Havells India Ltd

Hi Friends…

For the first time Im trying my hands at valuing a company. Actually not valuing just writing down my thoughts on a running basis. Would love the seniors of the forum to take this forward so that I also learn on how to actually value a company. Looking forward to have an enriching experience :slight_smile:

I think Havells is no new name to anyone, it has enough brand recognition. But still the company is in the business of electrical compnents like Switches, MCCBS, Cables, Motors, Fans, etc… For one thing the brand recognition of the company and their designing is top-class in the whole segment and also product quality is v.good. Just talking from the personal experience of using Havells products.

The company is one from QRG Group. Need to dwelve in deeper to know about this.

The revenue growth of company is impressive. The company in 2008 had acquired Sylvania in UK. That gave a immediate boost to company’s revenues to the tune of 3000cr. The acquisition was majorly funded by debt, The company has steadily been reducing its debt from 1230cr in 2008 to 730cr in 2012. That I see as a good move.

The ROE of the company is pretty impressive at above 45% which is really healthy. The Debt/Equity ratio is at 1. Quite high by industry standards but still not bad.

The UK based Sylvania was till 2010 in loss from 2011 has started giving profits and in 2012 was almost in line with the profit in their Indian Arm, this tells a lot about the capability of the management. The Revenue growth in Sylvania is quite ok.

When you go through the AR you almost get an idea of how clean and transparent the management is. You can actually visualise whats happening in the plant and there is surely an thrust in cost cutting and improving efficiency.

Seeing that lightning fixtures & consumer durables account for only 31% of net revenues, promoting this as a consumer brand is not so profiting. The reason being Switchgears, Cables business is largely controlled by dealers & as people are moving more towards preferring buying readymade apartments rather than building a home themselves, brand value takes a back seat & price becomes the most important element, so company wont enjoy much of pricing power. Company is pushing to increase sales in consumer durables because the lightning segment alone gave 25%margin. So company is moving in the right direction.

The company has presence in Europe, Latin America, South East Asia, China & South Africa. That is pretty diversified. At P/E of 19, it doesnt provide any sufficient cushion I guess.

There is also no mention of any new plants and further growth starategies other than marketing but seems to be good R&D work happening. They have published 5 patents in 2012. in 2011 they had filed for 12 patents. R&D expense @ 0.3% of the total revenue.


I forgot to mention I am holding this stock since 400 levels.

Had a quick look…pretty impressive past track record and the BS is quite good - best part is strict control on working capital.

What are expected growth rate/plans going forward?

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That is the main issue Ayush… No expansion plans in sight… Also it seems other than the acquisition in 2008 there has been no development or production enhancement or new factories in the Indian firm… It seems their primary focus now is on marketing…

I could see Havells ads for a wide range of domestic applialces. They do own a good brand recall. But there are so many companies in this segment. I was checking makers of induction cooktops, there are so many of them. Due to rise in LPG prices the sale of induction cook tops is rising but cant make out which listed company will benefit most - prestige, butterfly, havells, bajaj … Also none of these companies is available cheap.

Q1/Fy 13-14 (Standalone) Results out…
(Co. declares Consolidated at the end of Year only)

Total Income up 1.8% to 1051.3 Cr from 1032.8 Cr.
EBIDTA up 10.1% to 141.06 Cr from 128.14 Cr.
Net Profit up 18.2% to 94.66 Cr from 80.08 Cr.

EBIDTA margin is 13.4% v/s 12.5% (MQ-13) and 12.4% (JQ-12)
NET Profit margin is 9% v/s 9.4% (MQ-13) and 7.8% (JQ-12)

Total Raw material costs as a %ge to Income is 60.8% v/s 64% (MQ-13) and 63.2% (JQ-12)
Employee costs to Income is 5.1% v/s 3.6% (MQ-13) and 4.2% (JQ-12)
Other expenses to Income is 20.7% v/s 20% (MQ-13) and 20.2% (JQ-12)

Financial costs to EBIT is 4.5% v/s 2% (MQ-13) and 8.8% (JQ-12)
Tax Rate 18% v/s 18.1% (MQ-13) and 20.3% (JQ-12)

Reduction in Raw material costs helped EBIDTA.
Lower financial costs and Lower tax rates helped Net profit.

