Havells

Stock Is Attractively Valued As Its P/E Of 14x Is Closer To 9-Yr Average

 

HAVELLS India stock price was up 4% on Thursday as the company announced its foray into the new generation ceramic metal halide (CMH) lighting business recently. The stock has been a big out performer during 2009 with nearly 300% appreciation in its market price compared to the 66% gain in the Sensex.

   The Delhi-based company is one of India's leading manufacturers of low-voltage electrical equipment such a switchgears, wires & cables, lighting & fixtures, fans and electric motors. The cables and wires segment contributed 44% to Havells' total revenues in FY09.

   In the quarter ended December 2009, the segment revenue was up 16%. In terms of profitability, the switchgear segment is the most important segment, accounting for over half of the company's PBIT during FY09.

   In the past few years, the company has greatly expanded its consumer durables business and the division now accounts for nearly 10% of revenues and nearly 15% of the PBIT. The segment witnessed strong growth in the third quarter with an over 100% growth in PBIT on a 50% growth in revenues over the corresponding quarter a year ago. The lighting and fixtures business unit has also maintained an average growth of 23% in the past three quarters and exhibited the second highest growth in profits for the December quarter .

   Havells has now ventured into retailing through its initiative called 'Havells Galaxy' to provide one-shop solution to the consumer looking for electrical and bath fittings products. The company's international business is represented by Sylvania, the European company it acquired in 2007. Sylvania continues to suffer due to declining demand in key the European market and is a drag on Havells' consolidated finances.

   In the past five financial years, Havells' standalone net sales have increased at a CAGR of 37% while both the net and cash profits grew at a CAGR of 47% during the period. However, due to the sluggish performance of Sylvania, Havells reported flat revenues for FY09 and a net loss of Rs 160 crore.

   Havells' plans to extend its product portfolio by introducing CMH, a new generation lighting which has a high CRI (colour rendering index) and is considered the closest substitute for natural light. The company plans to manufacture one million CMH lamps and is targeting revenues of about Rs 100 crore on an annualised basis at peak production.

   The company also wants to deepen its penetration in Western India. Havells plans to double the region's contribution to the net revenues from the current 12% in a span of one year.

   Given its growth plans, the stock does not look overvalued and is currently trading at 14x its estimated earnings for FY10. At the current market price, the stock's P/E is closer to its average for the past nine years but slightly higher than its average of 11 since 2009.