Havells Initiating Coverage 27 Apr 2011

8/4/2019 Havells Initiating Coverage 27 Apr 2011

1/23

JM Financial Institutional Securities Private Limited

Opportunities galore

Initiate with BUY and Mar12 TP of `490: We initiate coverage with a BUYrating on Havells. We value the stock at 13x FY13 EPS of`37.7 to arrive at

Mar12 TP of`490, implying an upside of c.20%. Our target price is based on

Havells historical 1-year forward PE multiple in past 4-5 years. Our TP draws

support from a) valuation metrics for peers in the switchgears, lighting and

electrical durables segments (trading at 1-year forward PE of 11-17x), and b)

DCF-based valuation (Exhibit 7).

Domestic business growth momentum remains strong: We expect Havells

Indian business to witness steady 15.4%/14.7% CAGR in revenue/adjusted

profits in FY11-13E led mainly by revenue growth in lighting (18% CAGR) and

electrical durables (25% CAGR), which enjoy high contribution margins of 20-

24%. While we estimate switchgears and cables and wires to see steady 10-

13% revenue CAGR, we factor in 100-200bps margin contraction on rawmaterial price inflation; large contraction seems unlikely as Havells enjoys

strong pricing power.

Foray into consumer appliances a potential catalyst: Post successful foray

into fans in FY04, Havells, in our view, can replicate its ability to leverage its

premium brand positioning and strong dealer-focused distribution network

for its proposed foray into consumer appliances (c.`60bn market). Havells

plans to launch irons, mixers in June11 and later expand to food processors,

microwave ovens, OTG. While our estimates currently assume marginal

revenue from this initiative, successful launch and scale up will boost

estimate and stock performance, in our view.

See strong consolidated profits on Sylvania earnings CAGR of 127%

during FY11-13E: We estimate Sylvanias revenue/profit to witness

7.4%/127% CAGR in FY11-13E on improved Europe EBITDA margins (from

current 5.4% to 9% by FY13) and strong growth in high margin Latam

markets. We estimate consolidated earnings to witness 32.3% CAGR in FY11-

13E leading to substantial reduction in debt/equity (from 2.3x in FY10 to

0.2x by FY13E). Key risks to our call are delay or inability a) to pass on raw

material price inflation, and b) ramp up of Sylvania operations in Latam/Asia.

1.

Havells India | HAVL IN

27 April 2011

India | Mid-Caps | Initiating CoveragePrice: `412

BUY

Target: `490 (Mar12)

Exhibit 1. Financial Summary (Consolidated) (` mn)Y/E March FY09A FY10A FY11E FY12E FY13E

Net sales 54,775 54,315 57,453 64,088 71,494

Sales growth (%) 9.5 -0.8 5.8 11.5 11.6EBITDA 2,886 3,222 4,966 6,073 7,301

EBITDA (%) 5.3 5.9 8.6 9.5 10.2

Adjusted net profit 384 696 2,684 3,542 4,697

EPS (`) 3.2 5.8 21.5 28.4 37.7

EPS growth (%) -77.0 81.1 271.9 32.0 32.6

ROCE (%) 6.1 7.7 23.2 27.4 33.2

ROE (%) 6.3 13.7 52.5 45.5 40.9

PE (x) NA 71.1 19.1 14.5 10.9

Price/Book value (x) 8.1 12.4 8.3 5.5 3.8

EV/EBITDA (x) 20.6 18.2 12.1 9.4 7.3

Source: Company data, JM Financial. Note: Valuations as of 27/04/2011

JM Financial Research is also availableBloomberg - JMFR , Thomson Publisher & Reut

Please see important disclosure at the end of the re

Achal Lohade, C

achal.lohade@jmfinancial.

Tel: (91 22) 6630 30

Key Data

Market cap (bn) `51.3/US$1

Shares in issue (mn) 124

Diluted share (mn) 124

3-mon avg daily val (mn) `111.8/US$2

52-week range `446.5/264

Sensex/Nifty 19,449/5,8

`/US$ 44

Daily Performance

Havells Indi a

0

100

200

300

400

500

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

-10

0%

10%

20%

30%

40%

50%

60%

H av ells India Relat iv e t o Sens ex (R HS)

% 1M 3M 12

Absolute 13.1 17.2 32

Relative* 9.7 13.1 22

* To the BSE Sensex

Shareholding Pattern (

Mar-11 Mar-

Promoters 61.6 60

FII 16.5 18

DII 2.4 2

Public / others 19.6 19


2/23

Havells India 27 April 20


Exhibit 2. Standalone entity continues to dominate consolidated EBITDA and adjusted profit (` bConsolidated EBITDA break-up Consolidated Adjusted Profit break-up Consolidated Revenue break-up

1.9

2.0

3.1

3.5

3.7

4.4

1.6

0.9

0.1

1.5

2.3

2.9

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY08 FY09 FY10 FY11E FY12E FY13E

Havells (Standalone) Sylvania

1.4

1.5

2.3

2.4

2.6

3.1

0.2

-1.1

-1.6

0.3

0.9

1.6

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%



20

.5

22

.024

.729

.4

33

.9

29

.5

32

.829

.628

.0

30

.2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY08 FY09 FY10 FY11E FY12E FY


Source: Company, JM Financial

Exhibit 3. Lighting and Electrical Durables to account for 41.4% of gross contribution (standalone) in FY13E

Source: Company, JM Financial; Note: Contribution is calculated after deducting material cost, manufacturing variables and direct selling variables from the net revenue

Exhibit 4. Segment wise revenue and profitability snapshot (Consolidated) (` bCAGR

FY08 FY09 FY10 FY11E FY12E FY13E FY08-11 FY11-1

Consolidated Revenue 50.02 54.77 54.32 57.45 64.09 71.49 4.7% 11.6Sylvania 29.47 32.79 29.58 28.03 30.23 32.34 -1.7% 7.

Standalone 20.55 21.98 24.74 29.42 33.86 39.15 12.7% 15.

Switchgears 5.43 6.08 7.04 7.50 8.08 9.54 11.4% 12.

Cables and Wires 9.24 9.91 10.11 12.02 13.22 14.54 9.2% 10.

Lighting and Fixtures 2.84 2.77 3.67 4.63 5.47 6.45 17.7% 18.

Electrical Durables 2.40 2.77 3.59 4.87 6.09 7.61 26.6% 25.

Consolidated EBITDA 3.47 2.89 3.22 4.97 6.07 7.30 12.7% 21.3

Sylvania 1.56 0.86 0.11 1.48 2.33 2.90 -1.9% 40.

Standalone (Contribution- Unallocable Exp) 1.88 2.03 3.19 3.49 3.75 4.40 23.0% 12.

Switchgears 1.76 2.03 2.61 2.68 2.75 3.24 15.1% 10.

Cables and Wires 0.92 0.63 0.89 1.02 1.06 1.16 3.5% 7.



Total standalone contribution 3.54 3.77 5.22 5.80 6.36 7.52 17.9% 13.9

Less: Unallocable Exp (excl deprn) 1.70 1.81 2.09 2.34 2.72 3.22 11.1% 17.4

Consolidated Reported Profit 1.61 -1.60 0.70 2.58 3.54 4.70 17.0% 35.0

Sylvania 0.17 -3.05 -1.59 0.20 0.92 1.57 4.4% 180.

Standalone 1.44 1.45 2.28 2.38 2.62 3.13 18.3% 14.

Consolidated Adjusted Profit 1.61 0.38 0.70 2.68 3.54 4.70 18.6% 32.3

Sylvania 0.17 -1.07 -1.59 0.30 0.92 1.57 20.5% 126.

Standalone 1.44 1.45 2.28 2.38 2.62 3.13 18.3% 14.