SEGMENTS (With Contribution to Sales %):
SwitchGear (36%): Sales up 14.3%, PBIT up 13.3%, margin 36.1% v/s 31.3% (MQ-13) and 36.4% (JQ-12)
Cable (38.5%): Sales DOWN 6.1%, PBIT DOWN 4.6%, margin 10% v/s 6.1% (MQ-13) and 9.9% (JQ-12)
Lighting (14.1%): Sales DOWN 1.1%, BUT PBIT up 7.9%, margin 25.1% v/s 24.6% (MQ-13) and 23% (JQ-12)
Consumer Durables (21.1%): Sales up 5.8%, PBIT up 12.2%, margin 26.9% v/s 26.7% (MQ-13) and 25.3% (JQ-12)

EPS 7.58 v/s 6.42
Recorded TTM (sum of 4 quartr) diluted EPS: Rs. 30.93

At 11:45 am on 30/07/2013, stock on BSE trading at Rs. 713/- DOWN over 5%

Highlights of the call by Capital Market:

For Q2 FY14, the consolidated revenue increased 19% to Rs 2030.4 crore. The standalone net sales improved by 22% to Rs 1173.95 crore. The quarter registered growth in each business segment and includes impact of lower base also. The consolidated OPM has inclined up by 106 bps to 9.6%. The standalone OPM has inclined by 204 bps to 14.4% due to improvement in contribution margins and lower advertisement cost drove higher margins**.**The consolidated net profit was down by 54% to Rs 111.8 crore due to EO income in base quarter. The standalone net profit was up by 45% to Rs 125.72 crore.

The mgmt said that the efforts to enhance its footprint in the domestic market and expansion of product portfolio has started yielding results. North and Eastern region of India showed good growth while South had normal growth. Metros growth has come down while non-metros have shown good growth in Q2.

Lighting and Fixtures standalone segmental revenue increased by 15% to Rs 179.79 crore. Lighting business growth was driven by volume.

Cables and wires standalone revenue increased by 25% to Rs 487.38 crore. Industrial cable business grew 36% due to low base effect.

The rise in standalone margin is due to increased in-house manufacturing. The import content in fan was nil in the quarter compared to 20% in Q2 FY13. In other consumer appliances, the company has reduced import content to 60%of sales versus almost 100% sourcing through imports in the last year. The margins are expected to remain stable in domestic business and sees no pressure from currency depreciation due to benefit of domestic manufacturing base.

Revenue in Sylvania, subsidiary of company for international business declined by 3% to Euro 106.8 mn. Operating profit for was at Euro 3.1 million as compared to Euro 3.6 million in Q2 FY13. The loss stood at Euro 1.6 mn, against profit of Euro 22.8 mn due to presence of EO income. The mgmt expects Sylvania to have margin of 5% - 5.5% in FY14

European region revenue was stable at Euro 59.8 mn while operating profit inclined by 100% to Euro 1 mn. Operating profit margin was up from 0.8% to 1.7% on Y-o-Y basis.

Americas business declined by 7% to Euro 40.2 mn while operating profit stood at Euro 2.5 mn, down by 24%. Operating profit margin has decreased from 7.7% to 6.3% on Y-o-Y basis. Large volatility exists in currencies of Latin America in current period. There was better performance based on US$ with flat revenue growth. The improvement in performance as compared to Q1 FY14 mainly due to increase in volume. Operating profit in Q2 FY14 as compared to Q2 FY13 has an impact of foreign currency fluctuation particularly in Brazil, Argentina and Mexico.

Advertising expense for H1 FY14 has been Rs 50 crore versus Rs 70 crore in H1 FY13.

The drop in adspend in Q2 was due to timing difference of festive season. The mgmt said that advertising spends would revert to 3.5% of sales in the next two quarters versus 2.2% of net sales in Q2.

Other income now includes an interest component of Rs 5.8 crore received on fixed deposits during Q2 FY14 as against Rs 0.8 crore in Q2 FY13.

The company has scaled down its estimates from the sales of “REO” branded switches from Rs 100 â 120 crore to Rs 80 â 100 crore in FY14, as the mgmt said that process of setting up distribution for the product in tire-2 and 3 cities has taken up longer time than expected.

The management maintained its capex guidance of Rs 100 crore for FY14, which excludes Rs 50 crore for a new water heater factory spread over FY14-FY15.

The tax rate should increase to 27% in FY16 and to full tax rate in FY19.

