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Equity | India | Electrical Equipment
Havells India Ltd.( Havells)
Growing with technology…… September 07, 2018
BUY
Analyst
Omkar Tanksale
+91-22- 6614 2692 [email protected] Institutional Research 1
Initiating Coverage
CMP (`) Target (`)
661 809
Potential Upside Absolute Rating
22% BUY
Market Info (as on September 06, 2018)
BSE Sensex 38,018
Nifty S&P 11,477
Stock Detail
BSE Group A
BSE Code 517354
NSE Code HAVELLS
Bloomberg Code HAVL IN
Market Cap (`bn) 415.34
Free Float (%) 38%
52wk Hi/Lo 728.95 / 454.00
Avg. Daily Volume (NSE) 555,063
Face Value / Div. per share (`) 1.00 / 3.00
Shares Outstanding (mn) 625
Promoters Public Others
59.55 40.45 0.01
Financial Snapshot (`mn)
Y/E Mar FY17 FY18 FY19E FY20E
Net Sales
61,558
81,464
97,757
1,17,308
EBITDA
8,182
10,434
12,708
15,954
PAT
4,941
6,735
8,232
10,631
EPS
7.91
10.77
13.16
17.00
ROE (%) 15% 18% 20% 22%
ROCE (%) 20% 23% 25% 29%
P/E 58.1 66.5 54.4 42.1
EV/EBITDA 34.4 42.7 34.9 27.7
Share Price Performance
95
105
115
125
135
145
155
01
-Sep
-17
22
-Sep
-17
13
-Oct
-17
03
-No
v-1
7
24
-No
v-1
7
15
-Dec
-17
05
-Jan
-18
26
-Jan
-18
16
-Feb
-18
09
-Mar
-18
30
-Mar
-18
20
-Ap
r-1
8
11
-May
-18
01
-Ju
n-1
8
22
-Ju
n-1
8
13
-Ju
l-1
8
03
-Au
g-1
8
24
-Au
g-1
8
Havell's (i) Adj SENSEX Adj
Rel. Perf. 1Mth 3 Mths 6Mths 1Yr
Havells (%) 3.04 25.2 30.6 34.1
Sensex (%) (4.7) 2.1 5.1 25.0
Source: Company data, Institutional Research
Company Snapshot
Havells India Ltd. (Havells) is the leading manufacturer of fast moving electrical goods and
major power distribution equipment. The company is head quartered in Noida and having
presence across geographies. Havells enjoys enviable market dominance across a wide spectrum
of products, including Industrial & Domestic Circuit Protection Devices, Cables & Wires, Motors,
Fans, Modular Switches, Home Appliances, Air Conditioners, Electric Water Heaters, Power
Capacitors, CFL Lamps, and Luminaires for Domestic, Commercial and Industrial Applications.
The company has very strong distribution network not only in India but also across the
geographies. The company has 12 state-of-the-art manufacturing plants in India located at
Haridwar, Baddi, Sahibabad, Faridabad, Assam, Alwar and Neemrana, manufacturing globally
acclaimed products, synonymous with excellence and precision in the electrical industry.
Investment Rationale
Favorable market conditions and strong demand will help them to grow
Indian economy is improving with the higher momentum. It is one of the fastest growing
economies in the world. This growth helps to create greater per capita income and also the
stronger demand. With the increasing robustness of the market, there is huge opportunity for
the electrical goods and consumption businesses. Total domestic market size of electrical
segment is approximately Rs.45, 000crs. According to the company and the industry resources
the electrical segment vertical likely to grow by 12% CAGR for next 5 years. The home
appliances vertical is also having great demand for from the domestic market. The market size
has increase with the higher momentum and will also likely in the upcoming future. Total
market size of the home appliances is at Rs.70,000 Crs. And will likely to grow by 15% CAGR in
the next 5 years.