Switchgears

FY10: 50.0%

FY13E: 43.1%

Cables & Wires

FY10: 17.0%

FY13E: 15.5%

Lighting & Fixtures

FY10: 13.5%

FY13E: 17.1%

Electrical Durables

FY10: 19.5%

FY13E: 24.3%

Standalone Contribution

FY10: Rs3.2bn

FY13E: Rs4.4bn

Switchgears

FY10: 50.0%

FY13E: 43.1%

Cables & Wires

FY10: 17.0%

FY13E: 15.5%

Lighting & Fixtures

FY10: 13.5%

FY13E: 17.1%

Electrical Durables

FY10: 19.5%

FY13E: 24.3%


FY10: Rs3.2bn

FY13E: Rs4.4bn

Cables & Wires

FY10: 17.0%

FY13E: 15.5%

Lighting & Fixtures

FY10: 13.5%

FY13E: 17.1%

Electrical Durables

FY10: 19.5%

FY13E: 24.3%


FY10: Rs3.2bn

FY13E: Rs4.4bn


3/23



Valuation and Recommendation

Initiate with BUY, value Havells at 13x FY13 EPS to arrive at Mar12 TP of

`490: Our TP implies a potential upside of 20%. We believe our target multipleis reasonable based on a) implied EV/EBITDA of 8.7x and P/BV of 4.5x

(reasonable given the historical bands, Exhibit 5 and Exhibit 33), b) valuation

of comparable companies in the segment Havells operates in (Exhibit 6) and

DCF based valuation (Exhibit 7). We expect Havells to report earnings growth

of 32%/32.6% YoY and ROCE/ROE in the range of 27-46% in FY12/13Erespectively.

Exhibit 5. Havells traded in 10-18x PE band in the past

0

50

100

150

200

250

300

350

400

450

500

550

Apr

-06

Au

g-0

6

Dec

-06

Apr

-07

Au

g-0

7

Dec

-07

Apr

-08

Au

g-0

8

Dec

-08

Apr

-09

Au

g-0

9

Dec

-09

Apr

-10

Au

g-1

0

Dec

-10

4x

16x

13x

10x

7x

19x

1 year forw ard PE band

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Oct-

05

Fe

b-0

6

Jun

-06

Oct-

06

Fe

b-0

7

Jun

-07

Oct-

07

Fe

b-0

8

Jun

-08

Oct-

08

Fe

b-0

9

Jun

-09

Oct-

09

Fe

b-1

0

Jun

-10

Oct-

10

Fe

b-1

1

(Rs mn)

2x

4x

10x

8x

6x

12x

1year forward EV/EBITDA band

Source: Bloomberg, JM Financial

We draw support from peers valuation and DCF: Havells valuation can be

compared with peers like Crompton Greaves, Bajaj Electricals for lighting and

electrical durables; Finolex, KEI for cables and wires; global companies such

as Legrand for switchgears; and Everlights Electronics for lighting and

fixtures. As shown in Exhibit 6, our 1-year forward target multiple of 13x is

largely in-line with the 1-year forward multiple average. Separately, as shownin Exhibit 7, our TP is still lower than the fair value based on DCF

methodology.

Exhibit 6. Havells peers trading at similar valuationMkt. Cap 10-12E CAGR PEG (x) P/E (x) EV/EBITDA (x) P/BV ROE

Company Name CrncyUS$ mn Rev EBITDA EPS 10-12E 2011E 2012E 2011E 2012E 2011E 2012E 2011E 201

Havells India Ltd INR 1,161 10% 21% 28% 0.4 14.1 12.1 8.8 7.1 5.6 4.1 47.2 3

Switchgears

ABB Ltd (India) INR 3,979 15% 21% 28% 1.0 33.8 28.6 20.5 19.1 5.3 4.7 17.1 1

Siemens India Ltd INR 6,620 20% 18% 19% 1.2 26.0 22.3 14.9 12.1 5.9 4.9 25.6 2

Lighting & Durables

Crompton Greaves Ltd INR 4,033 15% 17% 16% 0.9 16.9 14.6 10.4 8.6 4.3 3.5 28.0 2

Bajaj Electricals Ltd INR 604 21% 24% 28% 0.4 14.1 11.2 7.8 6.3 3.5 2.8 27.2 2Cables and Wires

Finolex Cables Ltd INR 181 14% 9% 28% 0.2 6.6 5.5 4.4 4.0 1.0 0.9 16.0 1

KEI Industries Ltd INR 41 12% 2% 46% 0.1 4.6 4.4 NM NM 0.6 NM 16.2 1

Global Peers

Schneider Electric SA EUR 46,544 7% 9% 11% 1.0 12.1 11.1 7.2 6.5 1.8 1.7 15.3 1

Legrand SA EUR 11,464 6% 7% 8% 1.6 13.5 12.7 7.6 6.9 2.3 2.1 18.1 1

Everlight Electronics TWD 1,223 NM NM -7% NM 11.8 14.9 6.6 NM 2.0 NM 17.6

Average 14% 14% 22% 0.8 15.1 14.0 9.0 8.4 3.0 2.7 20.7 1



4/23



Exhibit 7. Our TP is lower than Mar12 DCF based fair value of`504Stage I: Explicit Forecast Stage II: Steady growth

Stage III:Perpetualgrowth

FY11E FY12E FY13E FY14E FY15E FY16E Terminal valu

Total Revenue `mn 57,453 64,088 71,494 77,214 83,391 90,062

Growth (YoY) 11.5% 11.6% 8.0% 8.0% 8.0%

Total EBITDA ` mn 4,966 6,073 7,301 8,185 8,839 9,547EBITDA margin assumption 8.6% 9.5% 10.2% 10.6% 10.6% 10.6%

Depreciation `mn 789 805 821 846 871 897

PBIT ` mn 4,176 5,268 6,480 7,339 7,968 8,649Tax expense `mn -929 -1,028 -1,277 -2,202 -2,391 -2,595

Tax rate -22.2% -19.5% -19.7% -30.0% -30.0% -30.0%

PBIAT ` mn 3,248 4,240 5,204 5,137 5,578 6,055Growth Capex `mn -1,500 -1,000 -1,000 -772 -834 -901

% of sales -2.6% -1.6% -1.4% -1.0% -1.0% -1.0%

Change in working capital `mn -1,282 -230 -254 -772 -834 -901

% of sales -2.2% -0.4% -0.4% -1.0% -1.0% -1.0%

Free cash flow ` mn 1,255 3,815 4,770 4,439 4,781 5,151 80,81Discount factor 1.12 1.00 0.90 0.80 0.72 0.64 0.6

PV of cash flow `mn 1,402 3,815 4,271 3,558 3,431 3,309 51,92

PV of total future cash flows `mn 71,711

Current net debt (Mar'11) `mn 8,894 Key Assumptions

Total equity value `mn 62,817 Risk Free Rate 8% Tax rate 30%

Value Per Share ` 504 Beta 0.92x Debt/Equityratio

0.3x

CMP ` 412 Cost of Equity 14.6% WACC 11.7%

Potential Upside 22.3%Cost of Debt(pre-tax)

8%TerminalGrowth rate

5%


Key risk to our call a) sharp escalation in raw material prices exerting

pressure on margins, b) economic slowdown on global as well as domesticfront, c) delay or failure in scaling up of Sylvania operations in Latam and Asia

against management guidance.


5/23



Investment Rationale: A play on light andelectrical durables

Rising per capita electricity consumption and distinctive shift to

organised industry offers a significant opportunity: Havells products

largely derive demand from spending in the real estate and power

transmission and distribution sectors. Indias per capita electricity

consumption is expected to register a strong 10.2% CAGR over next 20 years

as we edge towards the world average from one of the lowest currently (seeExhibit 8). This offers a significant growth potential for the electrical

products, in our view. Moreover, there has been a distinct shift from the

unorganised sector to organised on increased disposable income,

affordability and willingness to pay premium.

