Havells (Q3 FY14)

Havells’ Q3 FY14 standalone performance was marginally higher than our estimate led by strong performance in the switch gear and cables division. Topline of Rs11.8bn was higher by 11.9% yoy and marginally above our estimate of Rs11.6bn. The impact of strong performance in the cables division was offset by a weak performance in the electrical consumer durable division. Revenue from the electronic consumer durable division stood at Rs2.1bn, increasing by a mere 1.7% yoy, on account of a weak consumer spending in the domestic market. Cables division registered a 16.3% yoy growth in revenue followed by 14.7% yoy in switch gears and 9.3% yoy in Lightings & Fixtures division. For 9M FY14, Havells registered a topline growth of 12% yoy, in line with the management guidance given last quarter.

Revenues (€ terms) from its overseas subsidiary (Sylvania) increased by 1.5% yoy, with 4.2% yoy rise in revenues from Latin American market. Volatile currency in the Latin American market was the key factors for the decline in revenues. Operating profit margin for Q3 FY14 expanded by 143bps to 7.8%, a positive surprise. However, PAT declined by 43.3% yoy to €1.7mn due to forex loss. The management expects revenue to grow by 2% and foresees 5.5-6% OPM for Sylvania in FY14. 

The management has increased its guidance of 12-12.5% revenue growth for standalone business in FY14 led by stronger growth in the consumer business, been offset partially by slowdown in the industrial business. 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 over the last two quarters. We have also upgraded our FY15 estimates for the Sylvania after the turn around witnessed in Q3 FY14 and the positive guidance given by the company. At current valuations, we believe the stock is fairly valued and maintain our Market Performer rating with revised target price of Rs755.