Havells India Ltd.-techno Research Report

7/31/2019 Havells India Ltd.-techno Research Report

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HAVELLSPowering Lives

Havells India Ltd.(Initiating Coverage)

Techno Shares & Stocks Ltd.

www.technoworld.in

9th August 2007

SYLVANIA


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OVERVIEW

HAVELLSNSE CODE

HAVL:INBLOOMBERG CODE

30.00 croresEQUITY CAP (DILUTED)*

1,17,115 sharesAVERAGE DAILY VOLUME

566.00/273.0052 WEEK HIGH/LOW

13.51P/E (FY08)(fully diluted)

517354BSE CODE

2,633.07 croresMARKET CAPITALIZATION

5.38 crores# OF SHARES

Rs. 5FACE VALUE

26.88 croresEQUITY CAP (CURRENT)

4,402NSE-50

15,138BSE SENSEX

12.62%PUBLIC & OTHERS

20.07%INSTITUTIONAL

NAFOREIGN PROMOTERS

67.31%PROMOTERS

SHARE HOLDING PATTERN AS ON 30.06.2007

*Assumption


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One of the fastest growing electrical products company in the country, nowmoving global.

Turnover growth @ CAGR of 50% over FY02 to FY07.

PAT growth@ CAGR of 70% over FY02 to FY07.

Products ranging from Building Circuit Protection Devices, Domestic &Industrial Switch Gear, Cables & Wires, Energy Meters, Fans, Modularswitches, CFLs, Luminaries & Lighting Fixtures and Bath Fittings.

7 manufacturing locations mainly in Northern region with corporate officein Noida (U.P).

43 branches & representative offices.

2000+ Distributors & 25000+ retailers in India.

Around 3000 employees including 1000 sales personal.

Business model : BRANDED RETAIL.

OVERVIEW


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Capacity Expansion across all products segments in India.

Product Additions : Capacitors, Electric Motors up to 500 HP.

Expect CAGR of 35% from FY08 up to FY10 from India operations (onstandalone basis).

Acquired SLI Sylvania, HQ in Frankfurt, one of worlds largest manufacturerof artificial light sources.

Acquisition would provide access to Sylvanias set up for Havells productsparticularly Circuit Breakers & CFLs globally and Sylvanias products to

Havells retail network in India.

Europe to phase out & move to mandatory use of CFLs post 2009 (GlobalWarming Issue).

Australia to follow.

India proposes by 2011-12.

Improve Brand visibility with increasing advertisement spend.

To open retail stores under name GALAXY across India to create brandvalue.

Plans ~200 stores within next 2 years.

FORWARD


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MANUFACTURING LOCATIONS

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Luminaries & Lighting FixturesGurgaon, Haryana

CFLs, & Industrial ProductsFaridabad, Haryana

Cable & WiresAlwar, Rajasthan

Energy MetersTilak Nagar, Delhi

MCBs, ELCBs, DBsBadli, Delhi

MCBs, CFLs, and Switches

Fans, CFLs

Baddi, HP

Haridwar, Uttaranchal


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HAVELLS INDIA LTD.

Business Segments:

Switchgear Segment.

Cables & Wire Segment.

Electrical Consumer Durable Segment.

New Products : Capacitors.

: Electric Motors.

SLI SYLVANIA

Artificial Light Sources.

Lamps.Fittings.

Lighting Solution.


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SWITCHGEAR PRODUCTS

Industrial Application : ACBs, MCCBs, Fuse Switches,

: MCBs, RCCBs, ELCBs

Domestic Application : Contactors, Starters.

: DBs, Wiring Accessories.

: Digital Dimming and Energy.Management System.

Wiring Accessories : Premium Brand Crabtree.

Market leader in India in Building Circuit Protection Devices (CPD).

Amongst Top 10 in the world in Building CPD.


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Manufacturing Locations :

Faridabad : Industrial Products.

Badli : Building CPD.

