Update | 13 February 2013
Sector: Capital Goods
Havells India
HAVL:
Impressive line-up of portfolio additions with
INR5b+ revenue possibilities
Sylvania:
Gradual path to sustained recovery
Key success mantras:
i) Manufacturing Excellence to
achieve Electrical Excellence; ii) Focus on Brand and
Distribution; iii) Culture of Innovation
Well-fortified stance
Satyam Agarwal
(AgarwalS@MotilalOswal.com); +91 22 3982 5410
Deepak Narnolia
(Deepak.Narnolia@MotilalOswal.com); +91 22 3982 5126
Investors are advised to refer through disclosures made at the end of the Research Report.

Havells India
Havells India: Well-fortified stance
Page No.
Summary
............................................................................................................
3
New product introductions likely to leverage growth
...............................
4-7
Sylvania: Gradual path to sustained recovery
...........................................
8-10
Focus on manufacturing, brand, innovation - Key success mantra
.......
11-13
Maintain Buy with a target price to INR860
............................................
14-16
Financials and valuation
...........................................................................
17-18
Prices as on 12 February 2013
13 February 2013
2

13 February 2013
Update | Sector: Capital Goods
Havells India
BSE SENSEX
S&P CNX
19,561
5,923
CMP: INR683
TP: INR860
Buy
Well-fortified stance
Impressive new portfolio additions with INR5b+ revenue possibilities
New product introductions likely to leverage growth
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel.Perf.(%)
HAVL IN
124.8
85/1.6
699/482
3/13/31
Valuation summary (INR b)
Y/E March
2013E 2014E 2015E
70.4 77.6 87.2
8.3
8.1
9.7
4.1
5.1
6.0
33.0 40.7 48.1
(3.1) 23.3 18.2
99.2 141.9 178.2
29.5 28.7 27.0
23.1 23.5 23.3
19.9 25.9 24.4
20.7
6.9
10.7
1.1
16.8
4.8
10.6
1.3
14.2
3.8
8.5
1.5
Net Sales
EBITDA
Adj PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div Yield (%)
Over the past few years, Havells India (HAVL) added new product lines/segments
which have become ~INR5b revenue product categories: i) company entered the
lighting segment in 2003 and the business contributed INR5.5b to revenues in
FY12 and ii) it entered the fans market in 2005 and contributed revenues of
INR4.9b in FY12. Going forward, we believe that new product portfolios, including
consumer/kitchen appliances (launched in FY11) and Reo switches (mass market
segment, launched in FY13), are likely to be in the INR5b+ category. Also,
possibilities exist that initiatives like exports under Havells brand, rejuvenation
of the strategy in luminaries etc over the next 1-3 years show the potential to
become INR5b revenue categories.
Sylvania - Gradual path to sustained recovery
Post the successful turnaround in FY11, Sylvania reported a sharp decline in
normalized EBITDA margins from 9.7% in 3QFY12 to ~3.3% in 2QFY13, largely driven
by a combination of cost increases and one-time factors. Going forward, we
believe that the path to sustained recovery will be driven by: i) price increases
(up 3-4% in 3QFY13) ii) gradual shift in revenue composition towards LatAm
which has a better growth trajectory of 7-10% and relatively stable margins of
7.5-10%, iii) Conversion of portfolio towards LED (contribution at ~10%) and iv)
acceleration of fixtures strategy in Sylvania with commissioning of Neemrana
plant (current revenue contribution from fixtures in LatAm is just 20%). We expect
the EBITDA to cash conversion in Sylvania at 70-80%, as the incremental capex/
working capital requirements will be limited.
Shareholding pattern %
As on
Dec-12 Sep-12 Dec-11
Promoter
61.6
61.6
61.6
Dom. Inst
1.2
1.1
1.2
Foreign
30.7
30.8
30.0
Others
6.5
6.6
7.3
Key success mantras - Focus on manufacturing, brand and innovation
Strategy of focusing on in-house production (v/s outsourcing at just 5-7% of total
revenues) is the key differentiator for HAVL enabling total quality control and
thus a premium positioning in the market. There is also a strong focus on brand
and distribution, with initiatives like creating a service network in electrical
appliances that is comparable to consumer durables industry, again an industry
first. Over the past 5 years, company has spent INR8.4b to set up manufacturing
plants and INR3.7b in brand building which has created strategic entry barriers.
Stock performance (1 year)
Maintain Buy
HAVL's stock has outperformed the BSE mid cap index by 40% over the past year.
Going forward, we believe the key stock price drivers are: 23% consolidated
earnings CAGR till FY15E, strong balance sheet, improving free cash generation
and potential increase in dividend payout ratio. Management had increased the
dividend payout to 25% in FY12 from ~12% in FY11 and we believe that given the
robust free cash generation, payout ratios can further increase. Maintain
Buy.
13 February 2013
3

