praveen
09-12-2007, 12:42 PM
Havells India is one of the largest & India's fastest growing electrical and power distribution equipment company,
manufacturing products ranging from Building Circuit Protection, Industrial & Domestic Switchgear, Cables & Wires,
Energy Meters, Fans, CFL Lamps, Luminaires for Domestic, Commercial & Industrial application and Modular Switches. The company owns some of the most prestigious global brands like Crabtree, Sylvania, Concord, Luminance, Claude, Sylvania Linolite, SLI Lighting, etc. With 91 branches/representative offices, approx. 20000 global distribution points and over 8,000 professionals spread over 52 countries across the globe, the group has achieved rapid success in the past few years. Its 20 state-of-the-art manufacturing plants spread over India, Europe, Latin America & Africa churn out globally acclaimed products in the Switchgear, Luminaires, CFLs etc category. The outlook for Havells in light of the declining debt levels and increasing integration benefits to be garnered over the next 2-3 years is bright. Though its operating margins are not likely to improve significantly in the near future, high volume growth and expected tax exemptions from its plants located in tax exempt zones are expected to boost the company’s net profits. Further, its foray into the motors and capacitors business will enable it to boost volumes and diversify its product mix.
Industry
Electric power is one of the most important ingredients of our socio economic growth, touching all facets of life – commercial, industrial,residential, entertainment, critical services. With projected GDP growth rate of around 9-10% per annum, the growth rate of power supply needs to be over 13-15% annually. Government has recognized the pivotal role of electric power in economic development and also the urgent and critical need to invest heavily to reduce the growing gap in power demand and supply. The Government has set itself the target of providing access to electricity to all households by 2012.
Government’s increased investments in this sector will thus create exponential demand for Power Transmission and Distribution Equipments including wide range of Electrical Switchgear and Energy
Efficient Lighting Equipment.
The retail electrical industry is divided into two sub segments namely the power distribution equipment segment which includes products such as switchgear, cables, wires, energy meters, lighting equipment etc. and consumer durables segments which include energy saving Compact Fluorescent Lamps (CFLs), Fluorescent Tube Lights, Light
Fittings, Luminaries, Switches etc.
The growth of distribution equipment segment is primarily tied up to the growth of the power industry and growth of consumer durables is directly linked to infrastructure development and construction projects like residential, commercial and industrial construction etc. The growing power sector and boom in construction industry not only in
India but the world over offers huge opportunities for growth of the Company, in India and overseas.
The demand for the products being manufactured by the company is rising continuously due to the ever increasing use of power in Industrial, Commercial and Domestic sectors. Besides, increasing concern of people towards protection of life and increased emphasis on safety in respect of the use of power has also resulted in buoyancy
in the demand of advanced circuit protection equipments, in which Havells is a leader.
Company
Incorporated in 1983, Havells India is the market leader in light duty power distribution products. Its product offerings include electrical products like circuit protection equipments (domestic and industrial switchgears), cables and wires and consumer durables like fans, CFLs and lighting fixtures. It has a strong dealer network with over 2500 dealers and more than 30000 retail outlets in India. Penetration is higher in North and South and relatively weaker in western India. It also has international operations in over 52 countries.
Havells is the market leader in domestic power distribution products and enjoys a strong brand value. The market for its products is growing at more than 30% across all segments with growth particularly strong in cables and wire and CFL segment. Post the VAT implementation, market for organized players is growing even faster. The company is also strong in the exports market with distribution across 52 countries; they are close to a large acquisition in European markets for strengthening their distribution market and provide a manufacturing base.
The company is a key beneficiary of the momentum in residential and commercial construction. The company has also shown significant improvement in its working capital and has been clocking ROE of greater than 40% for the past few years. The company has acquired a number of International certifications, like CSA, KEMA, CB, CE, ASTA, CPA, SEMKO, SIRIUM (Malaysia), SPRING (Singapore), TSE (Turkey), SNI (Indonesia) and EDD (Bahrain) for various products. Today Havells and its brands have emerged as the preferred choice for a discerning range of individual and industrial consumers both in India and abroad.
Havells entered the business of lighting fixtures 3 years back and has established a strong market presence in the category with the turnover growing at a pace of almost 100% p.a. for the past 2 years. With access to technology available with Sylvania the Company shall be launching many innovative products in the Indian market in the
near future.
