and introduction of new products in the electrical consumer division. 

Operating profit jumps 49.4% yoy

Operating profit margin in the standalone business for Q4 FY14 witnessed an expansion of 12bps on yoy basis largely attributed to increase in EBIT margin for cables & wires and lightings & fixtures segment. The impact of the increase in EBIT margins at the above two divisions was offset by a sharp decline in switch gear division margins. EBIT margins for the switch gear division shrunk 657bps yoy due to a provision relating to full year and provided in the quarter. Excluding the one-time provisioning, contribution margin for the switch gear division would increase from 24.8% to 37.9%. EBIT margins in the cables division increased by 684bps yoy due to focuses approach on improving margin in both industrial and flexible cables. The expansion in OPM was also due to a decline in advertisement spends during the quarter.


Cost analysis
As a % of net sales Q4 FY14 Q4 FY13 bps yoy Q3 FY14 bps qoq
Material costs 55.6 53.7 192 54.9 71
Purchase of traded goods 5.9 10.3 (434) 7.2 (122)
Personnel Costs 4.9 3.6 138 4.4 49
Other overheads 20.7 19.7 91 19.7 96
Total costs 87.2 87.3 (12) 86.2 94
Source: Company, India Infoline Research

Segmental results
(Rs mn) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Revenues
Switch Gears 3,204 3,118 2.8 3,093 3.6
Cables and Wires 5,591 4,620 21.0 4,751 17.7
Lighting & Fixtures 1,993 1,823 9.3 1,935 3.0
Electrical Consumer Durable 2,313 2,136 8.3 2,066 11.9
Total 13,100 11,696 12.0 11,844 10.6
EBIT
Switch Gears 794 977 (18.8) 1,096 (27.6)
Cables and Wires 720 279 157.8 486 48.3
Lighting & Fixtures 559 449 24.6 450 24.2
Electrical Consumer Durable 638 571 11.7 541 17.9
Total 2,711 2,276 19.1 2,573 5.4
EBIT Margin (%)
Switch Gears 24.8 31.3 -657 bps 35.4 -1066 bps
Cables and Wires 12.9 6.0 684 bps 10.2 266 bps
Lighting & Fixtures 28.1 24.6 344 bps 23.3 479 bps
Electrical Consumer Durable 27.6 26.7 85 bps 26.2 139 bps
Blended 20.7 19.5 123 bps 21.7 -103 bps
Source: Company, India Infoline Research

Sylvania results impacted by provision related to pension liability

Revenues (€ terms) from its overseas subsidiary (Sylvania) increased by 1.6% yoy, with 3.6% yoy rise in revenues from Latin American market. European operations revenue grew at 2% yoy to €71mn. Operating margin was 0.4% for European operations and 3.4% for Latin American operations. However, reported operating income includes pension liabilities of €7.7bn. Excluding this, normalized OPM was 6.7%, up 60bps yoy and lower by 110bps qoq. Sylvania reported revenue of Rs35.7bn and operating profit of Rs1.3bn for FY14. Net working capital in Sylvania by the end of FY14 declined to 19 days of sales from 43 days at the end of FY13.


Sylvania’s Q4 FY14 result snapshot
(€mn) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Revenues 115 113 1.6 112 3.0
Operating Profit 7.7 6.9 11.6 8.7 (11.5)
OPM (%) 6.7 6.1 60 bps 7.8 -110 bps
PBT (1.4) 4.8 (129.2) 2.2 (163.6)
PAT (3.3) 6.1 (154.1) 1.7 (294.1)
NPM (%) (2.9) 5.4 -826 bps 1.5 -439 bps
Source: Company, India Infoline Research

Growth to continue going forward; but valuations expensive at CMP

The management has increased its guidance of 12% revenue growth in FY14 to 15-20% 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 in a tough environment in FY14. 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 maintain our Market Performer rating with revised target price of Rs1,017.


Financial Summary
Y/e 30 Jun (Rs m) FY13 FY14E FY15E FY16E
Revenues 72,479 81,858 90,594 100,858
yoy growth (%) 11.2 12.9 10.7 11.3
Operating profit 6,689 7,425 9,570 10,946
OPM (%) 9.2 9.1 10.6 10.9
Pre-exceptional PAT 3,870 4,463 6,064 7,053
Reported PAT 5,814 4,463 6,064 7,053
yoy growth (%) 57.2 (23.2) 35.9 16.3
         
EPS (Rs) 31.0 35.8 48.6 56.5
P/E (x) 30.3 26.3 19.4 16.6
Price/Book (x) 8.1 7.0 5.4 4.2
EV/EBITDA (x) 18.1 15.7 12.2 10.2
Debt/Equity (x) 0.6 0.5 0.2 0.0
RoE (%) 46.0 32.3 28.7 31.5
RoCE (%) 32.6 28.2 27.5 33.3
Source: Company, India Infoline Research

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