Havells India
New product introductions likely to leverage growth
Over the past few years, Havells India (HAVL) added new product lines/segments which
have become ~INR5b revenue product categories:
i) entered the lighting segment in 2003 and the business contributed INR5.5b
of revenues in FY12 and
ii) entered the fans market in 2005 and contributed revenues of INR4.9b in FY12.
Going forward, we believe that new product portfolios, including consumer/kitchen
appliances (launched in FY11 and FY13, revenues expected at INR2b) and Reo switches
(mass market segment, launched in FY13) are likely to be in the INR5b+ category over the
next 3 years.
Also, possibilities exist that initiatives like exports under Havells brand (MCBs and electrical
wiring accessories), rejuvenation of 'Luminaires' portfolio etc over the next 1-3 years show
the potential to become INR5b revenue categories.
Thus, constant introductions of booster categories to the revenue stream led to a robust
revenue CAGR of 34% over the past 10 years; going forward, we expect strong revenue
CAGR of 18% during FY12-15E.
HAVL: Expect robust 18% revenue CAGR till FY15E with likely upside
Strong pipeline of new
product categories,
coupled with strong
growth in existing
segments to drive 18%
revenue CAGR till FY15E.
Possible line-up (not
factored in our earnings
estimates) includes:
Increasing contribution
of exports and
rejuvenation of
luminaries portfolio
Source: Company, MOSL
Potential INR5b+ revenue categories
#1
Switchgear composition - FY12
Capacitors
Motors
2%
6%
Industrial
Switchgear,17%
Domestic
MCB, 50%
Modular
Switches, 25%
Mass market switches (Reo)
Switches, in FY12, contributed ~INR2.3b of the Switchgear segment's revenues of
INR9b. To expand the product offerings, HAVL has launched new products : Reo
(conventional switches), XPRO (intelligent switchgear) and Murano (premium
switches).
Of this, Reo operates in INR20b sized market and the target is to capture 25% of
the market over the longer term (revenue possibility of INR5b). Reo switches
were introduced in October 2012 and are expected to contribute INR1.5b in FY13
and INR3b in FY14. Reo includes switches, sockets, fan regulators, fuses etc.
13 February 2013
4

Havells India
Also, margins, post the volume increase, are expected to be comparable with the
existing switchgear portfolio. Thus, Reo switches can possibly lead to doubling of
switch business revenues in the next 12-18 months and will be an important growth
driver.
Of the INR20b market, Anchor Panasonic is the key player and the rest is controlled
by unorganized segment. Reo's positioning is again in the premium category, with
improved features (including lifetime warranty being provided for the first time
in this category). Thus, pricing is also at 20% premium to competition, leading to
improved margins.
#2
Consumer Appliances
Composition - FY13E
Consumer/kitchen appliances
HAVL entered the consumer appliances segment in FY11 by launching water
heaters in September 2010 and small appliances such as juicers, mixers and irons
in August 2011. Since then, the portfolio has been expanded to include mixer
grinders, food processors, OTGs, induction cookers etc. The market size in
appliances and water heater segment is INR52b, of which HAVL's revenues in
FY13E are expected at ~INR2b; we believe there are possibilities to expand it to
INR5b in the next 3 years.
Also, in the appliances segment, strategy is to create product differentiation.
Given the initial success in water heaters and geysers, there are plans to commence
their in-house manufacturing (similar to the strategy adopted in other product
categories, post achieving a critical mass).
HAVL: Switchgear is the most profitable business segment
Contribution margin (%)
(FY12)
HAVL: Sales of kitchen/consumer appliances have improved
Source: Company, MOSL
Potential to figure in INR5b revenue category list
We note that there are several segments and product categories which hold good
potential over the long term. Few of these segments could possibly over the next 1-
3 years show the potential to be INR5b revenue categories. However, we have not
factored most of these possibilities in our earnings estimates.
#3
Increasing export revenues from INR1.7b in FY12 to ~INR4-5b by FY15E
During FY03-09, HAVL's exports increased significantly from INR65m to INR2.1b and
largely comprised of MCB exports under the OEM brand. However since then, exports
5
13 February 2013

