Havells’ 3Q FY16 results and conference call were encouraging given strong domestic sales across segments, improvement in contribution margins, positive outlook across segments, conclusion of Sylvania stake sale.
Havells’ improving brand, products and distribution franchisees are alluring, though a large part is factored in the current stock price. Retain Reduce with a revised target price of Rs 285 (from Rs 270).
Headline 3Q FY16 standalone financials were broadly in line with estimates. However, the details are encouraging with India revenue growing by 11% y-o-y with improvement across segments (partially negated by decline in export revenue in Lightning and Switchgears segments), strong sales growth in the electrical consumer durables segment (up 23% y-o-y and 11% q-o-q) with growth across all product categories (fans, water heaters and domestic appliances, etc.) good growth in the Lighting segment (up 9% y-o-y and 7% q-o-q); LED sales grew 100% y-o-y in the quarter and now contributes 50% to the total segment sales, good growth in volumes of industrial and domestic cables (value growth offset by decline in commodity prices), improvement in contribution margins by 230 bps to 24.8% (did not flow through to EBITDA margin on higher advertisement and sales promotion).
With the conclusion of the Sylvania sale deal (8.75 billion repatriated to India and will reflect in 4Q financials), we change our estimates to standalone from consolidated. We revise our one-year forward target price to 285 (from 270), valuing the stock at 28X Dec 2017E EPS.