Robust business structure gives edge over its peers
Havells owns some of the most prestigious brands like Havells, Lloyd, Crabtree, Standard and
Promptec. Its network constitutes of 4000 professionals, over 7575 dealers and 40 branches in
the country. Its products are available in 40 countries. The company has 12 state-of-the-art
manufacturing plants in India located at Haridwar, Baddi, Sahibabad, Faridabad, Assam, Alwar
and Neemrana, manufacturing globally acclaimed products, synonymous with excellence and
precision in the electrical industry. Havells along with its brands have earned the distinction of
being the preferred choice of electrical products for discerning individuals and industrial
consumers both in India and abroad. Havells offers same quality products for both Indian and
International markets. It is committed to keep powering the world with its state-of-the-art
innovations and energy-efficient solutions. Currently over 90% of its product offerings are energy
efficient and manufactured in-house.
Valuation
At the CMP of `661, Havells is trading at 50.4x, and 39.06x its FY19E, and FY20E EPS of `13.16
and `17.00. Compared to its peers; Havells is trading at a discount P/E multiple, although its
margins are better than or comparable to peers. We initiate coverage on Havells India Ltd with
a BUY rating and attach a multiple of 47.6 xs to Havells’ FY20E earnings (EPS) to arrive at the
target price of `809, indicating a potential upside of 22%.
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 2
Index & Content
Sr. No. Topic Page No.
1 Company Background......................................... 3
2 Business Model................................................. 4
3 Key Management Personnel.................................. 6
4 Investment Rationale......................................... 7
5 Financial Overview........................................... 10
6 Key Risks........................................................ 14
7 SWOT Analysis.................................................. 15
8 Michael Porter’s Five Force Analysis........................ 16
9 Valuation & Outlook........................................... 17
10 Financials........................................................ 18
11 Disclaimer....................................................... 19
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 3
Company Background Havells India Ltd. (Havells) is the leading manufacturer of fast moving electrical goods and
major power distribution equipment. The company is head quartered in Noida and having
presence across geographies. Havells enjoys enviable market dominance across a wide spectrum
of products, including Industrial & Domestic Circuit Protection Devices, Cables & Wires, Motors,
Fans, Modular Switches, Home Appliances, Air Conditioners, Electric Water Heaters, Power
Capacitors, CFL Lamps, and Luminaires for Domestic, Commercial and Industrial Applications.
The company has very strong distribution network not only in India but also across the
geography’s. The company has 12 state-of-the-art manufacturing plants in India located at
Haridwar, Baddi, Sahibabad, Faridabad, Assam, Alwar and Neemrana, manufacturing globally
acclaimed products, synonymous with excellence and precision in the electrical industry. Historical Journey of Havells
Source: Company, Institutional Research
1958
1971
1976
1979
1980
1983
1987
1990
1993
2000
2001
2003
2004
2006
2007
2010
2011
2015
2016
2017
Commenced trading operation in Delhi.
Brought Havells brand
Set up 1st manufacturing plant switches
Set up 1st manufacturing plant of HBC fuses at Badli
Started manufacturing high quality energy meter at Tilak Nagar.
Acquired Tower & transformer Ltd.
Started manufacturing MCBC at Badli
Started manufacturing plant at Sahibabad
Set up another manufacturing plant at Faridabad. Listed on BSE, NSE
Acquired controlling stake in Duke Arnics Electronics Ltd. Acquired standard electricals.
Acquired Business of Havells, MCCB of Cabtree India Ltd.
Launch of Fans, CFL, Lightings
Set up manufacturing plant at Baddi, Noida
Added CFL production in Haridwar unit
Acquiring Sylvania
Launched Havells brand in US & Maxico
Launch of control gear, Appliances
Launched electric water heater
Entered in Solar business.
Launched personal grooming business.
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 4
Business Model
Havells have robust business structure with strong market presence and higher brand value
which makes Havells lucrative and safer bet. The Havells has two business verticals consumer
and Industrial.
