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Havells: Exceptional spoils the show - Views on News from Equitymaster
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Havells: Exceptional spoils the show
Jul 3, 2009

  • Consolidated topline grows by 9.2% YoY led by both domestic and American markets.
  • Operating margins contracts by 2% YoY mainly on account of higher operating costs during the year.
  • Registers a loss at the net level on account of pressure on operating profitability as also due to exceptional charges registered at the subsidiary level.
  • For 4QFY09, the company has recorded a 3.8% YoY decline in sales, while bottomline registered a loss of Rs 985 m.
  • Has recommended a dividend of Rs 2.5 per share for the fiscal.


Consolidated financial snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 13,858 13,330 -3.8% 50,240 54,841 9.2%
Expenditure 12,949 12,487 -3.6% 46,653 52,058 11.6%
Operating profit (EBDITA) 909 843 -7.3% 3,587 2,783 -22.4%
EBDITA margin (%) 6.6% 6.3% 7.1% 5.1%
Other income 32 1 -97.5% 33 20 -37.8%
Interest (net) 220 256 16.7% 939 1,084 15.4%
Depreciation 177 255 44.0% 694 905 30.3%
Profit before tax 545 332 -38.9% 1,986 815 -59.0%
Extraordinary income/(expense) - (1,208) - (1,987)
Tax 76 110 45.4% 377 429 14.0%
Profit after tax/(loss) 469 (985) 1,609 (1,601)
Net profit margin (%) 3.4% 2.9%
No. of shares (m) 60.2
Diluted earnings/(loss) per share (Rs)* (26.6)
Price to earnings ratio (x) NA
* On trailing twelve months basis
What has driven performance in FY09?
  • Havells’ consolidated and standalone sales grew by around 9% YoY and 7% YoY respectively during the fiscal. Although the European subsidiary Sylvania registered revenue growth of 11% in Rupee terms, the net revenue in Euro declined by 2% YoY during the year. The European region showed a decline of 7% YoY, while the American region grew by 6% YoY during the year. Revenues from switchgears and electrical consumer durables grew by 12.2% and 15.4% in FY09, while that of lightning & fixtures grew by 9.8% during the fiscal. Cables and Wires division reported a growth 7.3% during the year. All this put together enabled Havells to grow its sales during the year.

    Segmental breakup…
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Switchgears            
    Revenues 1,306 1,618 23.9% 5,426 6,091 12.2%
    PBIT margins 27.5% 28.8% 31.9% 33.3% 1.5%
    Cable & Wires            
    Revenues 2,541 2,551 0.4% 9,241 9,913 7.3%
    PBIT margins 9.2% 9.0% 9.5% 6.4%
    Lighting & Fixtures            
    Revenues 9,063 8,239 -9.1% 32,391 35,567 9.8%
    PBIT margins 25.7% 17.9% 24.4% 21.5%
    Electrical Consumer Durables            
    Revenues 739 820 10.9% 2,400 2,769 15.4%
    PBIT margins 24.2% 22.2% 20.5% 21.4%

  • On the operating performance front, operating profits declined by almost 22.4% YoY during the year on the back of increase in operating costs. This caused operating margins to contract from 7.1% in FY08 to 5.1% in FY09. PBIT margins for the lighting & fixtures segment declined by 2.9% to 21.5%, while those for the switchgear segment improved by 1.5% to 33.3% during the fiscal. PBIT margins for cables & wires division declined by 3.1% to 6.4% due to a drop in commodity prices mainly in third quarter. PBIT margins for electrical consumer durables increased by 0.9% to 21.4%.

    Cost break-up…
    (Rs m) FY08 FY09 Change FY08 FY09 Change
    Raw materials 5,245 4,719 -10.0% 18,404 20,625 12.1%
    % sales 37.9% 35.4% 36.6% 37.6%
    Purchase of traded goods 2,242 2,647 18.1% 8,257 9,069 9.8%
    % sales 16.2% 19.9% 16.4% 16.5%
    Staff cost 2,253 1,996 -11.4% 7,608 8,452 11.1%
    % sales 16.3% 15.0% 15.1% 15.4%
    Other Expenditure 3,208 3,124 -2.6% 12,383 13,912 12.3%
    % sales 23.2% 23.4% 24.6% 25.4%

  • The company registered a net loss of Rs 1,601 m at the consolidated level during FY09. This was mainly on account of exceptional charges of Rs 1,987 m booked at the subsidiary level. These exceptional items are onetime costs which mainly includes restructuring, severance and actuarial losses on retirement benefit obligations and other costs. Moreover, decline in other income and increase in depreciation and interest charges further hurt the bottomline performance.

What to expect?
The company booked a net loss on a consolidated level during FY09. This was on account of losses booked at Sylvania which were due to onetime expenditures and temporary in nature. However, the benefits of restructuring and integration of its European subsidiary Sylvania, are likely to be seen in coming years. Also, the standalone operations of the company are likely to experience a substantial growth in demand on account of increased spending on infrastructure and revival of real estate sector during the current fiscal.

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