Exhibit 8. Per capita power consumption

Global comparison (LHS) India-over the years and way ahead (RHS)

14,057

8,319 8,044 7,816

7,007

2,707

1,379704 1,000

US A Franc e OECD Japan S outh

Korea

World

Average

C hin a In dia In dia

2012

18 3884 131

238

406

592 635

1,000

1,300

1,900

2,800

1950 1960 1970 1980 1990 2001 2004 2006 2012 2017 2022 2027

10.2% CAGR

Source: CEA, JM Financial

Havells well placed to benefit from its well established brand and pan-

India dealership network: Havells, a four decade old company, is one of the

largest and oldest players in the electrical consumer products segment. It hasestablished an excellent distribution network with over 4,300 wholesalers and

25,000 retailers throughout India. It is one of the top 5 players in most of its

product categories it operates in and enjoys 8-20% market share in domestic

switchgears (20%), modular switches (15%), cable and wire (9%), and lighting

products (9-10%) (Exhibit 9).

Exhibit 9. Havells enjoys market leadership in various consumer product categories



6/23



The distribution network augurs extremely well for Havells as it provides an

excellent platform and scale to add new product lines. For example, despite

late entry into fans segment in 2004, Havells has reached 3 rd position and

accounts for c.13% of organised market. Similarly, it launched Geysers in

3Q11 and generated revenue of c.`160mn in first 3months itself and expects

to reach upto `800mn in FY12E (c.10% of market share). Havells plan to

launch irons and kitchen appliances like mixers, juicers may also yield

favourable results, in our view

Sylvania turned around, expect to boost consolidated profitability

significantly: Sylvania, Havells European acquisition, returned into a positive

territory in the Sept10 quarter, led by significant traction in Latam and Asia

regions (contribute c.30% to Sylvanias revenue) and partial savings from

restructuring initiatives (project Phoenix and Parakram). We expect Sylvanias

EBITDA margins to continue to improve from current 5.4% to 8-9% in FY13 a)

as contribution from Latam and Asia region (which typically enjoy high

margins) improves, and b) due to past restructuring initiatives.

Exhibit 10. Sylvania turned around in 2Q11; expect high growth in Latam revenues to further boost profitability

83

-61

75

78

89

-521

-369 -

265

-343 -2

66

-126

-45

-66

5

206

-600

-400

-200

0

200

400

600

1

Q08

2

Q08

3

Q08

4

Q08

1

Q09

2

Q09

3

Q09

4

Q09

1

Q10

2

Q10

3

Q10

4

Q10

1Q

11A

2Q

11A

3Q

11A

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%EBITDA Adjusted Profit EBITDA margin (RHS)Rs mn

11

.4 17

.6

20

.210

.8

16

.22

0.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

FY

11E

FY

12E

FY

13E

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Europe LATAM

Asia EBITDA Margin (RHS)

Euros mn


Estimate earnings CAGR of 32.3% in FY11-13E; our assumptions are

modest: We estimate consolidated topline and earnings to witness

11.6%/32.3% CAGR respectively over FY11-13E vs 4.7%/18.6% in FY07-11E

based on our assumptions of a) steady growth rate for switchgears and

cables and wires, b) robust growth rate for lighting and electrical durables, c)

modest squeeze in operating margins of most domestic segments, and d)

margin recovery in Sylvania operations. Our earning forecast is modest and

slightly lower than management guidance, implying that downward revision

risk is relatively low.

Exhibit 11. JMFe modest to consensus (` mn)Revenue EBITDA PAT

FY12E FY13E FY12E FY13E FY12E FY13E

JMFe 64.1 71.5 6.1 7.3 3.5 4.7

Consensus 66.8 76.8 6.3 7.8 3.7 4.7

Vs Consensus -4.1% -6.8% -3.8% -6.8% -3.5% 0.2%



7/23



History of high return ratios depicts strong efficiency of capital: Havells

operating history has been strong with the company generating ROCE/ROEs

in excess of 20% (Exhibit 12), except in FY09 which was hit by global financial

crisis. We expect Havells to have similar returns profile over the next two

years.

Exhibit 12. History of strong return ratios indicates efficient use of capital

0%

10%

20%

30%

40%

50%

60%

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

ROCE RONW

Source: Capitaline, Company, JM Financial

Delay or inability to pass on raw material price escalation is a key risk to

our call: Like peers, Havells is exposed to volatility in raw material prices,

particularly copper and aluminium, and lacks flexibility to completely pass on

the increase swiftly. However, management is confident that margins would

remain stable on an annual basis, as it enjoys pricing power. This is largely

evident from its past performance, when margins remained largely stable

despite significant price increases.

Exhibit 13. Trend in raw material price and margins movement (standalone)

1

0.5

%

1

0.4

%

9

.4%

9

.3%

9

.2%

1

2.6

%

1

1.9

%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2005 2006 2007 2008 2009 2010 2011

0%

2%

4%

6%

8%

10%

12%

14%

Standalone EBITDA margin(RHS) Copper Zinc Alum

US$/tMargins steady despite higher RM price in the past

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Mar-05

Sep-05

Mar-06

Sep-06

Mar-07

Sep-07

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

-

2,000

4,000

6,000

8,000

10,00

12,00Zinc Aluminium Copper(RHS)US$/t US$/t

Raw material prices rose 32-45% since Jun'10



8/23



Domestic Business Analysis:

Havells domestic business comprises cable and wires (steady growth but low

margin), switchgears (robust growth and margins), lighting and fixtures and

electrical durables (both high growth and high margin). We expect Havells

standalone entity to witness 15.4%/12.3%/14.7% CAGR in

topline/EBITDA/adjusted profit for FY11-13E respectively. Interestingly, high

growth-high margin segments (lighting and electrical durables) would drive

profitability (to account for 48-80% of incremental gross contribution in FY11-13E), in our view.

Further, based on the success of electrical durables such as fans and geysers, we

believe Havells would be able to leverage its strong brand and dealership network

successfully to roll out consumer appliances like irons, mixers/juicers, kitchen

appliances. Our current estimates assume marginal revenue from the new foray

and we believe successful launch and scale up would boost estimates and stock

performance.

I. Cables and Wires: Margin risk persists

Cables and Wires industry to ride on significant investments into powersector: Cables and Wires largely derive demand from spending in the powertransmission and distribution and real estate sectors in India. Industry

expects demand for cables to witness 9-10% CAGR over the next 5-6years

based on expenditures to the tune of`11-13trn in the power sector in India

(typically 36-45% of expenditure goes into cables and wires). Similarly, wires

industry revenue is expected to witness 10-12% CAGR on the back of growth

in real estate sector.

Exhibit 14. Havells Cables and Wires business benefits largely from capex in the distribution sector

`4.0tn capex in distribution sector ..36% of that goes into cables/wires Cables and Wires to see 11.7% CAGR in FY10-13ERs trillions

Generation,

5.0

Transmission,

2.4

Distribution,

4.0 Distribution,

36%

Generation,

17%

Transmission,

47%

0

50

100

150

200

250

300

350

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E

Rs bn

11.7% CAGR

25.1% CAGR

73

224

312

Source: CMIE, Industry, Company, JM Financial

Highly fragmented nature of industry poses competition and margin

risks: The domestic cable and wires market is highly fragmented and

competitive wherein unorganised players cater to c.40-45% of demand, while

large players such as Havells, Polycab Wires and Cables, Sterlite Technologies,

Finolex Cables and Kei Industries address the remaining demand.

