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Havells: Margins light up the performance - Views on News from Equitymaster

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Havells: Margins light up the performance
May 12, 2010

Havells India Ltd has announced its FY10 results. The company has reported a 13% YoY and 56% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Quarterly topline grows by 23% YoY during the quarter
  • Operating profits grow by 32% YoY as margins expand by nearly 1%
  • Higher tax outflows undo the strength given by lower interest and benign depreciation and restrict the bottomline growth to 32% YoY for the quarter
  • Full year bottomline grows by 56% YoY on the back of a 13% growth in topline


(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales    5,770    7,081 22.7%      22,048         24,873 12.8%
Expenditure    5,111    6,214 21.6% 20,015         21,684 8.3%
Operating profit (EBDITA)        659        867 31.6% 2,033 3,189 56.8%
EBDITA margin (%) 11.4% 12.2%   9.2% 12.8%  
Other income 2 2 20.0% 12          9 -23.3%
Interest (net)          53          16 -69.2% 193        64 -66.8%
Depreciation          52          65 26.4% 179     233 30.3%
Profit before tax        556        787 41.6% 1,673 2,901 73.4%
Extraordinary income/(expense) -   -     -   -    
Tax          68        143 111.4%    220     630 185.7%
Profit after tax/(loss)        488        644 32.0%         1,452 2,271 56.4%
Net profit margin (%) 8.5% 9.1%   6.6% 9.1%  
No. of shares (m)       60.2       60.2   60.2    60.2  
Diluted earnings per share (Rs)*            37.7  
Price to earnings ratio (x)*         16.2  
(* on trailing twelve months earnings)

What has driven performance in FY10?
  • Topline for the quarter has gone up by 23% YoY. This is in line with the growth witnessed in the previous quarter and significantly higher than the first nine months, where growth had come in at a modest 9%. Thus, thanks to the strong showing in the fourth quarter, growth for the full year has been pushed to a respectable 13% YoY.

  • While almost all the segments witnessed strong growth during the fiscal, the biggest contribution to the overall growth came from the switchgears and the lighting and fixtures segment. Switchgear revenues increased by 16% in FY10 compared to the prior year. This included sales from Motor division of Rs. 483 m in FY10 as compared to Rs. 127 m in the prior year comparable period.

  • Lighting & Fixtures revenues increased by 32% compared to the prior year comparable period due to increased sales of both Luminaries and CFL. Important to add that the export of CFL to Sylvania increased by a strong 70% over FY09.

  • The modest 2% growth shown by the cables and wires division was due to sharp fall in material prices that had to be passed on to the customers. Volume growth on the other hand, came in a strong 20% YoY during the fiscal.

  • On the margins front, all the segments managed to improve their operating margins over the previous fiscal. While lower material cost was a common factor behind the margin improvement across segments, better product mix also helped matters in segments like lighting and fixtures.

    (Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
    Switchgears            
    Revenues             1,604             1,883 17.4% 6,077           7,035 15.8%
    PBIT                 465                 708 52.2% 2,031           2,611 28.6%
    PBIT margins 29.0% 37.6%   33.4% 37.1%  
    Cables and Wires            
    Revenues             2,550             2,770 8.6% 9,911         10,105 2.0%
    PBIT                 230                 191 n.a. 630              887 40.9%
    PBIT margins 9.0% 6.9%   6.4% 8.8%  
    Lighting and fixtures            
    Revenues                 674             1,076 59.7% 2,768           3,667 32.5%
    PBIT                   99                 194 96.1% 519              705 35.9%
    PBIT margins 14.7% 18.0%   18.7% 19.2%  
    Electrical Consumer Durables            
    Revenues                 820             1,191 45.2% 2,770           3,595 29.8%
    PBIT                 182                 339 86.3% 593           1,019 71.9%
    PBIT margins 22.2% 28.5%   21.4% 28.4%  
    Others            
    Revenues                   88                   81 -7.4% 457              333 -27.1%
    PBIT                   21                   17 -16.8% 85                 69 -19.5%
    PBIT margins 23.7% 21.3%   18.7% 20.6%  

  • Growth in PBT came in at 73% YoY for the full year. Besides improved operating performance, greater economies of scale and lower interest charges contributed to the robust growth in PBT. Net profits however, came in at a slightly lower 56% YoY as nearly threefold jump in tax outflows took its toll. The company’s tax increased due to reduction in fiscal exemption for the Baddi plant. Thus, tax rate going forward is likely to be in the region of 20%.

  • As far as the performance of its European subsidiary, Sylvania is concerned, while the company continued to rake in losses, the magnitude of the same came down to Rs 851 m as against Rs 1.5 bn during the fourth quarter of previous year. The company expects Sylvania to break even in the current financial year.

What to expect?
At the current price of Rs 606, the stock trades at a multiple of around 14x its expected FY12 standalone earnings per share. The company’s performance has come in line with our estimates and there is no reason to believe that it will not be able to meet our expectations going forward. We have a HOLD view on the stock and we continue to remain positive from a medium term perspective.

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