time horizon 12 months · lighting lighting& fixtures 6,500 10-14% # 2-4 medium philips,...
TRANSCRIPT
Anand Rathi Research
Time Horizon – 12 Months
January 3, 2019
Source: Company, Anand Rathi Research, Bloomberg
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Relative stock performance (Jan 18=100)
CMP: ₹680
Target: ₹788
Shareholding Pattern (as on Sep’18)
Havells India Ltd. (HAVL IN)
Research Team
Key Data
Bloomberg Code HAVL IN
NSE Code HAVELLS
BSE Code 517354
Sector Industrials
Industry Electrical Equipment
Face Value (₹) 1.0
BV per share (₹) 60
Dividend Yield (%) 0.6%
52 Week L/H(₹) 454 / 729
Market Cap. (₹ Mn.) 4,25,509
(In ₹ Mn.) FY-17 FY-18 FY-19E FY-20E
Net Sales 61,558 81,464 94,364 1,10,517
EBITDA 8,182 10,309 12,261 15,188
EBITDA Margin 13.3% 12.7% 13.0% 13.7%
PAT 4,945 6,624 8,073 10,035
EV/Sales 6.9 5.2 4.5 3.9
EV/EBITDA 44.0 37.1 31.3 25.4
P/E (x) 86.0 64.2 52.7 42.4
Price Performance CY16 CY17 CY18 YTD
Absolute 12% 64% 23% -2%
Relative 8% 28% 26% 0%
Sep-18 Jun-18 Mar-18 Dec-17
Promoter 67.2% 67.2% 67.2% 67.2%
Institutions 19.4% 19.4% 19.4% 19.2%
Others 13.4% 13.4% 13.4% 13.6%
Total 100% 100% 100% 100%
80
100
120
140
160
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19
Nifty 500 HAVL
2 Anand Rathi Research
HAVL: A promising player in the industry.
Havells India Ltd. (HAVL IN)
Based in Noida (UP), Havells India Limited is one of the leading Fast Moving Electrical Goods (FMEG) companies and a key player in power distribution
equipment manufacturing. With a robust global presence in over 52 countries, the company offers a wide range of products, including Industrial & Domestic
Circuit Protection Devices, Cables & Wires, Fans, Modular Switches, Luminaires for Domestic, Commercial and Industrial Applications.
Havells was founded in 1958 as trading operation in Delhi and in 1971 acquired Havells brand and started Havells Industries. Since then the company has grown
through meaningful acquisitions and expansions. In 2017, it acquired the Consumer Durables Business of Lloyd Electric and Engineering Limited in 2017,
foraying in the business of Air Conditioners, LED TV and washing machines.
Havells’ manufacturing units are spread over seven locations in India including Alwar (Rajasthan), Baddi (Himachal Pradesh) and Haridwar (Uttrakhand). Further
it is setting up plant for Lloyd products in Rajasthan, enhancing manufacturing capabilities. Post completion of this plant, the company will have 13 plants across
8 different locations in the country.
In its latest quarterly results, Havells recorded net revenue growth of 23% at ₹21,909 million as against ₹17,774 million in same quarter previous year. Net
Profit increased 4% to ₹1,786 million from ₹1,711million in the previous year quarter. While Lloyd’s performance was affected by adverse season, channel
inventory and forex headwinds, all other key business segments reported solid double digits growth in the quarter.
Havells looks to drive growth with technology upgradation. Channel expansion remains one of the key strategic initiatives of the company, focused on modern
format retails, brand stores and online platforms along existing relationships with distributors and direct dealers. With this, the company targets to grow all its
four key product groups viz. Washing Machines, Refrigerators, Room AC and TVs in double digits.
In terms of guidance, management expects Cable and wire business margin in the range of 15% to 17% in the coming quarters, while the range for lighting is
expected at about 27% to 30%. Post completion of the Lloyd plant, Capex is expected in the range of ₹200-250 crores every year.
In terms of macro scenario, the consumer durable industry has plenty upside given Government’s focus on electrification, infrastructure and housing and
implementation of GST. Also, emerging middle class, increasing disposable income and easy access to credit is set to boost demand in the sector.