Consumer vertical: - Under the vertical company has complete range of modern electrical
equipment. The company has lighting, switches, electrical circuitry and wiring to home &
kitchen appliances, fans, air coolers and water heaters. The eco-friendly and power saving,
Havells consumer products provide great functionality and durability, and look chic to suit the
needs of your living spaces.
Fans: - The Company has complete range of the fans like ceiling fans, table fans, exhaust and
personal fans. A producer of numerous types of fans including exquisite, antique finishes to fans
specially designed for kids to dual color fans and High Speed Fans. Havells has successfully been
able to capture the essence of the customers' needs and gained substantial market share.
Lightings: - Havells brings to you a wide range of energy efficient lighting solutions with the
state-of-the-art products to choose from. The range of lighting product includes LED Panels, LED
Down lighters, LED surface fitting, LED lamps, Portable lightings, Home décor lighting products,
LED strips, LED battens.
Switches: - Switches are inventively designed to last long and augment your walls. Refined
engineering is incorporated with the finest technology to provide top notch quality, reliability
and longevity. Be it in design or performance, company provide you with the best modular
switches for home, office as well as industrial use.
Switch Gears: - The Company is leading manufacturer of switch gears in India The company
manufactures range of switch gears like circuit breaker, Energy saver, Distribution boards, surge
protection device.
Appliances: - The Company manufactures range of appliances with the better quality and design
which help them to gain better market share in the domestic market. The company
manufactures cooking appliances, brewing appliances, irons, Air purifiers, water purifiers, water
heaters, pumps etc.
Industrial vertical: - Havells is the strong product portfolio in the vertical. The company has
better quality and range of product portfolio which makes them a better player in the segment.
The company has range of industrial electrical solutions from Havells - from circuit protection
and surge protection devices, reactive power solutions, HT & LT cables, induction motors, to
professional lighting and heavy duty fans. In-house manufacturing and quality certifications give
them complete control over quality and consistency.
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 5
Havells
Consumer Industrial
Switches Cables
Switch Gears Switch Gears
Personal Grooming
Air Circulator
Air Purifier, Water Purifier
Reactive Power Solution
Pumps PFC Components
Fans, Lightings
Appliance
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 6
Key Management Personnel
Havells India Ltd. is blessed with credible management that takes Havells on the path of the
growth.
Late Mr. Qimat Rai Gupta (Founder Chairman):
Mr. Qimat rai Gupta founded the company. His partnership with a 20,000 strong network of
dealers, distributors, and retailers has propelled Havells’ profits while also benefiting its
stakeholders.
Mr. Anil Rai Gupta (Managing Director and chairman):
Heading one of the most prominent electrical and consumer durable companies in India, Mr. Anil
Rai Gupta is the Chairman and Managing Director of Havells, and is the son of Late Mr. Qimat Rai
Gupta. He has been a constant support to his father for 22 years.
Mr. Ameet Kumar Gupta
Mr. Ameet Kumar Gupta is an ardent member of the Promoter Group and is actively involved in
new business development activities along with Mr. Anil Rai Gupta. He is authorized to make
new product introduction and development along with setting up of new plants and
manufacturing facilities for the QRG group. Gupta’s functions include spearheading new
projects being under taken by the organization
Mr. Rjesh Kumar Gupta (Director & CFO):
Mr. Rajesh Gupta is the Whole-time Director (Finance) and Group CFO of Havells Company. He
has been long associated with the QRG group since the beginning of his career and has helped
shape up the finance sector and simultaneously played a multi-dimensional role in creating the
culture, systems and processes across the organization.