Havells India
Export Composition - FY12
have declined to INR1.7b in FY12 as the company decided to discontinue exports
under the OEM brand and launch the HAVL brand in overseas markets. While this led
to a near term impact, we believe there are possibilities of exports ramping up to
INR4-5b revenues in FY15E. Currency movements have also improved competitiveness
of exports meaningfully and thus the management will now redraw the export
strategy.
Exports under HAVL brand to be possibly driven by three pronged strategy
MCB exports under HAVL brand
In FY12, HAVL was amongst the top 5 players globally in MCBs and #1 in India. MCBs used to be an important
constituent of company's exports; in FY08 ~50% of MCBs sold in the UK were manufactured by HAVL.
Over the past 2 years, there has been an increased focus on exports under the HAVL brand discontinuing
exports under OEM brand. This led to MCB exports declining by 50% from levels of ~INR1.5b in FY10.
During FY12, company enhanced the product portfolio for switchgear category by adding new range of
control gear products and distribution boards. Also, special focus was on expanding geographies in emerging
markets in Africa and SAARC.
We believe that the initial success, albeit at a slower pace, has been encouraging. There are also
possibilities to leverage the distribution network of Sylvania in Europe and LatAm, including cross selling.
Exports of electrical wiring accessories
Exports of electrical wiring accessories (EWA,
comprising of switches, sockets, fuses, wires etc)
from India are not much and HAVL has recently
introduced some of these product categories in the
UK.
Initial attempts are to set up a manufacturing base
in India and establish a strong R&D as the electrical
socket size etc differs among European countries.
There are possibilities to leverage on the
distribution network of Sylvania and thus EWA
exports can be important driver, going forward.
CMI/HID lighting
CMI/HID lighting plant was commissioned in 2009
and the products are mostly exported. Also, outside
the US, Europe and Japan Neemrana is the only
factory manufacturing CMI/HID products.
We note that FY13E revenues of ~INR300m can
possibly increase to INR1-1.5b over the medium
term, and the inflexion point is expected to be
September 2013 as the royalty payment to Philips
will cease (royalty at 12% of revenues).
HAVL's exports decline, OEM supplies have been discontinued
Currency movement have made exports competitive
INR/Euro (% YoY)
Source: Company, MOSL
13 February 2013
6

Havells India
#4
We believe
opportunities exist
to rejuvenate the
portfolio in lighting
business through
cross-selling, new
product introductions in
Luminaries. HAVL has a
market share of 11-12% in
the lighting business,
while Philips is the
market leader
with 25%+ share
Introduction of Sylvania brand in India/rejuvenating the strategy on 'Luminaries'
Significant cross-selling opportunity:
HAVL has already launched the Sylvania brand
in India in select categories and while sales will take time to ramp up, we note
there are possibilities for cross-selling in the lighting business as well. The cross-
selling strategy is being successfully used by HAVL in the switchgear business,
with MCBs being launched in Crabtree (traditionally present in modular switches),
mass market switches being launched in HAVL brand (present largely in MCBs etc)
and wires/switches in Standard (traditionally in industrial switchgear etc). This
strategy has led to possibilities of doubling revenues in switchgear business over
the next 3 years from INR9b in FY12. Also, wires business reported a revenue
growth of ~35% in 9MFY13, largely driven by cross selling possibilities (launched
under Standard brand).
Neemrana Luminaries plant:
In Luminaries, HAVL commissioned the only
manufacturing plant in the country at Neemrana (Rajasthan) and revenues are
targeted at INR5b in the next 2 years. While this will initially replace outsourcing
from China, we believe over a period of time it provides opportunities to increase
offerings in the fixtures market. Around 60 designs have already been approved
and the global R&D team is being strengthened. Also, a large part of the company's
LED strategy is focused on the fixture market and thus is more customer centric
than technology centric.
HAVL's positioning in Lighting and Luminaries business
Lighting
Rank
Mkt Size (INR M)
Mkt Share
Peers
2
20,000
11%
Philips, Osram
Luminaries
4
25,000
12%
Philips, Bajaj, Crompton, Wipro
Source: Company, MOSL
Revenues to be aided by various initiatives across product categories
While the large revenue drivers for HAVL will be the new portfolio additions as
discussed above, there are various initiatives that are being taken in terms of
expanding categories across product segments. Some of these initiatives also have
possibilities to contribute more meaningfully to growth over the longer term period.
Industrial
motors revenues likely to reach INR1.5b by FY14
In industrial motors, revenues are targeted to increase from
INR700m in FY13 to INR1.5b in FY14.
This would be driven by new products in segments like i)
smoke ventilation motors which are used in buildings,
parking lots, metros, tunnels etc and the demand is quite
strong and ii) mining motors will be launched in April 2013.
Industrial
MCBs
In MCBs, HAVL is ranked among the Top 5 players globally
and is the No. 1 player in India. The business contributes
~50% of switchgear business.
The intention going forward is to establish a strong base
in industrial MCBs as well. The initial step was to set up
an integrated manufacturing facility at Sahibabad in Uttar
Pradesh and it was commissioned in FY12.
13 February 2013

Profitability improvement in underground cables
In FY13, the target is also to improve the profitability of
underground cables business.
Rural
distribution in India could open up many possibilities