Havells, which boasts of around 8,500 dealers and 1,00,000 retailers in its business, aims to expand its major penetration zones -Metro, Tier I & II Towns, while
it sees Rural sector and Tier III & below towns as key penetration opportunity.
With solid fundamentals and favourable macro traits, we believe the company is well positioned for long term growth and initiate our coverage on Havells India
Ltd. with a BUY rating and a target price of ₹788 per share.
3 Anand Rathi Research
Business Segments & Key Brands
Source: Company, Anand Rathi Research
Havells Business Segments
Lloyd Consumers (17%)
Cables (33%)Electrical consumer
durables (19%)
Switchgear (17%)
Havells India Ltd. (HAVL IN)
Lighting and fixtures (14%)
Domestic cables Industrial
underground cables
Domestic and Industrial switchgears
Electrical wiring accessories
Industrial motors, pumps and capacitors
Air Conditioner Television, Washing Machine Domestic
Appliances
Energy Saving Lamps (CFL, LED)
Solar Luminaries
Fans Water Heaters Coolers Personal Grooming Water Purifier Domestic Appliances
4 Anand Rathi Research
Steady margin improvement despite revenue challenges.
Source: Company, Anand Rathi Research. NOTE: FY18 figures include Lloyd Business
revenues
Revenue & Revenue Growth EBITDA & EBITDA margin
Havells revenue has witnessed mixed growth the past five years. The growth was impacted by demonetization followed by GST
implementationin FY16-17 while drop in commodity prices affected revenue in FY15-16. However, the company regained
momentum in FY18 with 9.5% growth (excluding Lloyd business in FY18) in revenues, continuing the streak current financial year.
Notably, for the H1-FY19, Havells has reported a growth of 32% in its net revenues.
In terms of profitability, the company has improved its operating margins in last five years. The total margins improvement for
the company for the period was ~360 basis points (include Lloyd business in FY18) despite facing challenges in revenue growth in
few years. The improvement in margins was mainly due to improvement in overall efficiency of the company.
Havells India Ltd. (HAVL IN)
-20.0%
-5.0%
10.0%
25.0%
40.0%
20,000
40,000
60,000
80,000
1,00,000
FY-14 FY-15 FY-16 FY-17 FY-18
Sales ₹Mn. Sales Growth (RHS)
8.0%
10.0%
12.0%
14.0%
16.0%
4,000
6,000
8,000
10,000
12,000
FY-14 FY-15 FY-16 FY-17 FY-18
EBITDA (₹ Mn.) EBITDA Margins (RHS)
5 Anand Rathi Research
Segment wise performance …
Source: Company, Anand Rathi Research
Cables business recorded a CAGR of 8.6% in revenues over the last 5 years.
The company’s several efforts to lift growth in this segment include continuous innovation in regular product range, enhancing
share of B2B sales, extending existing portfolio of communication cables by launching speaker wires, CCTV wires, LAN cables and
introduction new wires in projects based on POE concept, wherein same wires will be used in power distribution and signal
transmission as well.
Switchgear revenues registered a CAGR of 4% over the last 5 years.
Fortifying its market position and product portfolio in the switchgear segment Havells tied up with South Korean major Hyundai
Electric & Energy Systems Co. Ltd to expand the product range. The company aims to drive growth through introduction of new
products, building a multi-brand portfolio to focus on different customer profile.
Havells India Ltd. (HAVL IN)
Cables & Wires Segment Switchgear (Domestic & Industrial)
0%
5%
10%
15%
20%
25%
16000
19500
23000
26500
30000
FY-16 FY-17 FY-18
Sales ₹Mn. Sales Growth (RHS)
-5%
0%
5%
10%
15%
10000
11000
12000
13000
14000
15000
FY-16 FY-17 FY-18
Sales ₹Mn. Sales Growth (RHS)
6 Anand Rathi Research
Contd. Segment wise performance
Source: Company, Anand Rathi Research
Lighting & Fixtures registered revenue growth of 27.8% year over year in FY18. Notably, in Oct 2017, Havells closed its joint venture business Jiangsu
Havells Sylvania Lighting Co. Ltd.