Fans
Havells has captured a high premium position in the fan segment, by providing the market with innovative designs, premium finishes and energy efficient performance. The Company is expanding at the rate of more than 60% in fans every year. The fully integrated state of art manufacturing plant set up last year at Haridwar, is being further
augmented to expand capacity to cater to the fast growth of Havells’ market.
Key Investment Arguments
Havells has a market cap of Rs. 3317.5cr, average daily volume of 56609 shares for the last six months and net sales of Rs. 1803.4cr during the trailing twelve months ended Sept 30, 2007.
It’s EBITDA and Net profit margins were at 9.8% and 6.6% resp. in FY07and at 9.4% and 6.9% resp. in the 1st Half of FY08.
The company has achieved a 5-year CAGR of 51.5% in revenues, 42.7% in EBITDA and 64.2% in net profits.
Havells has consistently paid dividends ranging between 25%-50% during the last six years. For the last three years it has paid dividends of 50% each year.
Havells trades at a PE multiple of 27.1 based on trailing twelve month (TTM) earnings, Price to Book ratio of 12.6 on FY07 bookvalue and Price to Sales ratio of 1.8 based on TTM net sales.
Debt-equity ratio of Havells was at 0.4 for FY07, registering a steady decline since FY02 from levels as high as 2.2.
Havell’s has entered into a technical collaboration with a European motor manufacturing company to set up a motor manufacturing plant which is expected to commence operations in December 2007. Expected capex on the plant is Rs. 25cr in FY08 and further Rs. 20-22 cr. in FY09. The company expects to make motors up to 2008. Management expects sales of Rs. 200cr from the unit for a full year of operations.
Production of capacitors should also start in the 3rd quarter of FY08, with sales expected to touch Rs. 50cr p.a. Capex on the project is a minimal Rs. 4cr given that the building for the capacitors plant is already up. The company is also expanding capacity in its core businesses with capex of Rs. 15cr in the switchgear segment and Rs. 20cr in the cable & wire segment lined up in FY08.
100% Export Oriented Unit: The Company has a 100% Export Oriented Unit (EOU) at Baddi, Himachal Pradesh, for
manufacturing MCB’s and other Switchgear products with a total installed capacity of 12 million MCBs per annum. It has invested an amount of approx Rs. 8.0cr in Plant & Machinery for this Unit. The commercial production at this unit was commenced in November, 2006. Being an EOU, this unit will get the benefits of excise and custom duty exemptions. Further the sales tax paid at the time of purchase is also reimbursable.
Another plant of the company, the largest integrated plant for manufacturing ceiling fans in India, has been setup at Hardwar, a tax-incentive zone, resulting in substantial tax benefits (zero excise duty for 10 years and no income tax for five years followed by income tax rate of 70% for the next five years) which will further lead to improvement in net profit margins.
Key Concerns
The company is facing increasing pressure on its margins as rising input costs have not been completely passed on to end consumers. The company is venturing into capacitors and motors. Though these sectors will provide sales growth, they are low margin businesses with higher competition.
The company is looking for an acquisition in Europe. Delay in acquisition could stifle its expansion plans overseas.
Latest Developments
During the year 2007, Havells has:
Set-up capacitor manufacturing plant in Noida, UP with a capacity of 6 lac kVAr per month.
Acquired the lighting business of "SLI Sylvania" a Dutch company and a global leader in lighting business with a turnover of more than US$ 1 billion. The acquisition was made for $ 300 million.
Warburg Pincus, a global private equity firm and one of the largest investors in India, will invest US$ 110 million in Havells India Ltd. for 11.2% stake in the company. The funds will be utilized by Havells to retire short term debt of US$ 65 million raised in March 2007 to acquire Dutch firm SLI Sylvania’a lighting business. Balance will be used to expand manufacturing facilities.
QRG Enterprises, promoters of Havells India, has forayed into healthcare service segment. The company has acquired 70% stake in the 140-bed super speciality hospital, Central Hospital and Research Centre, Faridabad. The investments in the hospital segment have been routed through its newly floated company QRG Healthcare.
Conclusion
On the basis of r research, we feel that this is a good stock to buy at the current market price of Rs. 672.10. If everything goes well, the price is likely to appreciate to Rs. 879, within 12 months, translating into a gain of about 33%.
