Buy Havells India; target of Rs 350: Emkay

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Emkay Global Financial Services research report on Havells India“Havells India, Q2FY15 revenues were in line with estimates, but missed PAT estimates. Key highlights are: 1) Standalone revenues at Rs 13.7bn, up 16.3% yoy led by strong +20% growth in cables & wires (21.4% yoy) and Electrical consumer durables – ECD (24.9% yoy). 2) EBITDA at Rs 1.8bn, up 6.7% yoy, below estimates with EBITDA margins down 120bps yoy to 13.2% due to high base quarter and higher A&P spends towards brand building. 3) APAT at Rs 1.2bn declined 5% yoy, was below estimates, led by higher depreciation and higher tax due to expiry of tax exemption in few facilities. Sylvania reported revenue growth of 5.3% yoy to €112.5mn, led by healthy uptick in Europe (8.9% yoy growth) and some uptick in LATAM (2% yoy). EBITDA before pension liabilities grew 77.4% yoy to €5.5mn with EBITDA margins improving 200bps yoy to 4.9%. Adjusting for pension liabilities of €0.9mn, EBITDA margins was 4.1%, up 120bps yoy. Sylvania reported net loss of €1.1mn due to forex loss of €1.3mn.""Havells continued its strong uptick in domestic business. Given earnings growth of 25%, healthy cash flow generation, return ratios of 30% and dividend payout of 45-50%, we have assigned earnings multiple of 25x FY17E earnings, which translates into price target of Rs 350/share. Unless, there is any serious competitor to challenge the growth trajectory of Havells, we believe Havells would sustain premium valuations; We maintain BUY rating,” says Emkay Global Financial Services research report.

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