The mgmt maintained standalone EBIDTA margin estimates at 13% - 13.5% on the back of Q2 FY14 performance and healthy H2 FY14 expectations

Highlights of the call by Capital Mkt;

The company continued to deliver strong and sustainable performance in standalone operations, while Sylvania surprised with an improved operational performance. The consolidated revenue for December 2013 quarter has increased 16% to Rs 2103.7 crore. The consolidated OPM has inclined by 95 bps to 10.8%. The consolidated net profit was up by 16% to Rs 136.8 crore.

The standalone net sales improved by 12% to Rs 1184.44 crore. Standalone revenue growth was led by cables & wires business and switchgear business. The consumer business segments like lighting and appliances displayed subdued growth trends. The growth in switchgear segment was buoyed by new product introduction âReoâ range of switches while growth in cables segment was high on account of low base. The weakness in the consumer appliances segment is due to weak festive demand. OPM improved 60 bps to 13.8%, primarily driven by prudent expense management and gross margins expansion. The standalone net profit was up by 28% to Rs 121.47 crore.

Switchgear revenues grew 15% driven by launch of Reo switches which had revenues of Rs 18 crore in Q3. The mgmt expects Reo to close FY14 with Rs 85 crore sales.

Cable and wires revenue has increased by 16% driven by low base, growth in industrial cables and some traction in construction sector. Industrial cables grew 14%, while domestic wires grew 19%.

Lighting & Fixtures revenue increased by 9%. CFL growth is slowing down, while LED growth remained robust.

Electrical Consumer Durables posted weakest growth 2% despite festive season. Slowing consumer demand sentiments led to muted growth in appliances as well as fans.

Revenue in Sylvania, subsidiary of company for international business inclined by 2% to Euro 111.6 mn. Operating profit was at Euro 8.7 million, up by 24%. Sylvania posted a 141 bps operating margin improvement at 7.8% following a 220 bps margin improvement at its European operations, at 10.2%. Currency volatility in Argentina and Brazil continues to impact margins at Latin American operations, down 270 bps at 4.8%. Post currency stability, the margins at Latin American operations is expected to come back to the normal level of 6.5%-7.0%. The loss in Sylvania stood at Euro 1.7 mn, against profit of Euro 3 mn

European region revenue declined marginally at Euro 66 mn while operating profit (normalized without pension liabilities) inclined by 26% to Euro 6.7 mn. Operating profit margin was up from 8% to 10.2% on Y-o-Y basis. The mgmt said that European region has been showing some signs of improvement and this could aid to Sylvania performance going ahead

Americas business inclined by 4% to Euro 37.6 mn while operating profit stood at Euro 1.8 mn, down by 33%. Operating profit margin has decreased from 7.4% to 4.8% on Y-o-Y basis. Currency volatility impacted the margins mainly in Argentina and Brazil.

Long term borrowings stood at EUR 59.6 mn vis--vis EUR 73.8 mn in FY13 at Sylvania

The mgmt said that trend in revenues for Havells has been better versus competition, which implies that the company has gained market share in various product categories.

In luminaries, the company has gained on account of technical support from Sylvania, which has helped the company to improve its product quality and profile in domestic and export markets.

The company is in the process of launching fans under 'Standardâ brand. Fans under this brand would be sold at price points of Rs 1400 â 1500. . The company is launching a new brand in fans so as to take market share by using alternate distribution network of 'Standardâ brand.

Led by strong & consistent operational performance in standalone business, the company's free cash flow generation was healthy at Rs 410 crore as on Dec. 13 vs Rs 160 crore in Dec. 12.

Working capital cycle improved by 9 days yoy to 7 days and remained constant qoq.

The mgmt maintained its revenue guidance of 11% - 12% and OPM of 13% - 13.5% in domestic business, while expects Sylvania to report 5 - 5.5% OPM in FY14.


A simple question, maybe a silly one.

What do you mean by inclined? Do you mean declined, or do you mean increased?



Sorry, it is increased.

Hi Valuepickrs!

Like Balakrishna, I have also stumbled upon Havells India as the first company to analyse, but alas, Iam two years late!

[Beginner alert: My views/findings may not be correct. But hey, itas a start! I invite you to correct/suggest/support each and every statement that I make in this post.]