Baddi : EOU Unit : Building CPD.

: Local : Building CPD.

Plan to close unit at Badli & increase production capacity at Baddi, HP.

Installed Capacity

6 mn. Nos.20 mn. Nos.Electrical wire accessories

(Capacity utilisation : 64% over FY06 installed capacity.)

35.40 mn.42.20 mn.

1.80 mn. Nos.

33.60 mn. Nos.

End of FY06

2.60 mn. Nos.

39.60 mn. Nos.

End of FY07

Industrial Switchgear

Domestic Switchgear


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Building Products

Market Size : Rs.800 cr.

Competitor's Position : Havells.

: MDs/Legrand.

: Indo Asian.: Schneider.

Industrial Products

Market Size : Rs.1100 cr.

Competitors Position : L & T.: Siemens.

: Schneider.

: Havells.

Products acceptance worldwide.

Increasing Export opportunity through Sylvaniaa marketing and distributionnetwork.

FY07 Sales : Rs.4289 mn (25.51% of total sales)

Expect a CAGR growth of 40%+ for next few years.

MARKET SIZE (INDIA)


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ProductsWires : FR / FRLs Wires.

Power Cables : High & low Voltage PVC & XLPE Cables.

Manufacturing location : Alwar, Rajasthan.

Retail and Institutional / Project Sales.

2nd Largest selling Brand after Finolex in retail.Developed & started manufacturing 66KV HT cables.

Installed Capacity

Capacity utilisation @70% over FY06 capacity.

Estimated Indian Market Size : Rs. 5,000 cr for Power Cables.

: Rs. 7,500 cr for Wires.

Competitors Position :

FY07 Sales : Rs. 7780 mn (46.28% of total sales)

Expect CAGR of 30% + for next few years.

CABLES & WIRES SEGMENT

4.70 lac km

End of FY06

7 lac km

End of FY07

Anchor MatsushitaGloster

HavellsHavells

Finolex

Wires

Polycab

Cable


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Products

i. COMPACT FLUORESCENT LAMPS (CFLs).

ii. FANs.

iii. LIGHTING FIXTURES.

FY07 Sales : Rs.4086 mn (24.31% of total sales)Except CAGR of 30% + for next few years.

ELECTRICAL CONSUMER DURABLES SEGMENT

i. CFLs

CF Lamps lasts 8 times longer than normal GLS bulbs.Saves 80% energy.

Expensive by 3-4 times than GLS.

Manufacturing locations :

Baddi, HP

Faridabad, Hariyana

Neemrana, Rajasthan (under construction)

Largest manufacturers of CFLs in India.


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Installed Capacity

New facility at Neemrana, Rajasthan.

Planned commissioning by Dec07

Energy Savings Lamps Market Size in India : Rs. 7000 cr./paCompetitors Position : Phillips.

: Havells.

: Osram.

: Surya Roshni.

Mandatory Phase out of Incandescent Bulbs on Global Warming Threat: Europe post 2009.

: Other countries such as USA, Australia, UK to follow.

: PM in India proposed phase out of GLS bulbs by 2011-12.: Can take longer than proposed.

Worldwide opportunity for CFL demand.

Opportunity to cater through Havells and Sylvanias marketing and distribution

network across the globe.

*(in phases)

26.4 mn CFLs

FY07

80 mn CFLs

FY09(E) *


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High Premium segment positioning

Innovative designs, premium finishes, energy efficient

Growing at the rate of over 60%

Manufacturing location :

Haridwar, Uttaranchal*

Noida, UP (Facility closed)

(*Fully Integrated state of art manufacturing plant)

Set up in FY07

Installed Capacity

Haridwar : 2.4 mn. Nos. (Mar07)

Capacity Utilisation : ~60%

Market Size in India : Crompton: Orient

: Usha

: Bajaj

: Havells

ii. Fans


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Wide range of products saving energy upto 80%

Products : Innova.

: Lonova.

: E-lite.