BC
manufacturing products ranging from Building Circuit Protection, Industrial & Domestic Switchgear, Cables & Wires,
Energy Meters, Fans, CFL Lamps, Luminaires for Domestic, Commercial & Industrial application and Modular Switches. The company owns some of the most prestigious global brands like Crabtree, Sylvania, Concord, Luminance, Claude, Sylvania Linolite, SLI Lighting, etc. With 91 branches/representative offices, approx. 20000 global distribution points and over 8,000 professionals spread over 52 countries across the globe, the group has achieved rapid success in the past few years. Its 20 state-of-the-art manufacturing plants spread over India, Europe, Latin America & Africa churn out globally acclaimed products in the Switchgear, Luminaires, CFLs etc category. The outlook for Havells in light of the declining debt levels and increasing integration benefits to be garnered over the next 2-3 years is bright. Though its operating margins are not likely to improve significantly in the near future, high volume growth and expected tax exemptions from its plants located in tax exempt zones are expected to boost the company’s net profits. Further, its foray into the motors and capacitors business will enable it to boost volumes and diversify its product mix.
Industry
Electric power is one of the most important ingredients of our socio economic growth, touching all facets of life – commercial, industrial,residential, entertainment, critical services. With projected GDP growth rate of around 9-10% per annum, the growth rate of power supply needs to be over 13-15% annually. Government has recognized the pivotal role of electric power in economic development and also the urgent and critical need to invest heavily to reduce the growing gap in power demand and supply. The Government has set itself the target of providing access to electricity to all households by 2012.
Government’s increased investments in this sector will thus create exponential demand for Power Transmission and Distribution Equipments including wide range of Electrical Switchgear and Energy
Efficient Lighting Equipment.
The retail electrical industry is divided into two sub segments namely the power distribution equipment segment which includes products such as switchgear, cables, wires, energy meters, lighting equipment etc. and consumer durables segments which include energy saving Compact Fluorescent Lamps (CFLs), Fluorescent Tube Lights, Light
Fittings, Luminaries, Switches etc.
The growth of distribution equipment segment is primarily tied up to the growth of the power industry and growth of consumer durables is directly linked to infrastructure development and construction projects like residential, commercial and industrial construction etc. The growing power sector and boom in construction industry not only in
India but the world over offers huge opportunities for growth of the Company, in India and overseas.
The demand for the products being manufactured by the company is rising continuously due to the ever increasing use of power in Industrial, Commercial and Domestic sectors. Besides, increasing concern of people towards protection of life and increased emphasis on safety in respect of the use of power has also resulted in buoyancy
in the demand of advanced circuit protection equipments, in which Havells is a leader.
Company
Incorporated in 1983, Havells India is the market leader in light duty power distribution products. Its product offerings include electrical products like circuit protection equipments (domestic and industrial switchgears), cables and wires and consumer durables like fans, CFLs and lighting fixtures. It has a strong dealer network with over 2500 dealers and more than 30000 retail outlets in India. Penetration is higher in North and South and relatively weaker in western India. It also has international operations in over 52 countries.
Havells is the market leader in domestic power distribution products and enjoys a strong brand value. The market for its products is growing at more than 30% across all segments with growth particularly strong in cables and wire and CFL segment. Post the VAT implementation, market for organized players is growing even faster. The company is also strong in the exports market with distribution across 52 countries; they are close to a large acquisition in European markets for strengthening their distribution market and provide a manufacturing base.
The company is a key beneficiary of the momentum in residential and commercial construction. The company has also shown significant improvement in its working capital and has been clocking ROE of greater than 40% for the past few years. The company has acquired a number of International certifications, like CSA, KEMA, CB, CE, ASTA, CPA, SEMKO, SIRIUM (Malaysia), SPRING (Singapore), TSE (Turkey), SNI (Indonesia) and EDD (Bahrain) for various products. Today Havells and its brands have emerged as the preferred choice for a discerning range of individual and industrial consumers both in India and abroad.
Havells entered the business of lighting fixtures 3 years back and has established a strong market presence in the category with the turnover growing at a pace of almost 100% p.a. for the past 2 years. With access to technology available with Sylvania the Company shall be launching many innovative products in the Indian market in the
near future.