Here are a few points that I noted during my study of the company:

1). Companyas growth prospects

a. Havells entered consumer centric products from industrial products due to better growth prospects: 20% vs 12%

b. Growth in the near future will predominantly come from improved capacity utilisation rather than from new investments. Capex has already been done to cater to future demand. This should boost the FCF from FY15 onwards.

c. Another source of growth is geographical expansion. Havells has a strong dealers’ base and is trying to expand to new geographies. A strong brand recall helps too. It needs to expand its network to rural India where the scope is huge. The number of Havells Galaxies needs to increase.

d. Unorganised sector in cables (35%) and LV switchgear (25%) are also areas for stealing the market share.

e. The company needs to continue to grow faster than its competitors (which it has done in the past so far)

f. 42% revenue comes from overseas Havells Sylvania brand. Improved economic scenario abroad will help increase earnings.

g. LED based lighting solutions and luminaries will remain a key growth area.

h. Inflation coming down, and cutting of interest rates will increase disposable income. aHome for everyonea and Rural empowerment drives will benefit Havells.

2). Positives of the company:

a. Company makes an effort to develop good relations with people:
-Customers through Havells Galaxy
-Dealers and electricians through aPower Plusa
-Employees through ESOPs and other facilities

b. Increasing expenditure on R&D and Promotions even during stressful years

c. The Sylvania turnaround story along with similar examples of Standard and Crabtree help grow confidence in the ability of the management

d. Raw materials such as copper, aluminium, GI, PVC are used which are cyclical commodities. Recent years have seen increase in their costs. Hence there is a good possibility for margin expansion when the cycle turns.

e. An overall positive opinion got from Havells Galaxy scuttlebutt.

f. The Sylvania debt is not being funded by the domestic business

g. Havellsas super-creative ads and quality have helped in strong brand building.

h. ROCE is 30%.

3). Negatives of the company:

a. The FY13 earnings were boosted using a one-time gain of 194 crores. This caused a 50% increase in EPS. YoY increase in Profits was a mere 5% when 194 crores are excluded. The DCF needs to be done without this gain contributing to the FCF. The company also paid less tax during this year.

b. AR 2014 doesnat say anything about the increase in the number of Havells Galaxies. AR 2013 wanted to double the number to 400 in two years. Present number is around 210. Sent a mail few days ago with queries to start a Galaxy. No response. There is no phone support for the same.

c. The target (after setting up of Sahibabad switchgear factory) of achieving 1800 crores revenue in three years is far-fetched #AR 2012.

d. QRG group (promoter) entering into Healthcare business by starting QRG Medicare is a cause of worry. However, the inspiration for this step is the successful model followed by Mayo Clinics, US.

e. Liquidity and solvency ratios are weak compared to Crompton Greaves and Finolex.

f. PolyCab, the largest cable maker has twice the number of dealers than Havells (5000 vs 2500)

g. The impressive ROE figures of the past were mainly due to the high financial leverage ratio.

4). Returns from the stock:

a. The current FII stake is 29.28% against the increased limit of 40%. Very low percentage of shareholding by Mutual funds and other financial institutions too. The stock has movement left in this area.

b. The DCF valuation shows that the stock is currently overpriced. Rs. 210 (Rs.1050 pre-split) seems to be a fair price.
Assumptions for the DCF:
Growth rate=10%
Discount rate=11%
Perpetuity growth rate=2%
Margin of safety=20%

c. Weighted average of P/Es of relevant industries = 33 = Havellsas current P/E.

To conclude, Havells is a good stock to hold on for the long term along with careful follow up. Most of the negatives are not really red flags but need constant checking.

Present valuations are high. But Iam doubtful whether to stick to DCF calculation output of 210 to buy. As they say, aGood companies are always costlya!.

For more details on the above points, you could see my analysis document.

Your views are invited.

Happy LEDiwali to all of you J

[Disc: I’m yet to use my long-opened demat account]


P.S: Best information got from the study: Havells is derived from the name ‘Haveli Ram’!!


Havells Galaxy scuttlebutts:

Since the company is eyeing the electrical appliances market which already consists of companies like Philips and Bajaj, its best attempt at getting market share has been setting up of Galaxies. This chain needs to be successful for the company to be successful in the future.

Context: I am trying to set up a Galaxy in a town in Kerala. Before that, I call up two Galaxy owners (from Kerala and Karnataka) to know about their experience and opinion. Following are the points got from the conversation.