Ranging from consumer to commercial, Industrial, street lighting.Manufacturing Plant : Gurgaon, Haryana.

Largest state of art manufacturing capacity in the country.

Growth of over 100% for the past two years.

Market size : Rs. 11000 crs/PACompetetors Position : Phillips

: Bajaj

: Crompton

: HavellsOpportunity for launch of many innovative products from Sylvania fold &access to technology with Sylvania

Long Term Growth opportunity as moving towards energy efficient products& opening up of organisal, retail, malls, multiplexes, housing sector etc.

iii. Lighting Fixtures


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BATH FITTINGS:

World class luxury bath fittings and accessories.

Being sold under brand name CRABTREE.

Premium end products in over 20 designs.

Manufacturing Plant State of Art at Bhiwandi, Rajasthan.

OTHER PRODUCT SEGMENTS


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Set up a plant at a Capex of Rs. 8 cr.

Mainly for extension of product basket.

Industrial Application on Low Voltage.

Manufacturing Location : Noida, UP.

Installed Capacity : 6 lac KVAR per month

Expected Turnover of Rs. 50 cr. at full capacity

NEW PROJECTS

i. Power Capacitors


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Setting up a plant at a Capex of Rs. 60 cr.

Motors Rating : 12 HP 500 HP.

Plant expected to commence operation from Sept / Oct 07

Technical JV with Lafert S.P.A., Italy.

High Energy efficient motors operating at 1/3rd 1/5th cost than ordinarymotors.

Manufacturing Location: Neemrana, Rajasthan

Installed Capacity : 15000 motors in various combination

Expected Turnover of Rs. 250 cr. at full capacity utilisation, to achieve by FY09.

Industry growing at around CAGR of 25% +.

ii. Electric Motors


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Acquired 100% shares of three companies of SLI Sylvania

i. SLI Lighting Products Inc..

ii. SLI Europe BV

iii. Eighthouse Investment Holdings through its subsidiaries

Transaction completed in April 2007

Total Consideration = Euro 227.50 mn

Acquisition Cost = 8.00 mn

---------------------Euro 235.50 mn

Funding Method :

Pension Liability in Sylvania books : Euro 35 mn

Debt from Barclays : Non Recourse : Euro 120 mnRecourse : Euro 80 mn------------------

Euro 235 mn

Non Recourse Debt :Euro 120 mn (in Sylvanias books)

- Euro 80 mn Term Loan @ 4.1 libor + 175 bps- Euro 40 mn working Capital

SLI SYLVANIA


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Recourse Debt : Euro 80 mn

- Euro 50 mn (Equity Issue)

QIP (mainly)

Dilution of 10-12 % of existing equity

- Euro 30 mn (Term Loan) @4.1 libor+ 135 bps.

SLI Sylvania is one of the worlds largest manufacturer of artificial light sources.

Strong presence in Europe and Latin America.

Expanding rapidly in fast growing markets in Asia.

Havells acquired worldwide right to the Sylvania Brand except Australia, NewZealand, USA, Canada & Mexico.

Sylvania has 10 manufacturing plants in UK, Belgium, Netherland, Germany,

France, Tunisia, Brazil, Colombia, Costa Rica.Employee strength of around 4000.

Product presence in over 40 countries.

Over 10000 distributors spread in Latin America, Europe, Africa and Asia.

SLI SYLVANIA


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Products Offering :

Incandescent Light Bulbs.

Halogen & Low Energy Lamps.

Compact Fluorescent Lamps (CFLs).

High Intensity discharge Lamps (HID).

Fluorescent Tubes.

Luminaries : Lumiance 800 products.: Concord : Marlin.

PRODUCTS OFFERING


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Combined Entity

- 18 Plants across the globe.

- 12000 + dealers.

- 7000 + Employees.

Value Creation

- Thrust on building Brand Value.

- Focus on products which are at higher end of value chain.

- Focus on global markets.