Havells present in the low voltage cables/wires segment, in-line with

focus on dealership based revenue stream: Havells is largely present in

low-voltage cables and wires (upto 3.3kVA) segment (PVC cables, XLPE cables,

domestic FR/FRLS wires, co-axial TV and telephone cables). It plans to

Standalone Contribution break-up (FY11E

Switchgears

45%

Electrical

Durables

22%

Lighting

and F ixtures

15%Cables and

Wires

18%


9/23



continue its focus on low voltage cables/wires as it is largely

consumer/dealership driven and not a project driven sales model for high

voltage cables which is even more competitive. Despite severe competition,

Havells has increased its market share by 200-300bps over the last 4-5 years,

primarily due to its strong product offering and shift in consumer demand

towards branded products. Havells will be able to grow in-line with the

industry average, in our view.

Range-bound margins, presence in the segment mainly to complete

product portfolio for dealers: Historically, Cables and Wires margins have

been range bound due to companys inability to pass on raw material price

escalation swiftly and completely in light of fierce competition from

unorganised players. We expect contribution margins to remain stable at 8%

(vs 8.8-14% in the past, except FY09) over the next two years considering

volatility in raw material prices and fierce competition. Havells is present in

this segment primarily to complete its product portfolio for dealers as value

addition in this segment is fairly low.

Exhibit 15. Cable and Wires revenue to register 10% CAGR in FY11-13E, margins to remain stable

Revenue from Cables and Wires

4.6

7.8 9

.2 9.9

10

.1 12

.0 13

.2 14

.5

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

FY06A FY07A FY08A FY09A FY10A FY11E FY12E FY13E

Rs bn

10.0% CAGR

21.9% CAGR

0.6

0.9

0.9

1.0

1.1

1.2

0.9

0.6

11.7%

9.9%

8.8%8.5%

8 .0% 8 .0%

14.0%

6.4%

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4


5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%Contribution Contribution Margin (RHS)Rs bn

7.0% CAGR

9.5% CAGR


II. Switchgears: Solid growth with robust margins

Switchgears industry to continue its strong growth momentum, albeit at

a slightly slower pace than past: As shown in Exhibit 16, overall switchgears

industry is expected to register strong 23.1% CAGR in 2010-13E, albeit at a

slightly slower pace (vs 25% CAGR in 2005-11) due to slower investments into

power and real estate sectors. The switchgear market can be broadly divided

into low (up to 1.1Kva), medium (1.1- 6Kva) and high capacity (6Kva and

above). Havells is only present in low-voltage switchgears segment, which can

be further classified into domestic (less than 63Amp) and industrial (more

than 63Amp up to 1.1Kva). It offers a wide range of products, including MCBs

(miniature circuit breakers), mini MCBs, RCCB (residual current circuitbreaker), RCBO (residual current breaker with overload protection), switches,

sockets, regulators, MCCBs (moulded case circuit breakers), off/on load

changeovers and switch disconnector fuse. In addition to circuit protection

devices, Havells sells Crabtree switches in India (modular plate) with annual

revenue of c.`1.5bn (number 2 player with market share of 15%).

Largely organised but fierce competition pose difficulty in raising market

share for Havells: Due to technological and capital intensive nature of

business, organised segment of the industry accounts for over 70-80% of

total industry. Havells faces stiff competition from top European


10/23



multinationals and Indian companies such as Legrand, Schneider Electric,

L&T, Siemens AG and ABB Ltd in the industrial segment, while Indo Asean

Fusegear (sold to Legrand) is one of Havells largest competitors in the

domestic switchgears segment. As shown in Exhibit 16, Havells has

maintained c.4-5% share in the `100bn domestic switchgear market. New

product offerings catering (recently introduced motors in the market) to a

larger pie of the market would remain a key for Havells to maintain its market

share

Exhibit 16. Trends in switchgears industry growth and market share for key players

0

20

40

60

80

100

120

140

160

180

200

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E

Rs bn

23.1%CAGR

25%CAGR

31

95

177

4.414.9

4.43.9

5.45.0

0

2

4

6

8

10

12

14

16

FY04 FY05 FY06 FY07 FY08 FY09

Anchor HavellsLegrand Indo Asia FusegearSiemens ABBL&T Crompton

%

Source: CMIE, Industry, JM Financial

Expect Switchgears (including switches) revenue/gross contribution

CAGR of 12.7%/10.1% in FY11-13E: While we expect domestic switchgear

sales to continue to see robust 18-20% CAGR during FY11-13E, revenues from

the switchgears segment (including switches) could register 12.7% CAGR in

FY11-13E, lower than industry rate due to a) high base effect on account of

export sales to UK under OEM contract with Siemens, which expired in 2Q11,

and b) fierce competition and lower visibility on new product launches in this

segment. However, with the largely organised nature of the industry, we

believe market players observe better pricing discipline and therefore, Havells

would largely be able to maintain its contribution margins. We expect

revenue/gross contribution from Switchgears segment to witness a

12.7/10.1% CAGR respectively.

Exhibit 17. See slower switchgear revenue growth on reduced exports; assume modest margin in FY11-13E

Revenue from Switchgears

3.2 4

.3 5.4 6

.1 7.0 7

.5 8.1 9

.5

-

2.0

4.0

6.0

8.0

10.0

12.0


Rs bn

12.7% CAGR

18.5% CAGR

1.0

1.3

1.8

2.7

2.7

3.2

2.6

2.0

34.0%34.0%35.7%37.1%

32.3%

29.8%

30.5%33.4%

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0


20.

25.

30.

35.

40.

45.

50.

55.Contribution Contribution Margin (RHS)Rs bn

10.1% CAGR

22.3% CAGR



11/23



III. Lighting and Fixtures: CFL to drive growth Lighting (including luminaires and fixtures) market witnessed 12.4%

CAGR in FY05-09: According to CMIE, the overall lighting and luminaires

(lighting) market witnessed 12.4% CAGR in FY05-09, of which CFL (Compact

Fluorescent Lamps) component witnessed c.25% CAGR on the back of a)

energy savings and better awareness of CFL, and b) continuous reduction in

prices of CFL products. Industry expects similar growth scenario to continue

over the next 3-5 years due to rising penetration.

Havells positions itself at higher end of CFL and luminaires market:

Despite entering the lighting space late in FY04, Havells has become a

dominant segment player and ranks second in CFL after Phillips. In the

Luminaires space, it stands at fourth position after Phillips, Crompton and

Bajaj Electricals. Havells lighting and fixtures business is largely positioned at

the higher end of the CFL market. The bottom end of the market faces

significant competition from unorganised players and cheaper Chinese

imports. Moreover, Havells plans to further consolidate its premium

positioning through introduction of Sylvania products in Indian markets

(likely in 2HCY11).

Expect lighting revenue/gross contribution CAGR of 18.0%/23.1% in

FY11-13E respectively: We expect Havells revenue to witness 18.0% in FY11-

13E, slower than the past mainly due to base effect. However, gross

contribution would likely register 23.1% CAGR due to operating leverage

through economies of scale.

Exhibit 18. See lighting and Luminaires revenue/contribution CAGR of 18.0%/23.1% respectively

Revenue from Lighting and Fixtures

1.5

2.4 2

.82

.83.7

4.6

5.5

6.5

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0


Rs bn

18.0% CAGR

25.6% CAGR

0.4

0.3

0.4

0.9

1.1

1.3

0.5

0.7

20.0%20.0%

18.4%19.2%

12.8%

10.5%

18.7%

25.7%

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4


0.0%

5.0%

10.0

15.0

20.0

25.0

30.0Contribution Contribution Margin (RHS)

Rs bn

23.1% CAGR

17.4% CAGR


IV. Electricals Durables: Opportunities galore

Fan revenues witnessed 30.7% CAGR during FY04-10: Havells entered the

fans segment in FY04 and has already become the third largest player after

Crompton Greaves and Bajaj Electricals. Its fans revenue witnessed 30.7%

CAGR in FY04-10, significantly higher than industry average of around 20-25%

due to a) its strategy of positioning itself at higher end of the market by

leveraging its brand, and b) leveraging its existing dealership network in the

buoyant real estate and replacement demand. This was on the back of robust

industry growth and displacement of unorganised players. Besides fans,

Havells rolled out storage water heaters (Geysers) in 3Q11 and has already


12/23



generated c.`160mn of revenue in 3months and it hopes to generate about

`0.8bn in FY12E, c.10% of the existing `8bn market size.