Setting up of a Galaxy:

a. The store gets an identity and value due to the aHavellsa tag.

b. Havells will have little objection to me selling other company products as long as there is a separate 400 sq.ft. area dedicated to the Galaxy.

c. Setting up just Havells Galaxy without other company products may be risky as the sales are fluctuating. Also the huge initial investment (40-50 lacs) may not give good returns.

d. The store gets Rs. 20,000/- every month if the sales targets (10 lacs) are achieved.

Relations with Havells:

a. There is no pressure at all to sell at lower prices to achieve sales target.

b. No. of conferences in a year with Havells reps have reduced but there was a recent grand Mela conducted during Onam.

c. The owner conducts meetings with the local electricians to educate them about Havells products. Havells supports this by sending reps and gifts for the participants.

d. New products arrive without any delay. An automatic Roti-maker is the latest addition to the Galaxy.


a. No complaints from Cables, Fans, CFLs, DBs. Only aVeronaa switches had a complaint recently.

b. They get higher margins for fans, CFLs etc. of around 10%. Cables and wires fetch them only 2%, but they are still promoted since they are also the distributors for the area.

c. Service from Havells is amuch much better than any other companya

d. Competitors:
Finolex and V-Guard are major competitors but the quality of Havells wires justifies the higher price. The others have local problem of being eaten away by ants! People ask for Havells since electrification is generally a one-time investment.
LED lights sales have increased. Syska LEDs are a competition offering 50% lesser prices. But they have quality issues.

e. Electrical appliances sales have not picked up. Partly because of the lack of confidence and partly due to the higher cost.

My Views: It will be difficult to see the number of Galaxies rise as expected (400 by 2015). The effort put by the company to see the rise is also not very encouraging. However, the existing Galaxy owners have no reason to discontinue their Galaxies. The company needs to push sales in more ways. Not much visibility of Havells appliances on online retail websites too.
Increase in earnings will still depend more on old businesses (cables, switches, fans etc.). With more ads on LED lights and appliances, it remains to see how the sales pick up.


Highlights of the call by Capital Mkt;

  • The mgmt said that the buoyancy in the market, immediately after the elections, has ebbed. The mgmt expects growth rates to pick up and hence has stepped up investments in brand building.

  • The lighting segment’s margins have been rising as the component of in-house sourcing in fixtures is increasing versus imports. The company invested in a large-scale fixture manufacturing facility in Neemrana. The facility has increased the component of in-house manufacturing in sales of fixtures, leading to rising margins in the lighting business

  • Margins in the cables and wires segments were higher, led by an improving mix as the contribution of wires increased. The company is gaining market share in the cables and wires business.

  • The mgmt said that even as competition is rising in the LED space, margins in LEDs are higher than the base margins in the lighting business and will continue to be so.Long term growth drivers for consumer and lighting business to remain intact in India and LED business is expected to gain traction in both India and international business.

  • Consumer appliance margins declined due to higher cost of sourcing and higher investments in advertising. A water-heater manufacturing unit will start production in coming weeks. Margins will increase as a proportion of in-house manufacturing will increase in the water-heater segment.The improvement in overall business of Sylvania was mainly due to improved operational efficiencies following gradual recovery in demand in some of its key markets.

  • The mgmt has guided for a growth of 17-20% in domestic business. For Sylvania, it has guided for a 4-6% growth in constant currency basis. In domestic business, the management has raised guidance for cables segment owing to pick up in industrial activity while maintaining growth targets in consumer segment. The mgmt has guided for EBITDA margins of around 12-14%.

Highlights of the call by Capital Mkt;