To compete effectively with all other global and local lighting companiesusing combination of portfolio of lighting technology and Sylvania brand.

Leverage Sylvanias network for Havells product offerings mainly circuitBreakers & CFLs.

Sylvanias lighting technology products available for Indian market.

Cultural Adjustment & Synergy.

BUSINESS STRATEGY : FORWARD


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SLI SYLVANIA

Focus on sales Growth to reach double digit rate in two years fromexisting 4-6%.

Develop outsourcing from India, China to reduce cost.Improve over Debtors day of 82.

Improve EBIDTA margin from 6.34 % to 8% in two years.

HAVELLS INDIA

Maintain sales growth over 35% on higher base for next 2-3 years.

Maintain EBIDTA margin @ 9%.

FINANCIAL STRATEGY


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Any slowdown in global market can affect growth and actual sales ofSylvania.

Any fallout of cultural Issues can affect integration of two businesses

Any increase in material prices can affect the margins.

VALUATIONS

At the current market price of Rs 480 the stock is quoting at 14.9xFY08e consolidated earnings and 10.6x FY09e consolidated earnings andan FY08e consolidated EV/EBITDA of 7.3x .

We initiate a coverage on the company with an accumulate rating.

RISKS


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1,115.21,681.1TOTAL REVENUES

4.06%3.90%% of total revenues

45.365.6Bath Fittings


274.5408.6Electrical Consumer Durables


465.5778.0Cables & Wires


329.9428.9Switchgears

FY2006FY2007

SEGMENTAL REVENUE BREAK UP( IN INR crores)HAVELLS INDIA LTD (Consolidated)

HAVELLS INDIA LTD (St d l )


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HAVELLS INDIA LTD. (Standalone)

FY10EFY09EFY08EFY07

--91.8056.06Debt

5.46%5.46%5.46%5.46%WC/Sales (%)

207.45158.32114.6484.47Working Capital

4.71%4.71%4.71%4.71%Depreciation Charge

50.0020.00160.00Capex

386.98358.17357.70212.99Net Block

87.3766.1846.6531.36Accumulated Dep

474.35424.35404.35244.35Gross Block

13.15%13.15%13.15%13.15%Dividend/Reported Profit (%)

257.71174.26120.8488.73Retained Earnings

39.0326.4018.3013.44Dividends

296.74200.65139.15102.17PAT

15.50%15.50%15.50%15.23%Tax Rate

54.4336.8125.5218.35Tax

351.17237.46164.67120.52PBT

22.761.501.505.40Other Income

-5.518.4420.94Interest

21.1819.5315.299.74Depreciation

9.20%9.00%8.90%9.24%EBITDA (%)

349.60261.00186.9145.80EBITDA

31.03%38.10%35.73%54.71%Growth

3,800.002,900.002,100.001,547.20Net Sales

All in INR crores

HAVELLS INDIA LTD (Standalone)


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HAVELLS INDIA LTD. (Standalone)

218.79156.51(35.74)90.95Free Cash Flow

FY10EFY09EFY08EFY07---continued

50.0020.00160.0075.47Capex

49.1343.6730.18(54.51)WC Changes

21.1819.5315.299.74Depreciation

296.74200.65139.15102.17PAT

11.31%8.31%5.91%4.69%EBIT / EV

9.7114.3620.7128.20P/E

49.4633.4423.1917.03EPS

2,904.09EV

2,881.20MKT Cap

480.2CMP

5Face value

30Total Diluted Equity

3.1Dilution

26.9Equity

42.75%42.24%42.90%46.71%ROE

50.59%46.64%43.46%46.89%ROCE

284.7669.5068.9133.169Cash

840.95572.34478.15318.46Capital Employed

840.95572.34386.35262.41Networth

--12.00%25.24%Interest Cost

All in INR crores


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SYLVANIA

CY09ECY08ECY07ECY06

0.00%0.00%0.00%0.00%Dividend/Reported Profit (%)


