Havells India rallies nearly 8% on Sylvania stake sale

Spark Capital, however, in a December 09 note on the industry maintains a sell rating on the stock

Shares of Havells India have rallied nearly 8% to Rs 304 levels on the Bombay Stock Exchange (BSE) in noon deals on reports that the company has sold Sylvania Malta and Havells Exim Hong Kong to Shanghai Feilo Acoustics for Rs 1,340 crore.

“Havells India Ltd. (Havells) has received an intimation from its wholly owned subsidiary, Havells Holdings Limited that it proposes to enter into definitive agreement with Shanghai Feilo Acoustics Co Ltd (“Feilo”) to divest 80% stake in Havells Sylvania Malta BV, subject to shareholders and related approvals,” the company said in a filing to the BSE. CLICK HERE FOR THE BSE RELEASE

“Further, Havells India Limited proposes to divest 80% stake in its wholly owned subsidiary, Havells Exim Limited, Hong Kong. The combined equity value for 100% stake for both companies is Euro 186 million (around Rs 1,340 crores), subject to adjustments, if any. Havells cumulative investment value stands at Rs 980 crores,” the filing says.

Meanwhile, analysts say that the current trend in shift from traditional lighting (incandescent (GLS) and CFL bulbs) to LED lighting is expected to last over the next 3 - 4years resulting in robust growth in the LED segment. Beyond this, growth in LED and overall lighting market is expected to moderate significantly as replacement cycle driven demand (which constitutes around 90% of lighting market) would elongate considerably due to longer life cycle of LEDs.

In this backdrop, margins in the LED segment is likely to trend lower owing to low entry barriers in the product, significant price fall (driven by bulk government tenders) and product obsolescence. 

"Globally, major players like Philips have witnessed a structural decline in margins with increased proportion of LED as a part of its lighting portfolio (LED is currently 44% of global lighting revenue). While domestic players have registered healthy margins so far, we expect blended lighting margins to trend lower going forward," points out a December 09 lighting industry note by Spark Capital.

"As regards Havells, while we acknowledge its strong brand position and dealer driven network, we maintain our negative stance on given its sizeable exposure to real estate market (cable, switches and switchgears – ~60% of FY15 standalone revenue). Maintain a sell rating with a target price of Rs 235," it adds.