  • The mgmt said that sales are slack both in consumer and industrial side. Ground situation not change in Q4 and expects similar performance for Q4 also. Cost efficiency, product mix and product manufacturing by own helped OPM to improve in Q3. Going forward, the demand scenario to improve with falling inflation and new government. The company will invest behind the brand. The company will focus more on profitability in Sylvania.
  • For December 2014 quarter, the consolidated revenue was up by 1% to Rs 2115.1 crore while the standalone revenue surged 5% to Rs 1247.44 crore. Lower growth in Cable and de-growth in traditional lighting (non LED) segments impacted growth in current quarter. The consolidated OPM declined by 285 bps to 8%. The standalone OPM has inclined by 49 bps to 14.3% due to fall in raw material cost. the consolidated net profit declined by 75% to Rs 34.80 crore due to poor performance and increase in tax rate. The standalone net profit was down by 4% to Rs 116.21 crore.
  • Multiple factors such as the drop in copper prices, a shift in consumer preferences, focus on channel de-stocking and lackluster pace of industrial capex affected performance in Q3.Revenue in Sylvania, subsidiary of company for international business, declined marginally to Euro 110.8 mn. EBIDTA before change in pension liabilities was at Euro 5.6 million, down by 36%. EBIDTA after change in pension liabilities turned negative at Euro 0.5 million. The loss at net profit level stood at 10.7 mn, against profit of Euro 1.7 mn.
  • As Sylvania financial year closure coincides with Havells Q3, the quarterly results comprise of certain year-end adjustments. Q3 results thus could not fully represent operating performance for the quarter. Europe and America's performance have been largely stable with a positive bias. Thailand operations were reorganized with a new leadership team to strengthen the sales organization and internal control system. There was several issues such as sales return and rebates of Euro 2.9 million which have been entirely accounted for during Q3 FY15 for a clean slate in 2015.
  • European region revenue inclined by 3% to Euro 67.7 mn while operating profit before pension liability declined by 12% to Euro 5.9 mn.Americas business inclined by 7% to Euro 37.6 mn while operating profit stood at Euro 2.6 mn, up by 44%.The net pension liability at the end of December 2014 was Euro 51.8 mn. The schemes are closed for fresh contribution. Germany accounts for ~80% of the group pension net liability. The pension liability in Germany is not backed by assets unlike UK pension fund and thus a decline in bond yield has contributed major increase in net liability. The annual pension payout in Germany is ~Euro 1.4 mn which is captured in the operating EBIDTA. A similar payout is expected over the next 7-8 years. As per IFRS the change in pension value due to variation in bond yield is accounted under Reserves. However pursuant to Indian GAAP the same is accounted under operating profit.
  • There was also a non-recurring write-off of â¬2.9m in Asia.Cables & Wires grew 4%, impacted by slack industrial activities and drop in copper prices. Domestic Cable grew by 6% with volume growth of 9%, while industrial cables grew just 1%. Given lower copper prices, company has cut prices by 3%.Presently. inventory of copper in the system is not very high.
  • The fall in lightening demand is due to fall in demand in CFL and other traditional products. The mgmt said that it expects CFL business to continue for many years but there can be de-growth.LED reported stellar growth 63% and now accounts for 27% of lighting revenues. Company believes with changing consumer lifestyle, government focus in LED lighting and decreasing price spreads in LED vs CFL should drive growth in LED. Contribution margins Lighting & Fixtures saw marked improvement to 27.6%, up 430 bps led by shift to inhouse manufacturing and cost efficiencies.Cost of LED is coming down, so do price of LED. But it will not impact margin.
  • Switchgear (revenue grew 6%, impacted by weak off-take in industrial switchgear. With likely improvement in industrial capex cycle, expect pick up in industrial switchgear.The mgmt said that it will maintain its ad spend ratio of 3 â 3.5% in FY15 and FY16. It expects stable margin from all products.
  • One new plant added in FY15 for water heater at capex of Rs 45 crore, which has annual capacity of 3 lakh pieces.The company capex for FY15 is Rs 140-150 crore and FY16 is Rs 100 crore which is mostly maintenance capex.The company has 5000 direct distributors. The company wants to deepen its distribution at outlet level.
  • The company said that e-commerce companies are not discipline one while modern trade and tradition outlets are more discipline, so it is more focusing on later one. E-commence is very small and it is still evaluating that channel.

Hi guys… Sorry for going missing… Disclosure first… I have exited the stock after keeping it for so many years and having a dream like run…

The reason for my exit is… As small investors do we really want to be in a low growth company in a highly competitive industry?? The Sylvania contributes almost 50% to the revenues & the management expects no growth there. A low growth company with a low dividend payout can be looked at if you are getting it for a bargain, why stay on when it is overvalued.

Somebody needs to workout what’s the incremental Return on Capital.

