Buy Havells; Q1 subdued but long-term outlook intact

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Updated: July 29, 2015 10:15:09 AM

Havells India’s (HAVL) Q1FY16 performance was subdued and below our and consensus estimates, given slowdown in both consumption and industrial demand, which we believe is transitory in nature.

equity mutual fundsHavells India’s (HAVL) Q1FY16 performance was subdued and below our and consensus estimates, given slowdown in both consumption and industrial demand, which we believe is transitory in nature. (Reuters)

Havells India’s (HAVL) Q1FY16 performance was subdued and below our and consensus estimates, given slowdown in both consumption and industrial demand, which we believe is transitory in nature. During these testing times, HAVL continues to invest in building its brand further and increase its penetration by reaching out to retailer and smaller dealers. Given strong cash flow generation (over R1,000 crore in FY16-17e), strong product portfolio and dealer-focused strategies, the company is poised to grow better than market. We see HAVL as one of the best plays on discretionary spend uptick over next few quarters. Hence, we maintain ‘buy’ with a revised target price of R285 as we marginally trim our estimates.

The performance of Sylvania was also subdued as revenue dropped 4% to 103 million euros, led by 9% decline in Europe even as growth returned to its high-growth American market (up 11%), the only silver lining in the result. Adjusting for restructuring cost of 3.6 million euros, ebitda margin stood at 3.3% (down 100bps). Adjusting for restructuring cost and forex loss , HAVL reported loss of 0.2 million euros during the quarter.

HAVL’s domestic business is expected to bounce back on rising market penetration and new products/variants. The industrial product business could get a leg up once overall capex improves. In Sylvania, we expect revenue and operating performance to improve as macros improve in key markets.

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