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 7
Investment Rationale
Favorable market conditions and strong demand will help them to grow
Indian economy is improving with the higher momentum. It is one of the fastest growing
economies in the world. This growth helps to create greater per capita income and also the
stronger demand. With the increasing robustness of the market, there is huge opportunity for
the electrical goods and consumption businesses. Total domestic market size of electrical
segment is approximately Rs.45, 000crs. According to the company and the industry resources
the electrical segment vertical likely to grow by 12% CAGR for next 5 years. The home
appliances vertical is also having great demand for from the domestic market. The market size
has increase with the higher momentum and will also likely in the upcoming future. Total
market size of the home appliances is at Rs.70,000 Crs. And will likely to grow by 15% CAGR in
the next 5 years.
FAVOURABLE MACRO LEVERS
Young
Demography
Growing middle class across urban, semi urban.
Brand aspiration, better standard of living and global exposure
UrbanizationTo be 40% by 2030 from 31% currently
Investment on infrastructure and housing will be key focus area
Low to medium penetration in most of the categories
Large presence of unorganized sector
Organized
Penetration
High degree of focus on electrification, presently 78% population electrified,
low quality and regular supply are key issuesElectrification
From the above diagram, we can say that at macro levels conditions are favorable for Havells.
Growing urbanization and per capita income will help to grow the electrical consumption.
Higher infrastructure spending and real estate development will also help to have higher
demand for appliances and equipment. Initiatives taken by Indian government like every home
should have electricity will help to increase the demand and exploring the new geographies.
Central government is also providing subsidy for the LED lights so demand for LED products will
also have huge increased demand in the near future. Havells with strong brand value and higher
distribution will have higher probability for the higher near future growth.
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 8
Robust business structure gives edge over its peers.
Havells owns some of the most prestigious brands like Havells, Lloyd, Crabtree, Standard and
Promptec. Its network constitutes of 4000 professionals, over 7575 dealers and 40 branches in
the country. Their products are available in 40 countries. The company has 12 state-of-the-art
manufacturing plants in India located at Haridwar, Baddi, Sahibabad, Faridabad, Assam, Alwar
and Neemrana, manufacturing globally acclaimed products, synonymous with excellence and
precision in the electrical industry. Havells along with its brands have earned the distinction of
being the preferred choice of electrical products for discerning individuals and industrial
consumers both in India and abroad. Havells offers same quality products for both Indian and
International markets. It is committed to keep powering the world with its state-of-the-art
innovations and energy-efficient solutions. Currently over 90% of its product offerings are energy
efficient and manufactured in-house
AN EFFICIENT INTERPLAY
Higher Profitability Free Cash Flow Superior Return to shareholdersHigher Market Share
From the above diagram we can say that, The company has strategic play for the Indian
domestic market which helps them to play ahead of their peers. The company has strong brand
value with good market share. The company also helping the to increase the reach and
penetration with strong distribution network. This also allowed having higher penetration in the
Indian markets. The company also has state of art manufacturing facilities to fulfill the demand.
Havells have better product portfolio which help them to get higher sustainable operating
margins. The better product mix also help to achieve high revenue growth and make business
structure more robust. This makes Havells a safer bet even for longer term perspective.