Highlights of the call by Capital Mkt
The mgmt said that market still not turnaround since Q3 FY15. Infrastructure, industrial and residential sector has slowed down. The mgmt expects in Q2 and Q3 FY16 things will start slowing showing upward trend.For June 2015 quarter, the consolidated revenue de-grew by 7% to Rs 1974.1 crore while the standalone revenue declined by 1% to Rs 1267.14 crore. Weak macro-economic conditions coupled with high base, decline in industrial segment and weak residential demand impacted domestic performance. The company has continued with it brand investment and distribution expansion during these slowdown period also. The consolidated OPM declined by 119 bps to 8.3%. The standalone OPM was almost flat at 12.7%. %. The consolidated net profit declined by 29% to Rs 79 crore. The standalone net profit was flat at Rs 107.37 crore.
Gross margin improved 230 bps driven by benign input cost and better price management. However, OPM margin was flat yoy to 12.7% impacted by higher employee and higher A&P spend.Switchgear margin improved due to internal working and cost structure and not due to fall in crude oil or metal prices.
In cable business, margin improved due to more sales in domestic cable business which has higher margin compared to industrial cable one. The mgmt said that blended margin will come down to normal level but more than last year one 12.13%.In cable, volume is down as industrial capex cycle is down.
Margin down in Lighting and Fixtures due to applicability of MRP based excise in LED and moderation in CFL. LED lighting comprises 39% of the lighting segment, grew by 67%.Traditional CFL continue to de-grew.In lightening business, the company has not lost market-share in trade segment.Fixture has more margin than lightening. Fixture business is 50% retail and 50% institutional.There is not much difference in margin of LED and CFL.In consumer business, all sector showing good growth. Water heater and fan has shown good growth.The company will focus more on air-cooler going forward and will do manufacturing inhouse.Revenue in Sylvania, subsidiary of company for international business, declined 4% to Euro 102.7 mn. Revenue has been impacted due to general demand softening in Europe and decline in traditional business which cannot be compensated with LED growth. The loss at EBIDTA due to high operating leverage, depreciation in Euro (increasing cost of USD denominated imports) and restructuring cost. The loss at net profit level stood at Euro 4.7 mn, against profit of Euro 1 mn in the corresponding quarter of last year.The company is incurring this restructuring cost on account of rationalizing cost structure, given the continued weak performance in traditional lighting segment. It is rationalizing capacities in its Germany lamp facility. Given its focus on reducing cost in Sylvania, it will continue to make some more investments during the year, which will be funded through Sylvania cash flows.European region revenue declined by 9% to Euro 58.4 mn while loss at EBIDTA after restructuring cost stood at Euro 4 mn against profit of Euro 3 mn.The company is approaching to 54-55% of outsourcing in Europe.Americas business inclined by 11% to Euro 39.8 mn while operating profit stood at Euro 3.6 mn, up by 71% driven by focus on profitable geographies and managing decline in loss making countries.Havell will not invest any future in Sylvania, going forward.The mgmt said that it is now very much focus on market-share and not looking at price hike. But lot of internal efficiency taking place in the organization which will help in margin expansion. Lot of changes taking place at distribution and retail side also which will help margin expansion.The capex for next 2 years will be around Rs 100 – 150 crore.

I have invested in Havells during 2009 at an effective cost of Rs33 .I have since recovered the entire investment and much more by way of generous dividends plus capital appreciation from Rs33 (effective ) to the present Rs 250 plus .That is the beauty of a growth stock with a good and honest management . The company though in a competitive industry is able to perform at a high ROC of more than 25% , introduce new products on an ongoing basis , strengthen the brand value .The performance of the subsidiary Sylvenia though not encouraging , it is deliver a stabilized performance . I believe that there is good potential in staying invested in Havells .If this company is able to give a capital appreciation of atleast 12% pa plus dividend , which I feel it can , I am happy . In reality it is likely to perform much better than that .