Demographic and consumer shift to branded goods offers massive

opportunities for electrical consumer appliances industry: As per recent

(Jan11) report of National Council for Applied Economic Research's (NCAER),

India will be a country of 53.3mn middle class households (having income of

`3.4 lakh to `17 lakh) by 2015-16, a jump of 70% from current 31.4mn

households. In fact, it is likely to more than double from the 2015-16 levels

to 113.8 mn households by 2021-12. This offers significant growth potential

for consumer appliances industry, in our view. Moreover, with rising

disposable income and affordability, consumers are likely to shift from

unorganised to organised sector, which will immensely benefit strong players

like Havells.

Havells to leverage its strong brand and robust dealership network to

launch new consumer appliances: Havells has been able to leverage its

existing dealership network and Havells Galaxies (all of them are dealer

owned) are to roll out new products such as fans and geysers. Havells now

plans to expand its electrical durables portfolio with the launch of

mixers/juicers and irons in 2H11, resulting in further growth in its electrical

durables portfolio. We believe there is sufficient scope for Havells to

successfully launch and ramp up new products sales. We estimate Electrical

Durables proportion in gross contribution to increase from current 21.6% to

24.3% by FY13. Our current estimates on Electrical Durables do not assume

significant revenue from new initiative (irons, mixers, juicers etc) as the

existing products continue to register strong growth. Successful launch and

ramp up in new electrical durables/consumer appliances will therefore boost

our estimates and stock performance.

Exhibit 19. See electrical durables revenue/gross contribution CAGR of 25%/20.7% respectively

Revenue from Electrical Durables

1.2 1

. 7 2.4 2

.83

.64

.96

.1

7.6

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0


Rs bn

25% CAGR

31.7% CAGR

0.4

0.3

0.5

1.3

1.5

1.8

0.6

1.0

20.9%

28.4%

25.8%

24.0%24.0%

21.4%

31.0%

14.8%

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0


-

2

7

1

1

2

2

3

3Contribution Contribution Margin (RHS)Rs bn

20.7% CAGR

26.9% CAGR



13/23



Exhibit 20. Income statement summary for Havells (Standalone) (` bCAGR


Revenue 20.5 22.0 24.7 29.4 33.9 39.2 12.7% 15.4

Growth (YoY) 33% 7% 13% 19% 15% 16%

Switchgears 5.4 6.1 7.0 7.5 8.1 9.5 11.4% 12.

Growth (YoY) 27% 12% 16% 7% 8% 18%

Cables & Wires 9.2 9.9 10.1 12.0 13.2 14.5 9.2% 10.

Growth (YoY) 19% 7% 2% 19% 10% 10%


Growth (YoY) 19% -3% 32% 26% 18% 18%


Growth (YoY) 41% 15% 30% 35% 25% 25%

Gross contribution 3.6 3.9 5.3 6.0 6.5 7.7 18.6% 13.4

Switchgears 1.8 2.0 2.6 2.7 2.7 3.2 15.1% 10.

Growth (YoY) 37% 16% 29% 3% 3% 18%

Margin Assumption 32.3% 33.4% 37.1% 35.7% 34.0% 34.0%

Cables & Wires 0.9 0.6 0.9 1.0 1.1 1.2 3.5% 7.

Growth (YoY) 1% -31% 41% 14% 4% 10%



Growth (YoY) 45% 43% 36% 21% 28% 18%



Growth (YoY) 99% 18% 72% 23% 16% 25%


EBITDA 1.9 2.0 3.1 3.5 3.7 4.4 22.4% 12.3

Growth (YoY) 6.5% 53.5% 12.3% 7.3% 17.5%

Depreciation 0.1 0.2 0.2 0.3 0.3 0.4 30.6% 16.

Interest 0.2 0.3 0.3 0.1 0.2 0.2 -17.5% 22.

Other Income 0.1 0.1 0.1 0.1 0.0 0.1 38.9% -25.

PBT 1.2 1.7 1.7 2.9 3.1 3.3 34.0% 6.8

Tax Expense 0.2 0.2 0.2 0.6 0.7 0.7 50.1% 5.

Tax rate 15.3% 13.7% 13.2% 21.4% 22.5% 21.0%Reported PAT 1.4 1.5 2.3 2.4 2.6 3.1 18.3% 14.

Adjusted Profit 1.4 1.5 2.3 2.4 2.6 3.1 18.3% 14.7

EPS (`per share) 12.4 12.1 19.0 19.1 21.0 25.1 15.5% 14.



14/23



Sylvania: Strong traction, expect further marginimprovement

In April 2007, Havells bought over the worldwide lighting business (except brand

rights in the US, Canada, Mexico, Australia and New Zealand) of the thinly

profitable Sylvania from three private equity players for an enterprise value of

227mn, mostly funded through debt. The acquisition was aimed to a) capitalise

on the underleveraged brand and distribution network of Sylvania, b) improve

margins through better sourcing from India and China, and c) cross sell highmargin Havells switchgears range. We believe the choice of acquisition was

appropriate given Sylvania had strong pedigree for past 100 years and was

worlds No.4 lighting brand in lighting source and fixtures.

However, the worldwide financial crisis in 2007-08 led to significant losses at

Sylvania in FY09/10 due to its high fixed costs structure in the midst of decline

in demand. Havells put two restructuring programs (Phoenix and Prakram) to

turnaround Sylvanias operations. This involved rationalisation of costs, mainly

personnel expenses as shown in Exhibit 21.

Operation Phoenix: Undertaken in Jan-Sept09, this entailed reduction of

headcount in Latin America, Europe; shifting UKs manufacturing operations to

India; and closure of plants in Brazil and Costa Rica. This involved one time costof 12mn with an estimated benefit (recurring) of 17.5mn.

Operation Prakram: This program was also aimed at rationalisation of personnel

cost in Europe; it involved a one time cost of 2omn in Sept09-Dec10 with an

estimated benefit of 16mn.

Exhibit 21. Restructuring programs

Plant I: Operation Phoenix Plan II: Operation Prakram

Start date Jan-Sept09 Sept09-Dec10

Total Cost (mn Euros) 12.2 20.0

Estimated RecurringSavings (mn Euros)

17.5 16.0

Focus geography Latin America and Europe Europe

Actions plannedReduce 700 people in LatinAmerica

Reduce manpower in Europe(Holland, France, Germany and UK)

Reduce 600 people in EuropeIncrease outsourcing from Chinaand India

Shifting UK's manufacturing plantto India

Closure of plants in Brazil andCosta Rica


Sylvania broke even in 2Q11, ahead of its guidance: Sylvania operations

broke even in 2Q11 ahead of its own internal estimates on the back of

significant traction from emerging markets in addition to partial savings from

the restructuring programs. EBITDA margins improved from -1% in 2Q09 to5.4% in 3Q11, which the management hopes to increase to 9-10% over the

next two years. We believe that a sustained improvement in Sylvanias

profitability will bode well for Havells valuations and will drive stock re-rating.


