IIFL initiates coverage on Havells India with BUY, target price of Rs 950

IIFL Institutional Equities, an arm of IIFL - India Infoline Group, one of the leading players in the Indian financial services space, today initiated coverage on Havells India with a 12-month target price (TP) of Rs 950.

“Electrical consumer-goods major Havells is a beneficiary of robust demand growth based on upgrading consumer preferences and increased construction activity in its key verticals—switchgears, lighting fixtures, consumer durables (fans) and cables/wires.” said Santanu Chakrabarti, IIFL’s Midcap analyst, in a note released today.

Havells’s fastest-growing domestic businesses (growing at over 30% annually) are consumer businesses such as fans, lighting fixtures, and CFLs (compact fluorescent lamps). The company’s most profitable segment, switchgears, registered 16% revenue growth, while the least profitable cables business reduced in importance. IIFL has assumed 14.4% CAGR in standalone revenues over FY10-13, driven by higher growth rates in consumer businesses. Fittingly, the company spends ~2-4% of its revenues on advertising, and has about 2,000 distributors in India who in turn reach out to about 25,000 retail points.

In addition, Havells India’s subsidiary Sylvania, acquired in April 2007 for an EV of €227m (€200m debt, €27m pension liability), will start meaningfully adding to the company’s bottomline from FY12. According to the company, restructuring efforts through ‘Operation Phoenix’ and ‘Parakram’ at an estimated cost of €32m would generate annual savings of €39m, to be fully visible in FY12, when the company should break even. With the breakeven in Sylvania and strong cash flows of domestic business, leverage should reduce to about 1.1x. IIFL’s target price of Rs950 is based on 19x FY12ii EPS (standalone). Key risks are a delay in Sylvania’s breakeven and sudden spikes in raw-material costs.

This report is published by IIFL’s Institutional Equities Research desk.

About IIFL - India Infoline Ltd (Bloomberg: IIFL)
The IIFL group, comprising the holding company, India Infoline Ltd (NSE: INDIAINFO, BSE: 532636) and its subsidiaries, is one of the leading players in the Indian financial services space. IIFL offers advice and execution platform for the entire range of financial services covering products ranging from Equities and derivatives, Commodities, Wealth management, Asset management, Insurance, Fixed deposits, Loans, Investment Banking, GoI bonds and other small savings instruments. It owns and manages the website, www.indiainfoline.com, which is one of India’s leading online destinations for personal finance, stock markets, economy and business. IIFL has also been one of the first Indian broking houses to get memberships in the Singapore and Colombo stock exchanges.

IIFL in this year has been assigned the highest broker grading BQ1 by CRISIL, while our Singapore subsidiary has received in-principle approval for Securities Trading and Clearing memberships from SG. Recently, it also became the first foreign broking firm to be granted membership of Sri Lanka’s Colombo Stock Exchange. The company has set up an office in Sri Lanka as the first step towards full coverage of this small but highly promising market. To this end, it recently hosted several foreign and Indian institutional investors and some leading Sri Lankan corporations at its conference, Discover Sri Lanka – 2010, at Colombo.

IIFL has been awarded the ‘Best Broker, India’ by FinanceAsia and the ‘Most improved brokerage, India’ in the AsiaMoney polls. IIFL was also adjudged as ‘‘Fastest Growing Equity Broking House - Large firms’ by Dun & Bradstreet. Our chairman, Mr Nirmal Jain, was ranked 2nd in a study of ‘India’s most valuable CEOs’ by BusinessWorld in November 2009. A forerunner in the field of equity research, IIFL’s research is acknowledged by none other than Forbes as ‘Best of the Web’ and ‘…a must read for investors in Asia’. IIFL’s research is available not just over the Internet but also on international wire services like Bloomberg, Thomson First Call and Internet Securities where it is amongst one of the most read Indian brokers.

A network of over 2,500 business locations spread over more than 450 cities and towns across India facilitates the smooth acquisition and servicing of a large customer base. All our offices are connected with the corporate office in Mumbai with cutting edge networking technology. The group caters to a customer base of about a million customers, over a variety of mediums viz. online, over the phone and at our branches.

Please note: IIFL refers to India Infoline Ltd and its group companies.