Fans
Havells has captured a high premium position in the fan segment, by providing the market with innovative designs, premium finishes and energy efficient performance. The Company is expanding at the rate of more than 60% in fans every year. The fully integrated state of art manufacturing plant set up last year at Haridwar, is being further
augmented to expand capacity to cater to the fast growth of Havells’ market.
Key Investment Arguments
Havells has a market cap of Rs. 3317.5cr, average daily volume of 56609 shares for the last six months and net sales of Rs. 1803.4cr during the trailing twelve months ended Sept 30, 2007.
It’s EBITDA and Net profit margins were at 9.8% and 6.6% resp. in FY07and at 9.4% and 6.9% resp. in the 1st Half of FY08.
The company has achieved a 5-year CAGR of 51.5% in revenues, 42.7% in EBITDA and 64.2% in net profits.
Havells has consistently paid dividends ranging between 25%-50% during the last six years. For the last three years it has paid dividends of 50% each year.
Havells trades at a PE multiple of 27.1 based on trailing twelve month (TTM) earnings, Price to Book ratio of 12.6 on FY07 bookvalue and Price to Sales ratio of 1.8 based on TTM net sales.
Debt-equity ratio of Havells was at 0.4 for FY07, registering a steady decline since FY02 from levels as high as 2.2.
Havell’s has entered into a technical collaboration with a European motor manufacturing company to set up a motor manufacturing plant which is expected to commence operations in December 2007. Expected capex on the plant is Rs. 25cr in FY08 and further Rs. 20-22 cr. in FY09. The company expects to make motors up to 2008. Management expects sales of Rs. 200cr from the unit for a full year of operations.
Production of capacitors should also start in the 3rd quarter of FY08, with sales expected to touch Rs. 50cr p.a. Capex on the project is a minimal Rs. 4cr given that the building for the capacitors plant is already up. The company is also expanding capacity in its core businesses with capex of Rs. 15cr in the switchgear segment and Rs. 20cr in the cable & wire segment lined up in FY08.
100% Export Oriented Unit: The Company has a 100% Export Oriented Unit (EOU) at Baddi, Himachal Pradesh, for
manufacturing MCB’s and other Switchgear products with a total installed capacity of 12 million MCBs per annum. It has invested an amount of approx Rs. 8.0cr in Plant & Machinery for this Unit. The commercial production at this unit was commenced in November, 2006. Being an EOU, this unit will get the benefits of excise and custom duty exemptions. Further the sales tax paid at the time of purchase is also reimbursable.
Another plant of the company, the largest integrated plant for manufacturing ceiling fans in India, has been setup at Hardwar, a tax-incentive zone, resulting in substantial tax benefits (zero excise duty for 10 years and no income tax for five years followed by income tax rate of 70% for the next five years) which will further lead to improvement in net profit margins.
Key Concerns
The company is facing increasing pressure on its margins as rising input costs have not been completely passed on to end consumers. The company is venturing into capacitors and motors. Though these sectors will provide sales growth, they are low margin businesses with higher competition.
The company is looking for an acquisition in Europe. Delay in acquisition could stifle its expansion plans overseas.
Latest Developments
During the year 2007, Havells has:
Set-up capacitor manufacturing plant in Noida, UP with a capacity of 6 lac kVAr per month.
Acquired the lighting business of "SLI Sylvania" a Dutch company and a global leader in lighting business with a turnover of more than US$ 1 billion. The acquisition was made for $ 300 million.
Warburg Pincus, a global private equity firm and one of the largest investors in India, will invest US$ 110 million in Havells India Ltd. for 11.2% stake in the company. The funds will be utilized by Havells to retire short term debt of US$ 65 million raised in March 2007 to acquire Dutch firm SLI Sylvania’a lighting business. Balance will be used to expand manufacturing facilities.
QRG Enterprises, promoters of Havells India, has forayed into healthcare service segment. The company has acquired 70% stake in the 140-bed super speciality hospital, Central Hospital and Research Centre, Faridabad. The investments in the hospital segment have been routed through its newly floated company QRG Healthcare.
Conclusion
On the basis of r research, we feel that this is a good stock to buy at the current market price of Rs. 672.10. If everything goes well, the price is likely to appreciate to Rs. 879, within 12 months, translating into a gain of about 33%.
BC