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Invested today at Rs 263 for which I had to overcome a physiological barrier of bulk of my earlier investment at an effective price of Rs 33. My reasons are

  1. Asset light nature of business . 2. Value of brand. 3. Return of capital is being maintained at a satisfactory level of 25% plus .4 . The company has been establishing new plants and aquiring companies to expand and introduce new products .I believe these measures are likely to have a positive impact on sales and profits over next two years .5. The earlier disastrous experience of the company in aquiring Sylvania Europe is likely to temper any reckless approach in these proposed expansions .Once bitten twice shy !
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CONFERENCE CALL - from Capital Markets

Havells India

Will try to maintain margin in lightening business

Havells India held an analyst conference call to discuss results for the quarter ended December 2015.
Highlights of the call

For December 2015 quarter, the net sales grew by 8% to Rs 1344.48 crore. Domestic sales increased by 11% to Rs 1285.8 crore while export declined by 36% to Rs 58.7 crore. OPM declined by 78 bps to 13.5% due to incline in ASP and purchase of stock in trade. The net profit inclined by 4% to Rs 120.77 crore.
OPM was impacted due to heavy investment in ASP due to festive season.
The company is gaining market share in consumer durable business.
The mgmt anticipate growth to sustain and positive about FY17.
ASP will be around 3.5 – 4% in FY16
In Light business – will see massive sale in LED business with fall in traditional business. Lightening business on infra is increasing. Overall light business will increase, no impact on margin.
The mgmt said it will be part of govt. program for LED light distribution, but will be not participate in big way as it may impact its margin. Street lightening will also help participate in lightning business growth due to government focusing on street light. Margin is not same, but will help volume growth.
Lightening business margin improved QoQ. The company will strive to achieve similar margin around 25%. LED business is dynamic now. So the mgmt can’t say, whether there will be growth in margin gng fwd.
Cable business increasing due to infra spend increasing and offshoot of capex.
Switchgear – 7% growth in domestic mkt. On export side – Middle East and Africa was impacted due to forex currency . Its tempororay and will gain volume in coming quarter.
The company is putting facility for small domestic appliances with a capex Rs 10 crore.
In August 2017, Haridwar plant will go out of tax benefit.
Employee cost up in Q3 for domestic business due to salary hike and expansion of manpower.
The stake sale (80%) of Havells Malta was completed during the quarter and Havells has received total consideration of €148.8mn. However, Havells has provisioned for €18mn towards operations in 4 geographies which includes (US, Brazil, Chile and Thailand). These subsidiaries clocked €27mn revenues and PAT loss of €12-13mn. Havells has already curtailed its losses by closing Chile operations and stepped down U.S operations. After adjusting for the provision, Havells has received balance consideration of Rs 875 crore. Company expects to turnaround this geographies and expects maximum loss of €2-3mn.
The company has not yet decided on cash getting from Sylvania stake sale.

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CONFERENCE CALL - from Capital Markets

Capex of Rs 260-280 crore for FY17

Havells India held an analyst conference call to discuss results for the quarter and year ended March 2016.

Highlights of the call

  • The mgmt said that it has again realign focus on Havell and domestic market. H2 FY16 was better than H1 FY16. Seeing some positive trend, but not in big way.

  • South India has in last 6 months started picking up.

  • Switchgear segment – Don’t see complete revival in this segment and it will take time. During this period, the company is looking at improving margin and expanding distribution. The company has gain marketshare in H2 FY17.

  • In lighting business, lot of sales gets happen in last quarter especially from govt. business. As such one doesn’t have to look at one quarter numbers. The mgmt said that faster growth coming in LED segment.

  • On Govt. business in lighting, the mgmt said that it is focusing on more margin oriented business like street lightening than commodity business like supplying LEB bulbs.

  • In H2 FY16. Switchgear and consumer durable has seen some pickup.

  • Increase in gross margin is due to cost efficiency also along will fall raw material cost.

  • Fan and water heater is doing well. Consumer Durable will do double digit growth in FY17.

  • The company will continue to launch new products in Consumer Durable to increase / maintain market share

  • The margin in lighting business coming down to fall CFL business. The mgmt don’t see much growth in margin in lighting business going forward and will continue to maintain the margin of FY16.

  • Switchgear - price discipline and fall inraw material cost resulted in margin improvement.

  • 6-6.5% yield expected on cash holding.

  • 28% tax rate for next few years.

  • Next summer will have wider range in air cooler.

  • There is addition of about 500 – 600 dealers every year and active dealers around 5500.

  • The mgmt expects double digit growth for FY17.

  • The mgmt is looking at 13.5-14% OPM for FY17 if royalty part taken out.

  • Capex –The mgmt going for capex of Rs 260-280 crore for FY17, to build capacity fpr cable, switchgear and consumer durable business for next 2-3 years. FY18 capacity will be less than FY17 one.

  • The company will continue its 40-45% payout of dividend policy

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