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CRISIL Equities PR Havells 23feb10
CRISIL Equities PR Havells 23feb10
Mumbai
CRISIL Equities has assigned a CRISIL IER Fundamental Grade ‘4/5’ (pronounced “four on five") to
Havells India Limited (Havells). The grade indicates that the fundamentals of the company are ‘Superior’
relative to other listed equity securities in India. CRSIL Equities has assigned a Valuation Grade of ‘4/5’,
indicating that the stock has a potential ‘Upside’ to the fundamental value of Rs 614 from the current market
price of Rs 533 (as on February 22, 2010). These grades are not a recommendation to buy/sell or hold the
graded instrument, or a comment on the graded instrument’s future market price or its suitability for a particular
investor.
The assigned grade considers that Havells products derive demand from expenditure in the power
transmission & distribution and real estate sectors in India, wherein a huge spending is expected over the
next few years. The grading also takes into account Havells’ strong position in the industry, with it being
amongst the top ten players in all the business segments where it operates. The grading also factors in the
presence of the highly experienced management team that has, over the years, successfully expanded the
product portfolio through the organic as well as inorganic route, and through joint ventures. In April 2007, it
acquired European lighting giant Sylvania (almost 1.5times its own size), giving it access to a much larger
geography. Its ability to acquire a company larger than itself and successfully turn Sylvania EBITDA
positive in 2009-10 through restructuring, despite a significant drop in volumes, reflects positively on the
grading. However, the grading gets tempered by its limited product offering in the cables and switchgears
segment in India and Sylvania’s deriving ~70% of revenues from the matured European market that offers
limited growth prospects.
CRISIL Equities sees Havells’ gross revenues at Rs 74.8 billion by 2012-13, registering 4-year revenue
CAGR of 7.5%. Havells (standalone) is expected to register a strong 4-year revenue CAGR of 16.9% to
touch Rs 43.2 Bn by 2012-13. However, given the muted growth prospects in the European markets,
Sylvania is expected to demonstrate flat revenues. CRISIL Equities expect Havells’ operating margins to be
at 10.8% by 2012-13 from ~6% in 2008-09. Similarly, net margins are expected to be at 6.2% by 2012-13
from -2.9% in 2008-09. Further, CRISIL Equities expects earnings per share (EPS) to increase from
negative Rs 27.5 in 2008-09 to Rs 74.2 in 2012-13, and RoE to rise from negative 24.5% to 35.7% during
the same period.
CRISIL Equities has used the Sum of Parts method of valuation, and separately valued Havells (standalone)
at Rs 450 per share and Sylvania at Rs 164 per share using the discounted cash flow method (DCF).
Consequently, CRISIL Equities has arrived at a Fundamental Value of Rs 614 for Havells, translating into a
Valuation Grade of ‘4/5’, indicating that the stock has a potential ‘Upside’ from the market price of Rs 533.
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February 23, 2010 www.crisil.com
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