With shift of consumer preference towards energy-efficient lighting, traditional lighting products have significantly declined and LED lamps and
luminaires currently constitutes 87% of the business.
Havells bagged several projects in Delhi, Punjab and Tamil Nadu to offer various energy efficient lighting solutions. In consumer lighting, the company
aims to drive growth through opportunities in primary and secondary reach. In professional lighting, it intends to focus on product innovation and use of
latest technology.
Electrical Consumer Durables recorded a CAGR of 16.5% in revenues over the last 5 years. Water heaters and Fans are the major growth drivers for this
segment. However, Havells remains focused in launching various innovative and technology led products in different categories like kitchen appliances,
switches, personal grooming, lighting and home security.
Havells India Ltd. (HAVL IN)
-80.0%
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
5000
15000
25000
35000
FY-16 FY-17 FY-18
Sales ₹Mn. Sales Growth (RHS)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
5000
10000
15000
20000
FY-16 FY-17 FY-18
Sales ₹Mn. Sales Growth (RHS)
Lighting & Fixtures Electrical Consumer Durables
7 Anand Rathi Research
Lloyd Business
Source: Company, Anand Rathi Research
Havells forayed in the business of air conditioners, television, washing machines and refrigerators with the strategic acquisition
of Lloyd’s consumer durables business in May 2017. Revenues has been on the increasing trend over the last three quarters.
Havells is set to leverage on this acquisition as Lloyd has already gained markets share of about 13% in AC segment of India over
the last 7 years and 3% share in LED TV segment of India over the last 5 years
While Lloyd an established brand in the Air conditioner market, Havells intends to strengthen offerings in categories such as
Televisions and Washing Machines.
Source: Company, Anand Rathi Research
Havells India Ltd. (HAVL IN)
Lloyd Business Revenues (Quarterly)
8000
11000
14000
17000
20000
Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18
8 Anand Rathi Research
Havells’ Key Strategic Moves Contd..
Source: Company, Anand Rathi Research
A. Channel Expansion
• Bolstering technology in channel management – Online ordering solutions, sales force automation, distribution management system, vendor management system, etc.
• Focus on modern format retails, exclusive brand stores and online platforms along with continued relationships with distributors and direct dealers
• With around 8,500 dealers and 1,00,000 retailers Havells’ major penetration is in Metro, Tier I & II Towns
• Havells aims to expand in Tier 1 and Metro towns while it sees Rural sector and Tier III & below towns as potential penetration zones.
Havells India Ltd. (HAVL IN)
9 Anand Rathi Research
…Contd
Source: Company, Anand Rathi Research
B. Product Expansion
• Reduce dependency on single product category• Havells aims to expand its offerings in Televisions and Washing Machines.• In Cables business, the company intends to add new products such as Photo-voltaic Range,
Surge Protection Device, Industrial P&S, Communication ready MCB and Modular contactor• Enhancing manufacturing capabilities, Havells committed an outlay of about Rs. 350 crores
for AC plant at Neemrana.
Havells India Ltd. (HAVL IN)
10 Anand Rathi Research
Segment ProductIndicative Market Size(Rs. in crores)
Indicative Market Share
Indicative RankOrganized Penetration Level
Peers
Switchgears MCB 2,200 27-28% # 1 HighLegrand, Schneider
Switches 2,200 14-15% # 3 MediumPanasonic (Anchor), Legrand
Cables Domestic 8,000 16% # 3 Low Finolex, Polycab
Industrial 12,000 10% # 3 Medium Polycab, KEI
LED Lighting
Lighting& Fixtures 6,500 10-14% # 2-4 MediumPhilips, Crompton, Bajaj, Wipro
ElectricalConsumer Durables
Fans 6,900 16% # 3 HighCrompton, Orient, Usha
Water Heater 1,400 15% # 2 LowRacold, AO Smith
Other Appliances 5,200 2-3% - Low Bajaj, Philips
Havells India Ltd. (HAVL IN)
Source: Company, Anand Rathi Research
Enables company to remain one of the top three players in market.
