We note that Havells has revised down its FY14 revenue growth guidance to 9-10% (JPMe: 9%) vs 14-16% at the beginning of the year and a CAGR of 22% over the past three years. Recent demand trends and our channel checks point to a more cautious outlook at the margin.
Havells and the building product industry in general have benefitted from a scale-up in new home deliveries and large commercial (malls /hotels /office) completions over the past few years. New completions, however, are expected to come down across both metro and tier 2 cities over FY15/16. This does not bode well for the demand outlook in the medium term. Replacement demand, however, should remain healthy.
Our March-14 SOTP price target of R520 values the standalone business at 14x P/E, a 20% discount to its five-year average given moderation in growth ahead; and Sylvania at 5x EV/EBTDA is line with trading comps for Osram.