15/23



Exhibit 22. Sylvania broke even decisively in 2Q11, despite lower sales than 2Q09

83

-61

75

78

89

-521

-369

-265

-343 -2

66

-126

-45 -66

5

206

-600

-400

-200

0

200

400

600

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11A

2Q11A

3Q11A

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%EBITDA Adjusted Profit EBITDA margin (RHS)Rs mn

88

.5

82

.9

85

.4

77

.7

70

.6

67

.777

.3

76

.8

67

.0

65

.674

.1

76

.8

31

.8

34

.1

31

.6

28

.8

24

.9

27

.9 27

.5

29

.0

32

.7

37

.6 35

.6

26

.1

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11A

2Q11A

3Q11A

4Q11E

Europe LATAM Asia

Revenue break-upEuros mn


New markets (Latam and Asia) reduce extent of European dominance

gradually and improve margin profile: Before acquisition, Sylvania derived

70-75% of its revenue from European while balance came from Asia and

Latam. However, while European region revenue remain fairly sluggish,

significant traction is witnessed the Asia and Latam markets; contribution of

low margin European markets share in sales came down from 70% to 62% in

3Q11. We expect it decline further to 58% by FY13E.

Exhibit 23. Latam and Asia growth lead to reduction in Europe dominance and improved EBITDA margin profile

334

.6

292

.5

283

.5

285

.7

288

.6

126

.3

1

09

.3

1

32

.0

151

.8

174

.5

69.3% 70.4%

64.9%61.4%

58.0%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

FY09

FY10

FY11E

FY12E

FY13E

-5%

5%

15%

25%

35%

45%

55%

65%

75%

Europe LATAM Asia Europe (% of revenue)-RHSmn euros

11

.4 17

.6

20

.210

.8

16.2

20

.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

FY11E

FY12E

FY13E

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Europe LATAM

Asia EBITDA Margin (RHS)

Euros mn


Sylvania profits to witness 127% CAGR in FY11-13E, to contribute 33% to

consolidated profits in FY13E: We estimate Sylvanias profits to offer 127%

CAGR during FY11-13E on a) revenue growth led by Asia and Latam andstable European sales, b) overall margin improvement led by higher

proportion of high margin Asia and Latam revenue (30.7% in FY09 to 42% in

FY13E). We estimate Sylvania to account for 33% of consolidated adjusted

profit and be the key driver for consolidated profitability (to account for

85%/55% of incremental profits in FY12/13E respectively).


16/23



Exhibit 24. EBITDA and profits to witness 40.1%/127% CAGR in FY11-13E

Sylvania EBITDA

1.6

0.9

0.1

1.5

2.3

2.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5


Rs bn

40.1% CAGR

Sylvania Adjutsed Profits

0.2

-1.1

-1.6

0.3

0.9

1.6

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0


Rs bn

127% CAGR


Exhibit 25. Income statement summary for Sylvania (` bCAGR


Revenue 29.5 32.8 29.6 28.0 30.2 32.3 -1.7% 7.4

Growth (YoY) 11% -10% -5% 8% 7%

Europe (mn euros) NA 334.6 292.5 283.5 285.7 288.6 0.

Growth (YoY) NM -12.6% -3.1% 0.8% 1.0%

Latin America (mn euros) NA 126.3 109.3 132.0 151.8 174.5 15.

Growth (YoY) NM -13.4% 20.7% 15.0% 15.0%

Asia (mn euros) NA 22.0 13.5 21.2 27.6 34.5 27.

Growth (YoY) NM -38.8% 57.6% 30.0% 25.0%

EBITDA 1.6 0.9 0.1 1.5 2.3 2.9 -1.9% 40.1

Growth (YoY) -45% -87% 1198% 58% 25%

EBITDA margin 5.3% 2.6% 0.4% 5.3% 7.7% 9.0%Europe (mn euros) NA NA NA 11.4 17.6 20.2 33.

Growth (YoY) NM 54.1% 15.0%

Margin Assumption 4.0% 6.1% 7.0%

Latin America (mn euros) NA NA NA 10.8 16.2 20.9 39.

Growth (YoY) NM 49.6% 29.4%


Asia (mn euros) NA NA NA 0.9 2.1 3.4 97.

Growth (YoY) NM 132.6% 67.7%


Depreciation 0.6 0.7 0.6 0.5 0.5 0.5

Interest 0.8 1.0 0.9 0.7 0.7 0.5

PBT 0.3 -0.9 -1.3 0.5 1.3 2.0 18.9% 92.3

Tax Expense 0.1 0.2 0.3 0.2 0.3 0.4

Tax rate 46% -24% -24% 44% 26% 22%

Reported Profit 0.2 -3.1 -1.6 0.2 0.9 1.6 4.4% 180.8

Adjusted Profit 0.2 -1.1 -1.6 0.3 0.9 1.6 20.5% 126.7

Growth (YoY) NM 49% NM 203% 70%



17/23



Financial Outlook: Strong earnings growth led bySylvania recovery

We forecast consolidated revenue to witness 11.6% CAGR in FY11-13E largely led

by standalone entity (15.4% CAGR) while Sylvanias revenue growth to remain

sluggish (7.4% CAGR). Despite muted sales growth, we expect consolidated

EBITDA to register a strong 21.3% CAGR mainly on account of strong 40.1%

CAGR in Sylvanias EBITDA (EBITDA margins to improve from 5.3% in FY11E to 9%

in FY13E) a) as benefits of restructuring program kick in fully, and b) on robustrevenue growth in high margin Latam and Asian geographies. This leads to an

adjusted profit CAGR of 32.3% and significant fall in debt/equity ratio to 0.2x

from 2.30x in FY10, in our view.

Consolidated revenue to witness 11.6% CAGR in FY11-13E led by lighting

and electrical durables: We estimate Havells consolidated topline to see

11.6% CAGR in FY11-13E driven by 18.0% CAGR in lighting and 25.0% CAGR in

consume durables. We expect Havells standalone revenue to register 15.4%

CAGR driven by steady growth in switchgears, cables and wires boosted

further by robust growth in lighting and electrical durables. Sylvania revenues

are expected to grow at muted compounded rate of 7.4% as European sales

will likely remain sluggish (account for 60-70% of Sylvanias revenue), even as

Latam and Asia would continue to register strong growth.

Exhibit 26. Consolidated revenue to see 11.6% CAGR in FY11-13E, led by

domestic businesses

32.828.0 30.2

32.3

5.46.1

7.0 7.58.1

9.59.2

9.9 10.1 12.0 13.2

14.54.6

5.5

6.5

4.9

6.1

7.6

29.629.5

2.8

2.8 3.72.8 3.6

20.0

30.0

40.0

50.0

60.0

70.0

80.0


Sylvania Switchgears

Cables and Wires Lighting and Fixtures

Electrical Durables

Rs bn

4.7% CAGR

11.6%CAGR


Consolidated EBITDA to see 21.3% CAGR in FY11-13E on margins

improvement: We expect consolidated EBIDA to register 21.3% CAGR in FY11-

13E driven by a) steady growth and margins in standalone entity, and b)

significant improvement in Sylvanias operating margins driven by

restructuring benefits from European operations and robust growth in high

margin geographies of Latam and Asia.


18/23



Exhibit 27. Consolidated EBITDA to see 21.3% CAGR in FY11-13E driven by EBITDA margin improvement at Sylvania

1.6

0.9

0.1

1.5 2

.3 2.9

1.9

2.0

3.1

3.5

3.7

4.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0


Sylvania Standalone

Rs bn

12.7%CAGR

21.3%CAGR

5.3%

2.6%

5.3%

7.7%

9.0%

9.3% 9.2%

12.6%11.9%

11.1% 11.2%

6.9%

5.3%5.9%

8.6%

9.5%

0.4%

10.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%


Sylvania S tanda lone Conso lida ted


Earnings to witness 32.3% CAGR in FY11-13E leading to robust

ROE/ROCE: We forecast Havells consolidated earnings to witness 32.3%CAGR in FY11-13E, significantly higher than 18.6% in FY08-11 on the back of

a) robust growth in standalone entity led by electrical durables and lighting,

b) margin improvement in Sylvania operations led by restructuring and robust

sales growth in high margin Latam and Asian geographies. Our revenue and

margin assumptions are modest, in our view, and do not face material

downside risk.