11 Anand Rathi Research
Industry Snapshot
Source: IBEF, Anand Rathi Research
Consumer Durables Industry Structure
Consumer Electronics (Brown Goods)
• Televisions• CD and DVD Players• Laptops• Audio and video
systems• Personal Computers• Digital Cameras, etc.• Branded flour, etc.
Consumer Appliances (White Goods)
• Air Conditioners• Washing Machines• Refrigerators• Electric Fans• Microwave ovens• Sewing Machines• Cleaning Equipment• Others Domestic
appliances
Havells India Ltd. (HAVL IN)
12 Anand Rathi Research
Source: IBEF, Anand Rathi Research
Consumer Electronics –Major Products
Color TVs (CTVs) Flat Panel Display
Havells India Ltd. (HAVL IN)
Direct-To-Home (DTH)
CTVs are the biggest contributors in this segment.
Television industry in India is estimated to have reached Rs 660 billion (US$ 10.19 billion) in CY2017
Projected to reach Rs 862 billion (US$ 13.31billion) in CY2020
LED/LCD/Plasma television have significant opportunity in India with a penetration of only 14% households.
Production of LCD/LED TVs soared from 8.7 million units in FY15 to 16 million units in FY18.
Rapid growth in The Set-Top Box (STB) market due to the expansion of DTH and introduction of the Conditional Access System (CAS) in metros.
Active DTH subscribers increased nearly 10% year over year in June 2018.
13 Anand Rathi Research
Source: IBEF, Anand Rathi Research
Consumer Appliances –Major Products
Refrigerators Washing appliancesAir Conditioners
Havells India Ltd. (HAVL IN)
Electric Fans
Constituted 27% of consumer appliances market in 2017.
Market sizeforrefrigerators in India is estimated to be Rs 195 billion (US$ 3.02 billion in 2017
Expected to reach Rs 344 trillion (US$ 5.34 billion) by 2022
The Indian market is estimated at 2.5 million fans per month and it is growing at about 10% per annum.
Penetration of electric fans in rural areas was 65% in 2017,expected to reach 76-78% in 2019-20
Production of washing appliances in India increased 5.1 per cent year-on-year in FY18* to 5.79 million units.
Lower prices and higher disposable incomes has led to increasing market share for fully automatic washing.
During FY18 production of ACs in India increased 4.9 % year-on-year to 3.19 million units.
Split ACs comprised 85% market share in FY18.
India’s overall room ACs market is expected to increase to 7 million units by FY21 from 5.5 million units in FY18.
14 Anand Rathi Research
Huge untapped opportunity in the Consumer durables industry
The current low penetration levels in India, compared to the global average for consumer durables and electronics products such as air conditioners,
washing machines and refrigerators, augurs well for future growth.
Indian appliance and consumer electronics (ACE) market reached Rs 2.05 trillion (US$ 31.48 billion) in 2017. It is expected to increase at a 9% CAGR to
reach Rs 3.15 trillion (US$ 48.37 billion) in 2022.
Electronics hardware production in the country reached Rs 3.88 trillion (US$ 60.13 billion) in FY18, growing at a CAGR of 26.7 per cent between FY14-18.
Demand for electronics hardware in India is expected to reach US$ 400 billion by FY24.
With focus of Government on electrification and commitment to improve infrastructure and housing and GST rationalization, electrical space has plenty
upside. Also, government policy of 100% FDI allowing in electronic hardware manufacturing sectors looks reassuring for the industry
Increasing disposable income, emerging middle class, easy access to credit is set to accelerate demand in the sector. Other drivers include huge
untapped market for appliances like AC, washing machine and refrigerators. Notably, the S&P BSE Consumer durable Index has grown at a CAGR of 20%
between 2010-17.
