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Havells: Strong on a standalone basis - Views on News from Equitymaster

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Havells: Strong on a standalone basis

Aug 11, 2009

Performance summary
  • The standalone topline grows by 6.5% YoY led by a double digit growth across all business segment except for cable & wires division during the quarter.
  • Operating profits grows by 31.7% YoY, higher than the topline on the back of lower operating costs, thus EBITDA margins expand by 2.4%.
  • Net profits grow by 20.9% YoY despite higher depreciation charges and tax outgo.

standalone financial snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 5,541 5,899 6.5%
Expenditure 4,991 5,174 3.7%
Operating profit (EBDITA) 550 724 31.7%
EBDITA margin (%) 9.9% 12.3%  
Other income 6 4 -32.8%
Interest (net) 49 16 -66.7%
Depreciation 37 54 46.5%
Profit before tax 470 658 40.0%
Extraordinary income/(expense) - -  
Tax 63 166 163.4%
Profit after tax/(loss) 407 493 20.9%
Net profit margin (%) 7.4% 8.4%  
No. of shares (m) 57.9 60.2  
Diluted earnings/(loss) per share (Rs)*   25.5  
Price to earnings ratio(x)   11.0  
* On trailing twelve months basis

What has driven performance in 1QFY10?
  • Havells’ standalone topline grew by 6.5% YoY during the quarter. This can be attributed to growth across the entire business segment except for cables & wires division. Switchgears revenues grew by 16.8% YoY which included additional sales of Rs 80 m from motor division in 1QFY10 as compared to nil during the corresponding period last year. Lightning and Fixtures sales grew by 20.5% YoY led by increased sales of luminaries as well as CFL. Electrical consumer durables (ECD) revenues grew by 16.8% YoY on the back of growth in the branded consumer product portfolio. However, cables & wires’ sales declined by 4% YoY despite the robust volumes growth. This was mainly due to fall in commodities prices especially aluminium and copper which resulted in lower realisations.

    Segmental breakup
    (Rs m) 1QFY09 1QFY10 Change
    Revenues 1,471 1,719 16.8%
    PBIT margins 38.3% 35.4%  
    Cable & Wires      
    Revenues 2,529 2,428 -4.0%
    PBIT margins 10.6% 12.1%  
    Lighting & Fixtures      
    Revenues 627 755 20.5%
    PBIT margins 17.5% 15.8%  
    Electrical Consumer Durables      
    Revenues 774 904 16.8%
    PBIT margins 20.8% 24.0%  

  • On the operating front, operating profits grew by 31.7% YoY mainly on account of lower operating costs during the quarter. Raw material and staff costs (as % sales) declined during the quarter. Thus, operating margins improved by 2.4% to 12.3% in 1QFY10. PBIT margins of cables & wires division grew from 10.6% to 12.1% during the quarter led by effective price management despite the falling material cost environment, while PBIT margins of ECD segment grew from 20.8% to 24% during the same period owing to better realisations and reduced raw material costs. However, PBIT margins of Switchgear segment declined by 2.9% YoY to 35.4% mainly due to addition of new division i.e. motor division during the quarter, while the same for Lightning and Fixtures segment declined by 1.7% YoY to 15.8% owing to increase in import costs of luminaries due to the appreciation of Rupee during the quarter.

    Cost break-up…
    (Rs m) 1QFY09 1QFY10 Change
    Raw materials 2,900 2,908 0.3%
    % sales 52.3% 49.3%  
    Purchase of traded goods 331 450 35.8%
    % sales 6.0% 7.6%  
    Staff cost 222 191 -13.6%
    % sales 4.0% 3.2%  
    Other Expenditure 1,538 1,625 5.7%
    % sales 27.8% 27.6%  

  • Net profits grew by 20.9% YoY pointing towards the significant performance at the operating levels. However, higher depreciation costs and tax outgo during the quarter has adversely impacted the bottomline growth. The company managed to reduce its interest costs due to efficient working capital management that led to lower utilization of credit facilities. Thus, impacting the net profits positively during the quarter.

What to expect?
Havells India’s standalone operations remained profitable at all levels and are expected to continue to do well on the back of likely recovery in the domestic economy. However, its overseas subsidiary Sylvania continues to register loss at the PBIT levels, affected by recession in the European and American markets coupled with the restructuring costs. As per the management, Sylvania is expected to achieve healthy profitability after completion of the restructuring exercise, even if the sales levels of the same remain subdued.

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