Exhibit 28. Havells earnings to register 32.3% CAGR in FY11-13E and lead to robust ROCE/ROEs

0.2

-1.1

-1.6

0.3 0

.9 1.61

.4

1.5

2. 3 2

.42

.6

3.1

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0


Sylvania StandaloneRs bn

18.6%CAGR

32.3%CAGR

24

.2%

6.1

%2

3.2

%

27

.4%

33

.2%

33

.8%

6.3

%13

.7%

52

.5%

45

.5%

40

.9%

7.7

%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%


ROCE ROE



19/23



Company Background

Mr. Qimat Rai Gupta (Chairman) promoted Havells in 1971 through acquisition of

brand Havells. Havells is now one of India's largest and fastest growing

electrical and power distribution equipment manufacturer in the entire gamut of

household, commercial and industrial electrical needs. It offers products ranging

from Circuit Protection Switchgear (Industrial and Domestic), Cables and Wires,

CFL Lamps, Luminaires. Havells owns some of the prestigious global brands like

Crabtree, Sylvania, Concord, Luminance, Linolite, and SLI Lighting.

Exhibit 29. Evolution of Havells

Year Milestones

1958 Promoter, Mr Qimat Rai Gupta, started trading operations in Delhi

1971 Acquired brand Havells

1976 Set up first manufacturing plant for renewable switches and changeover switches

1979 Set up facility for HBC fuses

1980 Started manufacturing high-quality energy meters

1987 Started manufacturing MCBs in a JV with Geyer, Germany

1990 Facility for changeover switches set up

1993 Facility for control gear products set up in UP

1996 Entered in power and cables market by acquiring a manufacturing plant at Alwar

Entered into a JV with Electrium, UK for manufacturing Dorman Smith MCCBs and Crabtr

1997 Acquired electric control and switchboards for manufacturing customised packaged solution

2000 Acquired controlling stake in Duke Amics Electronics (P) Ltd and Standard Electricals Ltd

2004

Set up plant at Baddi for domestic switchgears

Set up facility for CFL at Faridabad

Plant set up for manufacturing of Ceiling fans at Noida

2005 Set up fan manufacturing plant at Haridwar

2006 Crabtree India Limited merged with Havells

2007

Set up capacitor manufacturing plant in Noida with capacity of 6,00,000 kVAr per month

Acquired Frankfurt based Sylvania

Warburg Pincus, a global PE firm, invested USD110 million in Havells

2008 Entered into motor market

2009 Set up a fully automatic switchgear manufacturing facility

2010 Acquired 100% interest in Standard Electricals


Havells has over 91 representative offices, 25,000 strong global distribution

network and over 8,000 professionals in over 50 countries across the globe. Its

11 state-of-the-art manufacturing plants are located in India and across Europe,

Latin America and Africa. It has also undertaken an initiative to reach directly to

consumers through Havells Galaxya one stop shop for all electrical and

lighting needs. Currently it has about 80 stores, which it plans to increase to 200by FY12.

Mr Anil Gupta, son of the Managing Director and MBA from the USA, is Joint

Managing Director and overlooks the marketing and brand-building initiatives.

He has been with Havells since 1992. He is also responsible for Sylvania

operations since 2008.

Mr Surjit Gupta, co-founder, holds the position of Director Operations. He

holds a diploma in mechanical engineering and has over 35 years of work

experience in the industry.

1976

1979

1980

1987

1993

1996

2004

2007

2008

Re-wire able Switches aChangeover switche

Energy meters

Control gearproducts

Domestic switchgearceiling fans, CFLs

Motors

Capacitors

Power cablesand wires

MCBs

HBC Fuses

1976

1979

1980

1987

1993

1996

2004

2007

2008

Re-wire able Switches aChangeover switche

Energy meters

Control gearproducts

Domestic switchgearceiling fans, CFLs

Motors

Capacitors

Power cablesand wires

MCBs

HBC Fuses


20/23



3Q11 results summary

Exhibit 30. 3Q11 results showed significant sequential improvement (` mn)3Q10 3Q11A YoY 2Q11 QoQ 9M10 9M11 Yo

Revenue 13,861 14,915 7.6% 14,027 6.3% 40,021 42,421 6.0

EBITDA 1,010 1,329 31.6% 1,172 13.4% 2,618 3,583 36.9

EBITDA margin 7.3% 8.9% 8.4% 6.5% 8.4%

Depreciation 203 200 -1.1% 198 1.0% 629 588 -6.

EBIT 807 1,129 39.8% 973 16.0% 1,989 2,995 50.

Other Income 85 125 48.1% 1 8857.1% 108 207 91.

PBIT 892 1,254 40.6% 975 28.7% 2,097 3,202 52.

Interest 262 215 -17.8% 145 48.5% 740 566 -23.

XO Expense/(income) 2,243 224 -90.0% -90 -347.9% 3,078 171 -94.

PBT -1,613 815 -150.5% 920 -11.5% -1,721 2,465 -243.

Provision for taxation 167 222 32.9% 246 -10.0% 469 689 47.

Tax rate -10.3% 27.2% 26.8% -27.2% 27.9%

Reported Profit -1,780 593 -133.3% 674 -12.0% -2,189 1,776 -181.

Adjusted Profit 463 817 76.4% 591 38.4% 889 1,875 110.9

Reported Basic EPS 3.85 6.55 70.1% 4.73 38.4% 7.39 15.17 105.


Exhibit 31. Sequential revenue, contribution trend in standalone businesses

1.3

1.4

1.4

1.3 1

.5 1.6

1.4 1

.61

.71

.71

.7 1.9

1.9

1.8

1.8

2.0 2

.3 2.4

2.5 2

.5 2.7

2.1

2.5 2

.42

.42

.52

.8 2.9

2.9 3

.10.6

0.6 0

.90

.8 0.6

0.7

0.8

0.7

0.8 0

.90

.91

.1 1.0

1.1 1

.2

0.7

0.5

0.5

0.7

0.8

0.7

0.5

0.8 0

.9 0.8

0.7

1.2 1

.3

1. 0 1

.1

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10A

2Q10A

3Q10A

4Q10A

1Q11A

2Q11A

3Q11A

Switc hgears Cables and Wires

Lighting and Fixtures Electrical Consumer Durables

Rs bn

0.4

0.5

0.5

0.4

0.6

0.6

0.4 0

.5 0.6 0

.70

.6 0.7

0.7

0.6

0.7

0.2 0

.2

0.2

0

.2

0.3

0.2

-0.1

0.2

0.3

0.2

0.2 0

.20

.2

0.3

0.3

0.1 0

.10

.2

0.1

0.1

0.2

0.1

0.1

0.1

0.2

0.2 0

.20

.20

.2 0.2

0.1 0

.1 0.1

0.2

0.2

0.1

0.1

0.2

0.2 0

.20

.20

.30

.3

0.3 0

.3

-0.2

0.3

0.8

1.3

1.8

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10A

2Q10A

3Q10A

4Q10A

1Q11A

2Q11A

3Q11A

10%

13%

16%

19%

22%

25%

S witc hgears Cables and Wires


Contribution margin (RHS)

Rs bn


Exhibit 32. Trend in gross contribution margins (Standalone)

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10A

2Q10A

3Q10A

4Q10A

1Q11A

2Q11A

3Q11A

Switchgears Cables and Wires


Source: Company, JM Financial ; Note:


21/23



Annexure

Exhibit 33. Havells historical 1-year forward P/BV band

0

50

100

150

200

250

300

350

400

450

500

Oct-

05

Fe

b-0

6

Jun

-06

Oct-

06

Fe

b-0

7

Jun

-07

Oct-

07

Fe

b-0

8

Jun

-08

Oct-

08

Fe

b-0

9

Jun

-09

Oct-

09

Fe

b-1

0

Jun

-10

Oct-

10

Fe

b-1

1

1x

2x

3x

4x

5x

6x

1 year forward P/BV band


Exhibit 34. Havells presence in the global market


Exhibit 35. Lighting & Luminaires segment margins for Phillips

-500

0

500

1000

1500

2000

2500

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

S ale s EBITA EBITA margin (RHS )mn euros

Source: Company data, JM Financial


22/23



Financial Tables (Consolidated)