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 9
Brands that enjoy high recall and loyalty
Havells owns some of the most prestigious brands like Havells, Lloyd, Crabtree, Standard and
Promptec. Its network constitutes of 4000 professionals, over 7575 dealers and 40 branches in
the country. Our products are available in 40 countries. The company has 12 state-of-the-art
manufacturing plants in India located at Haridwar, Baddi, Sahibabad, Faridabad, Assam, Alwar
and Neemrana, manufacturing globally acclaimed products, synonymous with excellence and
precision in the electrical industry. Havells along with its brands have earned the distinction of
being the preferred choice of electrical products for discerning individuals and industrial
consumers both in India and abroad. Havells offers same quality products for both Indian and
International markets. It is committed to keep powering the world with its state-of-the-art
innovations and energy-efficient solutions. Currently over 90% of its product offerings are energy
efficient and manufactured in-house002E
MARKET SHARE: TOP 3 ACROSS CATEGORIES
Product
Indicative Market
Size(Rs. in crores)
Indicative
MarketShare
Indicative
Rank
Organized
PenetrationLevel
Peers
Sw
itchgears MCB 2,200 27-28% # 1 High Legrand, Schneider
Switches* 2,200 14-15% # 3 MediumPanasonic (Anchor),
Legrand
Cable
Domestic 8,000 16% # 3 Low Finolex, Polycab
Industrial 12,000 10% # 3 Medium Polycab, KEI
LED
Lig
hti
ng
Lighting & Fixtures 6,500 10-14% # 2-4 MediumPhilips, Crompton,
Bajaj, Wipro
EC
D
Fans 6,900 16% # 3 High Crompton, Orient, Usha
Water Heaters 1,400 15% # 2 Low Racold, AO Smith
Other Appliances 5,200 2-3% - Low Bajaj, Philips
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 10
Financial Overview
Pretax Margin
EBITDA Margins
As shown in the graph below, Havells has shown consistent EBITDA growth over the past few
quarters. This shows that Havells has been successful in managing the operating expenses
efficiently with the rise in the top line. After the slight decline in the EBITDA margins in 1QFY18
company has started regaining the desire operating efficiency over last two quarters and will
also likely to continue in the upcoming period.
EBITDA Margins
0%
2%
4%
6%
8%
10%
12%
14%
16%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Q1
FY1
5
Q2
FY1
5
Q3
FY1
5
Q4
FY1
5
Q1
FY1
6
Q2
FY1
6
Q3
FY1
6
Q4
FY1
6
Q1
FY1
7
Q2
FY1
7
Q3
FY1
7
Q4
FY1
7
Q1
FY1
8
Q2
FY1
8
Q3
FY1
8
Q4
FY1
8
Q1
FY1
9
EBITDA EBITDA Margin
Source: Company data, Institutional Research
Operating Margins
As shown in the graph below, Havells has become successful in increasing the operating margins
over past few years. Consistent rise in the operating profit indicates that, Havells has become
successful in transferring the operating cost to its customers. This also indicates rising efficiency
in the business. We believe that Havells will deliver better operating margins as they focus more
on the segments where they have higher realizations.
Operating Margins
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Q1
FY1
5
Q2
FY1
5
Q3
FY1
5
Q4
FY1
5
Q1
FY1
6
Q2
FY1
6
Q3
FY1
6
Q4
FY1
6
Q1
FY1
7
Q2
FY1
7
Q3
FY1
7
Q4
FY1
7
Q1
FY1
8
Q2
FY1
8
Q3
FY1
8
Q4
FY1
8
Q1
FY1
9
Operating profit Operating margin
Source: Company data, Institutional Research
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 11
Net Profit Margin
Havells has become successful in delivering consistent and high growth in the net profit and also
margins are showing consistent growth. This shows that the business of the company has
become more robust over the period of time. Strong product profile, robust distribution channel
makes company more lucrative. We believe that Havells will likely to report higher bottom line
growth in the upcoming future. This also makes Havells a safer bet.
NPAT Margin
0%
5%
10%
15%
20%
25%
30%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Q1
FY1
5
Q2
FY1
5
Q3
FY1
5
Q4
FY1
5
Q1
FY1
6
Q2
FY1
6
Q3
FY1
6
Q4
FY1
6
Q1
FY1
7
Q2
FY1
7
Q3
FY1
7
Q4
FY1
7
Q1
FY1
8
Q2
FY1
8
Q3
FY1
8
Q4
FY1
8
Q1
FY1
9
Net Profit NPAT margin
Source: Company data, Institutional Research
Return Margin
ROE performance
As shown in the diagram below, we can see that ROE of the company has increasing consistently
over last two years. This shows that Havells has produced better results on the invested equity.
This shows that, Havells is a better investment opportunity and can produce better return in the
future.