----Dividends

86.8869.2350.5245.83PAT

30.00%30.00%30.00%30.00%Tax Rate

37.2329.6721.6519.64Tax

124.1298.9072.1765.47PBT

Other Income

82.4688.8970.1748.53Interest

68.1561.9556.3251.91Depreciation

8.00%8.00%7.00%6.34%EBITDA (%)274.72249.75198.66165.90EBITDA

10.00%10.00%8.50%Growth

3,434.013,121.832,838.022,615.69Net Sales

All in INR crores

HAVELLS INDIA LTD (Consolidated with Sylvania)


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HAVELL S INDIA LTD. (Consolidated with Sylvania)

1,349.501,469.501,661.3056.06109.84Debt

FY10EFY09EFY08EFY07*FY06*

18.60%14.94%11.20%4.69%EBIT / EV

7.4710.5914.9128.20P/E

64.2645.3632.2017.03EPS

2,904.09EV

2,881.20MKT Cap

480.20CMP (AS ON AUG 6 2007)

5.00Face value

30.00Equity

13.16%13.16%13.16%13.15%10.62%Dividend/Reported Profit (%)


50.7435.8225.4313.446.72Dividends

385.56272.17193.23102.1763.28PAT

19.75%20.57%20.65%15.23%19.45%Tax Rate

94.8970.4950.2918.3515.28Tax

480.45342.66243.52120.5278.57PBT

22.761.501.505.403.59Other Income

82.4692.7983.2920.9422.55Interest

91.0483.0473.029.746.54Depreciation

9.20%9.00%8.90%9.24%10.37%EBITDA (%)

631.19516.99398.33145.80104.07EBITDA

18.23%19.70%117.48%54.71%71.28%Growth

7,319.866,099.875,008.971,547.201,003.53Net Sales

* HAVELLS INDIA LTD

All in INR crores


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DISCLAIMER: This information & opinions in this report have been prepared by TECHNO SHARES & STOCKS LTD. The report & the information contained herein are strictly confidential andmeant solely for the authorized recipient and may be restricted by law or regulation in certain countries. This report is for information purposes only for the authorized reader and does not

construe to be any investment, legal or taxation advice. This report is based on the information obtained from public sources and sources believed to be reliable, however, no warranty, expressor implied, are given for the accuracy or correctness of the same and it should not be construed as such. It is also not intended as an offer or solicitation for the purchase and sale of anyfinancial instrument.

Techno Shares & Stocks Ltd and/or its subsidiaries and/or directors, employees, officers or associates including the persons involved in the preparation/issuance of this report may have (a)from time to time, any interest or positions (buy/sell etc.) financial (including in derivatives/commodities market) or otherwise in the companies/securities covered/mentioned in this reportand may have acted upon the information &/or (b) been engaged in any other transaction, commercial or otherwise, in respect of the companies/securities covered in this report, like earningbrokerage, commission or act as a market maker &/or (c) performed or may seek to perform any merchant/investment banking services for such companies or act as advisor orlender/borrower to such companies &/or (d) have other possible conflict of interest with respect to any recommendation or any information/opinions that could affect the objectivity of thisreport. As a result, the authorized recipients of this report should rely on their own investigations and analysis & seek professional advice. Any action taken by any one solely on the basis of the

information contained herein is their own responsibility alone and Techno Shares & Stocks Ltd and its subsidiaries or its directors, employees or associates will not be liable in any mannerwhatsoever for the consequences of such action taken.

No data/information contained in this report shall be copied, forwarded, transmitted or distributed, in part or in whole, in any form or in any media, without the previouswritten consent of Techno Shares & Stocks Ltd.


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CORPORATE OFFICE :

Manu Mansion, 2nd floor,

16, Shahid Bhagatsingh Marg, Mumbai 400 001

Tel: 6633 8900 / 2261 8787

Fax: 2269 0041/2269 5516

Website: www.technoworld.in

email: [email protected]

Havells India Ltd.-techno Research Report

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