We downgrade Havells India to ?neutral? (?buy? earlier) as the company?s India business, having defied tough macro situation in India for last one year, is now showing first signs of slowdown. The company has seen first signs of slowdown in market in 2HFY13 and has reduced FY14 India revenue growth guidance to 14-15% from 15-20% earlier.
However, we increase the target price to R775 (R734 earlier) as we roll over our valuation multiples to September 2014e from June 2014e. We marginally adjust India business FY14e and FY15e EPS by 0% and -2% to reflect lower revenue, ebitda margins and lower interest costs.
After strong performance, valuations are not cheap at FY14e consolidated P/E of 18x. The chances look high that current slowdown may continue for few more quarters. If slowdown is protracted, it may result in increasing price competition in market as evident from lower margins reported by Havells? competitors in Q4FY13. Protracted slowdown may reduce Havells? ability to charge premium for its products.
In or view, absolute growth of consumer business is still healthy. Consumer facing businesses should still grow at ~17-18% y-o-y versus 20%+ earlier but we believe this is not sufficient to tide over sharp deceleration in industrial segment.