RoE
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY14 FY15 FY16 FY17 FY18
Net profit ROE
Source: Company data, Institutional Research
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 12
Return on the capital Employed (ROCE)
Return on the capital employed (ROCE) is also one of the major important aspect while
investing. Havells has zero or marginal debt on their balances sheet. So that the company has
produce the strong growth in terms of ROCE as net profit is growing. We believe that Havells
will show a strong growth for the upcoming period.
RoCE
18%
19%
20%
21%
22%
23%
24%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY14 FY15 FY16 FY17 FY18
Net profit ROCE
Source: Company data, Institutional Research
Payout Ratio
Dividend Payout Ratio
Havells is one of the highly dividend paying company. As shown in the graph below Havells has
strong payout ratio. This also makes stock very lucrative. We believe that in the upcoming
period Havells will likely to maintain the payout ratio of 32% in the upcoming period.
Dividend Payout Ratio
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0
500
1000
1500
2000
2500
3000
3500
4000
FY14 FY15 FY16 FY17 FY18
Divident paid Dividend Payout ratio
Source: Company data, Institutional Research
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 13
Net Profit to Payout Ratio
Havells has history of paying dividend to its shareholder. As shown in the diagram below we can
see that company had given dividends as proportion to the net profit. We believe that payout
ratio to net profit ratio will likely to remain same. This also makes stock more lucrative.
Investor can also take privilege of higher payout ratio.
Net Profit to Payout Ratio
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY14 FY15 FY16 FY17 FY18
Net Profit Dividend Payout ratio
Source: Company data, Institutional Research
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 14
Key Risks
Investment Risk :
• Higher competition and better product mix from the peers or international player may
affect the business negatively.
• Any new launch of the technology in the segment will replace the product completely
that impact company on the negative side. The company needs to either do capital
spending or loss in the business.
• Any change in the policy from the central government will impact LED pricing
negatively. This may also impact the demand for the product on negative side.
• The company have industrial vertical as well loss of one client will impact loss of
significant revenue. This states that depending on the client is higher.
• Higher competitive market always regulates the competitive prices. These market
scenarios may affect the realization negatively.
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 15
SWOT Analysis
Source: Institutional Research
Havells India Ltd.
Strengths
• Strong distribution Network.
• High manufacturing capacity.
• Strong Brand value.
Opportunities
• Further rural penetration.
• Increasing healthy sustainable product
mix.
• Increasing market share.
Weakness
• Low margin.
• Focus on specific product portfolio.
• Weaker brand value than market
Leaders.
Threats
• Cut throat competition puts negative
impact on market share .
• Higher competition also leads to
Pricing pressure.
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 16
Michael Porter’s Five Force Analysis
Inter-firm Rivalry–High
Lower Entry barriers in
the industry have led to
high concentration in
the industry.
Threat of new entrants –
Increasing
• MNCs are entering the ‘offshore’
business heavily.
Bargaining Power of
Suppliers – High
• Intense competition in the
recruitment market puts higher
wage pressure and increasing
trend of attrition is witnessed.
Bargaining Power of Buyers –
Increasing
• With availability of multiple
vendors, Buyers have a lot of
choice and this has led to
pressures on the billing rates.
Threat from Substitutes -
Increasing
• Emerging economies like China,
Brazil and Russia can be the
substitute places for ‘offshoring’
taking away the India advantage
to certain extent.
Source: Institutional Research
Interfirm rivalry high
Threat to new entrant increasing
• MNCs are entering to appliances
business with strong brand value.
Bargaining power of supplier High
• Intense completion in the industry puts
higher pricing pressure.
• Lower entry barriers in the
industry have.
• Led to high concentration in
the industry.
Bargaining power of buyers increasing
• With availability or venders, buyer has
lot of choice this has led to pressure on
products.
Threats from substitutes increasing
• Emerging economy and other
international Players taking the
advantage to certain extent.