Profit & Loss Statement (` mn)Y/E March FY09A FY10A FY11E FY12E FY13E

Net sales (Net of excise) 54,775 54,315 57,453 64,088 71,494

Growth (%) 9.5 -0.8 5.8 11.5 11.6

Other operational income 0 0 0 0 0

Raw material (or COGS) 32,736 32,430 35,704 40,291 45,127

Personnel cost 8,452 7,602 6,611 6,928 7,839

Other expenses (or SG&A) 10,701 11,062 10,172 10,795 11,228

EBITDA 2,886 3,222 4,966 6,073 7,301

EBITDA (%) 5.3 5.9 8.6 9.5 10.2

Growth (%) -16.7 11.7 54.1 22.3 20.2

Other non-op. income 86 222 247 160 160

Depreciation and amort. 905 837 789 835 892

EBIT 2,066 2,607 4,423 5,398 6,569

Add: Net interest income -1,253 -979 -811 -829 -596

Pre tax profit 813 1,628 3,613 4,570 5,974

Taxes 429 932 929 1,028 1,277

Add: Extraordinary items -1,986 0 -106 0 0

Less: Minority interest 0 0 0 0 0

Reported net profit -1,602 696 2,578 3,542 4,697

Adjusted net profit 384 696 2,684 3,542 4,697

Margin (%) 0.7 1.3 4.7 5.5 6.6Diluted share cap. (mn) 120 120 125 125 125

Diluted EPS (`) 3.2 5.8 21.5 28.4 37.7Growth (%) -77.0 81.1 271.9 32.0 32.6

Total Dividend + Tax 176 271 359 405 452 Source: Company, JM Financial

Balance Sheet (` mnY/E March FY09A FY10A FY11E FY12E FY

Share capital 301 301 312 312

Other capital 24 11 0 0

Reserves and surplus 5,821 3,690 5,909 9,045 13

Networth 6,146 4,002 6,221 9,357 13

Total loans 12,278 10,664 11,664 9,664 7

Minority interest 2 2 2 2

Sources of funds 18,426 14,668 17,887 19,023 21

Intangible assets 0 0 0 0

Fixed assets 32,540 30,175 31,011 32,511 33

Less: Depn. and amort. 20,427 18,089 18,878 19,713 20

Net block 12,113 12,086 12,133 12,798 12

Capital WIP 308 336 1,000 500

Investments 0 0 0 0

Def tax assets/- liability 97 -266 -328 -442

Current assets 20,215 18,389 20,492 23,199 27

Inventories 7,947 8,246 8,657 9,657 10

Sundry debtors 7,573 6,982 7,386 8,238 9

Cash & bank balances 2,473 1,481 2,770 3,625 5

Other current assets 0 0 0 0

Loans & advances 2,221 1,679 1,679 1,679 1

Current liabilities & prov. 14,308 15,876 15,409 17,032 18

Current liabilities 13,934 15,555 15,099 16,689 18

Provisions and others 373 321 310 343

Net current assets 5,907 2,512 5,082 6,167 8

Others (net) 1 0 0 0

Application of funds 18,426 14,668 17,887 19,023 21


Cash flow statement (` mn)Y/E March FY09A FY10A FY11E FY12E FY13E

Reported net profit -1,602 696 2,578 3,542 4,697

Depreciation and amort. 483 -2,338 789 835 892

-Inc/dec in working cap. 2,408 1,914 -1,271 -263 -291

Others 2 0 0 0 0

Cash from operations (a) 1,290 272 2,096 4,114 5,298

-Inc/dec in investments 32 0 0 0 0

Capex -1,235 2,337 -1,500 -1,000 -1,000

Others -183 489 -11 33 37

Cash flow from inv. (b) -1,386 2,826 -1,511 -967 -963

Inc/-dec in capital 1,021 -2,569 0 0 0

Dividend+Tax thereon -176 -271 -359 -405 -452

Inc/-dec in loans -684 -1,615 1,000 -2,000 -2,000

Others -21 364 62 114 82

Financial cash flow ( c ) 140 -4,090 703 -2,291 -2,370

Inc/-dec in cash (a+b+c) 44 -992 1,288 855 1,964

Opening cash balance 2,429 2,473 1,481 2,770 3,625

Closing cash balance 2,473 1,481 2,770 3,625 5,589 Source: Company, JM Financial

Key RatiosY/E March FY09A FY10A FY11E FY12E FY

BV/Share (`) 51.1 33.3 49.9 75.0 1

ROCE (%) 6.1 7.7 23.2 27.4

ROE (%) 6.3 13.7 52.5 45.5

Net Debt/equity ratio (x) 1.6 2.3 1.4 0.6

Valuation ratios (x)

PER NA 71.1 19.1 14.5

PBV 8.1 12.4 8.3 5.5

EV/EBITDA 20.6 18.2 12.1 9.4

EV/Sales 1.1 1.1 1.0 0.9

Turnover ratios (no.)

Debtor days 50 47 47 47

Inventory days 53 55 55 55

Creditor days 155 175 154 151



23/23


JM Financial Institutional Securities Private LimitedMEMBER, BOMBAY STOCK EXCHANGE LIMITED AND NATIONAL STOCK EXCHANGE OF INDIA LIMITED

SEBI REGISTRATION NOS.: BSE - INB011296630 AND INF011296630, NSE - INB231296634 AND INF231296634REGISTERED OFFICE: 141, MAKER CHAMBERS III, NARIMAN POINT, MUMBAI - 400 021, INDIA

CORPORATE OFFICE: 51, MAKER CHAMBERS III, NARIMAN POINT, MUMBAI - 400 021, INDIA

BOARD: +9122 6630 3030 | FAX: +91 22 6747 1825 | EMAIL: [email protected] | WWW.JMFINANCIAL.IN

Analyst Certification

The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that:

All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and

No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this resereport.

Analyst(s) holding in the Stock: (Nil)

Other Disclosures

This research report has been prepared by JM Financial Institutional Securities Private Limited (JM Financial Institutional Securities) to provide information aboucompany(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated companies solely for the purpose of information of the srecipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent oFinancial Institutional Securities. This report has been prepared independently of the companies covered herein. JM Financial Institutional Securities and/or its affientities are a multi-service, integrated investment banking, investment management and brokerage group. JM Financial Institutional Securities and/or its affilcompany(ies) might have lead managed or co-managed a public offering for the company(ies) covered herein in the preceding twelve months and might have reccompensation for the same during this period for the services in respect of public offerings, corporate finance, investment banking, mergers and acquisitions or advisory services in a specific transaction. JM Financial Institutional Securities and/or its affiliated company(ies) may receive compensation from the company(ies) mentin this report within a period of three to six months' time following the date of publication of this research report for rendering any of the above services. Research anand Sales Persons of JM Financial Institutional Securities may provide important inputs into the investment banking activities of its affiliated company(ies) or any otheor company associated with it.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments refto herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities may not be in any way responsibany loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This report is provided for information only anot intended to be and must not alone be taken as the basis for an investment decision. The investment discussed or views expressed herein may not be suitable finvestors. The user assumes the entire risk of any use made of this information. The information contained herein may be changed without notice and JM FinaInstitutional Securities reserves the right to make modifications and alterations to this statement as they may deem fit from time to time.

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This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction.

This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or ojurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject JM Financial Institutional Securities anits affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform themselves of and to observe such restrict

Documents

Havells Initiating Coverage 27 Apr 2011