Source: PwC research ,IBEF, Anand Rathi Research
Havells India Ltd. (HAVL IN)
0%
25%
50%
75%
100%
WashingMachine
Refrigerator Smartphon Television AC
India China Global Average
Household Penetration of consumer durables & electronics
15 Anand Rathi Research
Havells India Ltd. (HAVL IN)
Switchgears (Domestic & Industrial)
Source:Anand Rathi Research
Switchgear market in India is estimated to grow at a CAGR of over 15% through 2023, backed by rising development acrossresidential, commercial and industrial end use sectors.
The industry constitutes of Low Voltage , Medium Voltage and High Voltage switchgear products. Low voltage switchgears has alarger share of unorganized players and accounts for more than 55% of the total market share.
16 Anand Rathi Research
Havells India Ltd. (HAVL IN)
Lighting & Luminaries Industry
Source:The Electric Lamp and Component Manufacturers Association of India (ELCOMA), Anand Rathi Research
Indian lighting industry is expected to continue to grow at an increasing rate between 13% and 15% until 2020 per annum. The LED market in India is expected to grow to ₹ 216 billion by 2020, following which LED market should account for about 60%
of India’s total lighting industry (about ₹ 376 billion) in 2020.
Value in Crores
17 Anand Rathi Research
20,000
45,000
70,000
95,000
1,20,000
FY-17 FY-18 FY-19E FY-20E
We expect growth to maintain momentum of latest quarter along with gradual improvement margins.
Revenue estimates (₹ Mn.)
We expect Havells to grow at a CAGR of 16.5% in next two years. We estimate the company to report revenues of ₹94,364 million in
FY-19E and ₹110,517 million in FY-20E.
The operating margins for the company should continue to improve with our estimate of around 100 basis points over two years. We
expect company’s EBITDA margins to be around 13.0% in FY-19E and 13.7% in FY-20E.
Source: Company, Anand Rathi Research
EBITDA & EBITDA margin estimates
Havells India Ltd. (HAVL IN)
12.0%
12.5%
13.0%
13.5%
14.0%
4,000
8,000
12,000
16,000
20,000
FY-17 FY-18 FY-19E FY-20E
EBITDA (₹ Mn.) EBITDA Margins (RHS)
18 Anand Rathi Research
Several favorable macro traits including Government focus on
electrification and infrastructure and housing and GST rationalization,
emerging middle class aspiring for improved standard of living,
increasing disposable income, easy access to credit is set to drive
demand in the sector .
Pan-India dealer network, will continue to support Havells growth
momentum. The huge distribution base should help the company in
introduction of new products and enter new markets.
Havells is well positioned for growth owing to its wide range of
product portfolio, with exposure in Consumer as well as Professional
customer category. .
At CMP the stock is trading at 52.7x times FY19E and 42.4x FY-20E
consolidated earnings.
We initiate our coverage on Havells India Ltd. (HAVL IN) with a BUY
rating and a target price of ₹788 per share.
Relative stock performance (Jan 18=100)
Valuation and Recommendation:
Source: Bloomberg, Anand Rathi Research
Source: Company, Anand Rathi Research
Havells India Ltd. (HAVL IN)
(In ₹ mn) FY-17 FY-18 FY-19E FY-20E
EPS (₹) 7.9 10.6 12.9 16.0
P/E (x) 86.0 64.2 52.7 42.4
P/B (x) 13.0 11.4 14.9 21.7
ROE 15.1% 17.8% 28.2% 51.1%
ROCE 21.7% 24.3% 37.2% 64.0%
EV/EBIDTA (x) 44.8 37.7 31.8 25.8
80
100
120
140
160
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19
Nifty 500 HAVL
19 Anand Rathi Research
Consolidated Financials:
Source: Company, Anand Rathi Research
Havells India Ltd. (HAVL IN)
Margins FY-17 FY-18 FY-19E FY-20E
Sales Growth % -19.1% 32.3% 15.8% 17.1%
Operating Margin % 13.3% 12.7% 13.0% 13.7%
Net Margin % 8.0% 8.1% 8.6% 9.1%
(In ₹ Mn.) FY-17 FY-18 FY-19E FY-20E
Liabilities
Equity Share Capital 625 625 625 625
Reserves & Surplus 32,143 36,667 27,957 19,020
Total Shareholder's Funds 32,768 37,292 28,582 19,645
Minority Interest 91 77 77 77
Long-Term Liabilities - 810 810 810
Other Long-term Liabilities 145 479 479 479