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 17
Valuation & Outlook
At the CMP of `661, Havells is trading at 50.4x, and 39.06x its FY19E, and FY20E EPS of `13.16
and `17.00. Compared to its peers; Havells is trading at a discount P/E multiple, although its
margins are better than or comparable to peers. We initiate coverage on Havells India Ltd with
a BUY rating and attach a multiple of 47.6 xs to Havells’ FY20E earnings (EPS) to arrive at the
target price of `809, indicating a potential upside of 22%.
1 year forward P/E Chart
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.00
01
-Feb
-16
01
-Ap
r-1
6
01
-Ju
n-1
6
01
-Au
g-1
6
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PE Band - Havells India Ltd.
Price
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Source: Capitaline, Institutional Research
1 year forward P/ BV Chart
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Price-To-Book Band - Havells India Ltd.
Price
6x
7x
8x
9x
Source: Capitaline, Institutional Research
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 18
Income Statement
Y/E Mar (`mn) FY15 FY16 FY17 FY18 FY19E FY20E
Net revenues 85,694 76,126 61,558 81,464 97,757 1,17,308
Raw material cost 48,292 43,749 36,532 49,699 59,143 70,972
EBITDA 7,211 7,580 8,182 10,434 12,708 15,954
EBITDA Margin (%) 8% 10% 13% 13% 13% 14%
Depreciation 1,387 1,344 1,205 1,405 1,955 1,877
Other Income 505 866 1,382 1,179 1,257 1,360
Interest (Net) 640 544 133 248 250 250
Exceptional Items - 8,621 (1,068) (187) - -
PBT 5,690 6,559 8,225 9,960 11,760 15,187
PBT Margin (%) 7% 9% 13% 12% 12% 13%
Tax 1,836 2,193 2,288 3,038 3,528 4,556
Reported PAT 3,854 13,005 4,941 6,735 8,232 10,631
Balance Sheet Y/E Mar (`mn) FY15 FY16 FY17 FY18 FY19E FY20E
Equity capital 624 625 625 625 625 625
Reserves & Surplus 17,557 29,652 32,143 36,667 41,214 46,874
Net worth 18,182 30,277 32,768 37,292 41,840 47,499
Total debt 6,521 172 129 1,112 825 925
Deferred Tax Liability 434 909 1,184 2,117 2,000 2,000
Total Liabilities & Equity 25,138 31,507 35,941 40,775 44,890 50,699
Net block 11,585 11,860 11,987 12,540 14,421 15,719
Investments - - 559 538 600 650
Long Term Loans & Advances 581 166 140 176 150 175
Other Non Current Assets 1,754 308 888 402 450 450
Total Non-Current Assets 18,700 14,814 15,781 29,009 31,871 34,294
Debtors 6,232 2,357 2,307 3,278 3,500 4,000
Cash & bank 7,775 1,420 5,919 3,365 4,768 6,180
Loans & advances 1,723 140 63 284 150 200
Other Current Assets 219 824 776 1,389 1,300 1,250
Total Current Assets 29,612 26,344 32,344 36,896 39,718 42,630
Creditors 11,207 5,845 8,418 16,744 18,050 17,625
Provisions 11,967 6,524 7,334 8,556 8,800 8,750
Current Liab. & Prov. 23,174 12,369 15,752 25,300 26,850 26,375
Total Assets 25,138 31,507 35,941 40,775 44,890 50,699
Key Ratio
Y/E Ma r (`mn) FY15 FY16 FY17 FY18 FY19 E FY2 0 E
Pe r Sha re Ra tios
Fully diluted E P S 6.17 20.82 7.91 10.77 13.16 17.00
Book Value 29 49 53 60 67 76
Dividend per share 2.34 6.00 3.00 3.50 4.11 6.07
