Multi Bagger - Havells India

[UAE Exchange Etrade]

NSE ID:HAVELLS

CMP: 675/-

Over a decade Havells has established itself in a leading position in its traditional category of products like switchgears, cable and also in new product categories like lighting and fixtures, fans. Recently, Havells India's promoters has agreed to transfer Havells' brand name and trade mark to itself without any consideration, post March 2016.

The company has registered decent numbers for the quarter ending September 2012. The revenue for the September 2012 quarter is pegged at Rs.964.22 crore; about 13% up against Rs.850.39 crores recorded during the year-ago period; despite degrowth in industrial cable division without which growth in revenue is 24%.

Operating profit remained flat at Rs.119.16 crores due to higher advertisement and sales promotion expenses. The advertisement cost was Rs.34.8 crores in Q2FY13 as compared to Rs.14.2 crores in Q2FY12. The net profit reported a growth of about 24% to Rs.86.97 crores from Rs.70.24 crores.

Revenues from the switchgear business grew 15% at Rs.255.12 crores as against Rs.221.77 crores y-o-y. The industrial cable division registered a decline of 16% on a y-o-y basis due to slower industrial and commercial activities. The domestic cable has registered a growth of 42%. 

Collectively cable division has grown by 6% during the quarter. Revenues from Lighting & Fixtures business climbed 14% on a y-o-y basis at Rs.156.11 crores and Electrical Consumer Durables revenues jumped sharply by 33% at Rs.162.34 crores on a yearly basis.

Valuation

With new product launches, increasing market share, firm guidance and strong dealer relations and continuous advertising efforts, Havells' revenue visibility looks positive. We believe Havells India Ltd. is trading at an attractive valuation at 19.93x and 16.42x of FY13EPS of Rs.33.78 and FY14EPS of Rs.40.99. We initiate a 'BUY' on the stock with a target price of Rs.850 (appreciation of about 26%) with the medium to long term investment horizon.