Deferred Tax Liability 1,169 2,117 2,117 2,117
Short-term Liabilities 17,505 25,301 29,307 34,324
Total 51,677 66,075 61,372 57,452
Assets
Net Fixed Assets 13,579 27,898 32,701 37,173
Long-Term L&A 1,020 565 565 565
Non Current Investments 2,176 538 538 538
Other Non-Current Assets 8 17 17 17
Current Asset 34,895 37,058 27,551 19,159
Total 51,677 66,075 61,372 57,452
(In ₹ Mn.) FY-17 FY-18 FY-19E FY-20E
Net Sales 61,558 81,464 94,364 1,10,517
Operating Expense 53,376 71,155 82,103 95,329
EBITDA 8,182 10,309 12,261 15,188
Other Income 1,501 1,179 1,366 1,599
Depreciation 1,205 1,405 1,699 1,989
EBIT 8,478 10,083 11,928 14,799
Interest 133 248 144 151
Misc. items (1,068) (187) - -
PBT 7,276 9,648 11,784 14,648
Tax 2,288 3,038 3,711 4,613
Minority Interest (43) 14 - -
PAT 4,945 6,624 8,073 10,035
20 Anand Rathi Research
The company’s Switchgears and Cables business are largely dependent on capital expenditure in housing and infrastructure. Hence a slow growth in this
sector would affect segment revenue growth.
Disruption of regular and quality electricity supply may affect overall demand for electrical product.
Volatility in prices of key raw materials like copper could impact profitability of the company.
Key Risks:
Havells India Ltd. (HAVL IN)
21 Anand Rathi Research
Rating and Target Price history:
Date Rating Target Price (₹) Share Price (₹)
03-Jan-19 BUY 788 680
HAVL rating detailsHAVL rating history & price chart
Source: Bloomberg, Anand Rathi Research Source: Bloomberg, Anand Rathi Research
NOTE: Prices are as on 3 January 2019 close.
Havells India Ltd. (HAVL IN)
80
100
120
140
160
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19
22 Anand Rathi Research
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Continued…
Havells India Ltd. (HAVL IN)
23 Anand Rathi Research
Disclaimer:
Contd…
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Contd…
Havells India Ltd. (HAVL IN)
24 Anand Rathi Research
Disclaimer:
Contd.
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Sr. No.
Statement
Answers to the Best of the knowledgeand belief of the ARSSBL/ itsAssociates/ Research Analyst who ispreparing this report
1ARSSBL/its Associates/ Research Analyst/ his Relative have any financial interest in the subject company? Nature of Interest (if applicable), is givenagainst the company’s name?. NO
2
ARSSBL/its Associates/ Research Analyst/ his Relative have actual/beneficial ownership of one per cent or more securities of the subject company, at theend of the month immediately preceding the date of publication of the research report or date of the public appearance?. NO
3ARSSBL/its Associates/ Research Analyst/ his Relative have any other material conflict of interest at the time of publication of the research report or atthe time of public appearance?. NO
4 ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation from the subject company in the past twelve months. NO
5ARSSBL/its Associates/ Research Analyst/ his Relative have managed or co-managed public offering of securities for the subject company in the pasttwelve months.
NO
6ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for investment banking or merchant banking or brokerageservices from the subject company in the past twelve months. NO
7
ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation for products or services other than investment banking ormerchant banking or brokerage services from the subject company in the past twelve months. NO
8ARSSBL/its Associates/ Research Analyst/ his Relative have received any compensation or other benefits from the subject company or third party inconnection with the research report. NO
9 ARSSBL/its Associates/ Research Analyst/ his Relative have served as an officer, director or employee of the subject company. NO
10 ARSSBL/its Associates/ Research Analyst/ his Relative has been engaged in market making activity for the subject company. NO
Havells India Ltd. (HAVL IN)