Va lua tion Ra tio
P/E 49.68 14.93 58.14 61.65 50.44 39.06
P/BV 29.11 48.71 52.60 59.76 67.03 76.08
EV/EBITDA 25.79 25.43 34.39 39.56 32.34 25.68
EV/Sales 2.17 2.53 4.57 5.07 4.20 3.49
Growth Ra tios
Sales Growth 5% - 11% - 19% 32% 20% 20%
EBITDA Growth - 3% 5% 8% 28% 22% 26%
Net Profit Growth - 14% 237% - 63% 40% 22% 29%
Common size Ra tios
EBITDA Margin 8% 10% 13% 13% 13% 14%
EBIT margin 7% 8% 11% 11% 11% 12%
PAT margin 4% 17% 8% 8% 8% 9%
Re turn ra tios
RoNW 21% 43% 15% 18% 20% 22%
RoCE 24% 20% 20% 23% 25% 29%
Turnove r ra tios (da ys)
Debtors ( Days) 27 11 14 15 13 12
Creditors ( Days) 103 70 94 120 105 90
Inventory (Days) 45 24 38 73 65 53
Solve nc y Ra tios
Total Debt/Equity 0.36 0.01 0.00 0.03 0.02 0.02
Source: Company data, Institutional Research
Cash Flow
Y/E Mar (`mn) FY15 FY16 FY17 FY18 FY19E FY20E
PBT 5,690 6,559 8,225 9,960 11,760 15,187
Add: Depreciation 1,387 1,344 1,205 1,405 1,955 1,877
Chg. in working capital 6,438 7,538 2,617 (4,997) 1,272 3,387
Taxes paid 1,836 2,193 2,288 3,038 3,528 4,556
CF from operations 11,678 13,248 9,760 3,330 11,460 15,895
Capex (1,739) (2,171) (2,427) (15,968) (1,881) (1,298)
Purchase of investment 0 (8,429) (666) 1,359 62 50
Other Adjustments (3,478) 0 (48) 69 (6,230) (10,835)
CF from Investing acti. (4,864) 353 (2,160) (9,441) (8,049) (12,083)
Share application money received 99 29 93 147 154 198
Debt Charges (332) 370 1,188 (2,449) 26 (25)
Other changes 0 0 0 0 (2,187) (2,573)
CF from Financing acti. (7,538) (6,213) (975) (4,091) (2,007) (2,400)
Chg. in cash (2,776) (726) 4,535 (2,532) 1,404 1,412
Opening cash 6,553 3,707 1,420 5,919 3,365 4,768
Closing cash 3,707 1,420 5,919 3,365 4,768 6,180
Du-Pont Analysis
(%) FY16 FY17 FY18 FY19E FY20E
PAT/ PBT 198% 60% 68% 70% 70%
PBT/ PBIT 105% 118% 110% 109% 108%
PBIT / Sales 8% 11% 11% 11% 12%
Sales / Assets 174% 119% 123% 136% 152%
Assets/ Equity 144% 157% 177% 171% 162%
ROE 43% 15% 18% 20% 22%
Equity | India | Electrical Equipment
Havells India Ltd.( Havells) September 07, 2018
BUY
Institutional Research | Initiating Coverage 19
NOTES
Recommendation Rationale
Recommendation Expected Absolute Return (%) over 12 months
BUY >15%
ACCUMULATE <10% and >15%
NEUTRAL <-10% and <10%
REDUCE >-10% and <-20%
SELL >-10
Expected absolute returns are based on share price at market close unless otherwise stated. Stock recommendations are based on absolute upside (downside) and have a 12-month
horizon. Our target price represents the fair value of the stock based upon the analyst’s discretion. We note that future price fluctuations could lead to a temporary mismatch
between upside/downside for stock and our recommendation.
GEPL CAPITAL Pvt Ltd
Reg Office: D-21 Dhanraj mahal, CSM Marg, Colaba, Mumbai 400001
Analyst Certification
The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or
indirect compensation in exchange for expressing specific recommendations or views in this report:
Name : Omkar Tanksale
Sector : IT Services
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