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Havells India: Profits up five fold! - Views on News from Equitymaster
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Havells India: Profits up five fold!
Feb 2, 2010

Performance summary
  • Standalone topline grows by 22% YoY during 3QFY10. All the segments witness robust growth.
  • Operating profits grow nearly fourfold as margins zoom from 4.5% to 13.5% during the quarter.
  • Bottomline growth comes in even stronger as profits grow fivefold on the back of lower interest and benign depreciation in addition to the robust operating performance.
  • 9mFY10 bottomline grows 68% YoY on the back of a 9% growth in topline.


Standalone financial snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 4,861 5,913 21.7% 16,277 17,792 9.3%
Expenditure 4,641 5,113 10.2% 14,903 15,470 3.8%
Operating profit (EBDITA) 220 801 264.2% 1,374 2,322 69.0%
EBDITA margin (%) 4.5% 13.5%   8.4% 13.1%  
Other income 1 1 16.7% 10 7 -29.7%
Interest (net) 38 13 -67.1% 140 48 -65.8%
Depreciation 46 59 27.5% 127 168 31.9%
Profit before tax 136 730 436.1% 1,117 2,114 89.2%
Extraordinary income/(expense)            
Tax 23 141 523.5% 153 490 220.2%
Profit after tax/(loss) 114 589 418.8% 964 1,624 68.4%
Net profit margin (%) 2.3% 10.0%   5.9% 9.1%  
No. of shares (m) 57.9 60.2   57.9 60.2  
Diluted earnings per share (Rs)*         35.1  
Price to earnings ratio (x)**         16.1  
(* on trailing twelve months earnings)

What has driven performance in 3QFY10?
  • As noted before, Havells’ topline grew 22% YoY during the quarter. This was driven by a 40% growth in the company’s electrical consumer segment and 23% growth each in the switchgears and lighting and fixtures segments. Cables and wires, which had put up a subdued show during the same quarter last year, did well during the current quarter, managing to grow by 16% YoY.

  • As far as segmental margins are concerned, they improved for all the segments under consideration. It should be noted that commodities like plastic and metals account for a major portion of the total cost structure of the company and with these items ruling at low levels as compared to a year ago, margins across all segments have improved for the company. Notable is the cable and wires segment, where a one-time inventory correction had led to a loss in 3QFY09. However, with the same absent in this quarter, segmental margins have stood at a positive 9%. In fact, if one excludes the inventory correction figure, the EBITDA of the company has grown by just 33% as against the 264% growth that it is showing currently.

    Segmental break-up...
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Switchgears            
    Revenues 1,374 1,690 23.0% 4,473 5,152 15.2%
    PBIT 435 640 47.1% 1,565 1,903 21.6%
    PBIT margins 31.7% 37.9%   35.0% 36.9%  
    Cables and Wires            
    Revenues 2,135 2,485 16.4% 7,361 7,336 -0.3%
    PBIT (77) 213 n.a. 399 696 74.4%
    PBIT margins -3.6% 8.6%   5.4% 9.5%  
    Lighting and fixtures            
    Revenues 760 937 23.3% 2,094 2,591 23.7%
    PBIT 128 200 56.2% 420 512 21.8%
    PBIT margins 16.9% 21.4%   20.1% 19.7%  
    Electrical Consumer Durables            
    Revenues 495 702 41.8% 1,950 2,404 23.3%
    PBIT 109 221 102.8% 411 680 65.5%
    PBIT margins 22.0% 31.4%   21.1% 28.3%  
    Others            
    Revenues 97 94 -2.5% 369 252 -31.9%
    PBIT (0) 23 n.a. 64 51 -20.3%
    PBIT margins -0.2% 24.5%   17.4% 20.4%  

  • Havells’ profit before tax (PBT) during the quarter has grown at an even stronger rate (436% YoY) than the operating profits. This has been made possible mainly on account of a significant reduction of 67% in interest costs driven in turn by efficient working capital management.

  • Profit after tax (PAT) growth of 419% has come in slightly lower than PBT growth on account of higher tax rates. The company’s tax increased due to reduction in fiscal exemption for Baddi unit and higher contribution from non-exempt unit like that of cables and wires.

What to expect?
At the current price of Rs 565, the stock trades a multiple of 13 times our estimated FY12 standalone earnings per share. While the company had breached our target price, we had decided to upgrade our view to HOLD in the most recent quarterly review. Given the company’s strong focus towards not only increasing its topline but also profitability and its ongoing successful restructuring of its overseas subsidiary, we feel that the stock does have good upside potential even from the current levels. We continue to remain positive on the stock.

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