BackHavell’s India: good performance priced in
Ebitda margins improved to 6.4% from 3.3% in the September quarter though sales were flat at `768 crore
Premium(Domestic sales rose by 18% from the year before, driven by a 22% growth in the lighting business and a 51% jump in sales of electrical consumer durables (ECD) such as fans.)
Havell’s India Ltd reported a decent 20% year-on-year increase in profit for the quarter ended December.
Havell’s is an electrical equipment company that’s expected to end the year with sales of $1.35 billion, and its shares have risen 55% in the past year—much higher than the 22% rise in the S&P CNX 500 Index.
The company’s overseas arm, Havell’s Sylvania, reported a sequential improvement in profit margins.
Domestic sales rose by 18% from the year before, driven by a 22% growth in the lighting business and a 51% jump in sales of electrical consumer durables (ECD) such as fans.
The cables and wires business grew by less than 5%, with growth being dragged down by the industrial segment.
But thanks to the company’s strong distribution in the consumer segment, the lighting and ECD division continue to do well.
Profit of these two segments rose by 18.2% and 34.7%, respectively.
Profit growth would have been higher but for a sharp increase in advertisement expenses.
While the company’s overseas operations under Havell’s Sylvania have been struggling, profitability is improving gradually, thanks to the price increases effected last September and a continued focus on cost cutting.
Ebitda (earnings before interest, taxes, depreciation and amortization) margins improved to 6.4% in the last quarter, from 3.3% in the September quarter. Sales were flat at ₹ 768 crore.
Acquired in 2007 for $300 million, Sylvania had threatened to take the whole company down because of the high debt associated with the acquisition as well as the losses of the firm. While things have stabilized since, it has helped immensely that the company’s domestic operations have grown strongly.
According to analysts at Religare Institutional Research, “The company has been in a sweet spot over the past few years as it leveraged its strong distribution channel to scale up in the consumer appliance business." Since end-August 2011, the company’s shares have more than doubled.
What’s more, the company’s net debt has continued to reduce (by ₹ 70 crore last quarter), thanks to the growth in free cash-flow generation. Estimates by Barclays Research suggests the company will have net cash by the end of fiscal 2014, compared with a net debt position of ₹ 364 crore at the end of FY13 and ₹ 635 crore at the end of FY12.
Nevertheless, all this seems to be priced into the company’s valuations of 20 times estimated earnings for FY13—especially considering the struggles being faced by Sylvania, which accounts for over 40% of consolidated revenue.
Mobis Philipose
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