The cost of Reo switch is ~INR20/switch v/s INR50/ modular
switches and will also enable the company to penetrate
the rural distribution network (Class C/Class D towns).
This again will be a new addition in the distribution
network and going forward this network can be leveraged
to launch more consumer products under the HAVL brand,
including fans, consumer appliances, wires, MCBs etc.
Hence, this could lead to interesting long term possibilities.
7

Havells India
Sylvania: Gradual path to sustained recovery
Post the successful turnaround in FY11, Sylvania reported a sharp decline in
normalized EBITDA margins from 9.7% in 3QFY12 to ~3.3% in 2QFY13; this was
largely driven by a combination of cost increases and one-time factors. Also, the
company reported the first-ever quarterly loss of EUR1.6m in 3QFY13, post a loss
of EUR0.3m in 3QFY11. During 3QFY13 margins bounced back to 6.4% led by
improvement in Europe (3QFY13 margins at 5% v/s 0.8% QoQ) post several
corrective measures and operating leverage. Going forward the management
believes that these margins are sustainable.
Even in FY13 EBITDA margins are in the range of 7-10% for most of the countries
and the impact is largely in specific countries like Brazil, the US,Germany leading
to lower aggregate numbers in profitability. Further, several one-offs also
contributed to compounding of the effect: for instance, bad debt in Greece
(EUR1.5m), import restrictions in Argentina etc.
The initial part of restructuring focused on manufacturing operations, cost
rationalization (including employees), improvement in working capital cycle,
value engineering and process optimization, increased outsourcing etc. These
initiatives contributed to a bulk of the profitability improvement during FY08-11.
Over the longer term, attempt is to ingrain the 'profitability focus' culture of HAVL
among all country managers. Cost structure is also being rationalized through
improved procurements, better logistics etc.
Going forward, we believe that the path to sustained recovery will be driven by
the following: i) price increases to compensate cost increases (already pushed
through ~3-4% in 3QFY13), ii) gradual shift in revenue composition towards LatAm
(now contributes 37% of revenues, v/s 31% in FY10), which has a better growth
trajectory of ~7-10% and relatively stable margins of ~7.5-10%, iii) Sylvania is
converting portfolio towards LED (contribution at ~10%) and in LatAm, the process
is to establish a central office for LED and thus will bring in more product
introductions and iv) with the commissioning of Luminaires plant in Neemrana
(Rajasthan), the fixtures strategy for Sylvania, particularly in LatAm could also be
accelerated (current revenue contribution from fixtures in LatAm is just 20%).
Also, we expect EBITDA to cash conversion in Sylvania at ~70-80%, as the
incremental capex/working capital requirements will be limited.
However, this is easier said than done, particularly given the constrained macro
environment. Also, several global peers like Philips, Osram, Zumtobel etc have
taken aggressive postures in various markets. European construction spending
continues to decline, leading to moderating revenues in several countries.
Given this, we expect Sylvania to report adjusted EBITDA margins of 5% in FY13E
(down from 8.4% in FY12) and gradually improve to 6% in FY14E /6.7% in FY15E.
Thus, we expect Sylvania to report adjusted PAT of EUR2.8m in FY13E (down from
EUR16.6m in FY12) and improving to EUR8.8m in FY14E / EUR11.7m in FY15E. The
improvement is driven by increased revenue contribution from LatAm (+7.5%
CAGR till FY15E) and margin improvement in Europe (+260bp).
13 February 2013
8

Havells India
Increased LatAm contribution likely to support 2.4% sales CAGR (FY13-15E)
Sylvania has witnessed a very gradual shift in revenue composition towards LatAm
(now contributes ~37% of revenues v/s 31% in FY10). LatAm has a better growth
trajectory of ~7-10% and relatively stable margins of ~7.5-10%, and we believe that
this shift will lead to improved growth profile. We expect Sylvania's revenues to
improve by 2.4% CAGR during FY12-15E, driven by 7.5% revenue CAGR in LatAm, while
Europe is expected to witness a decline of 1% CAGR in this period.
LatAm contributes ~37% to Sylvania's revenues (Euro m)
LatAm has a relatively better growth trajectory v/s Europe
Sylvania revenue growth
Top 5 countries = 50%+ revenue contribution
Sylvania's Europe revenues are down 35% from peak
Strong co-relation with construction spend in Europe
(6 months time lag)
Key countries where profitability was impacted in FY13
Sylvania's revenue operating matrix (Euro m)
FY09
Revenues
Europe
LatAm
Others
Total
Revenues % YoY
Europe
LatAm
Others
Total
Revenues Composition (%)
Europe
LatAm
Others
334.6
126.3
12.3
473.2
FY10
286.6
121.2
13.0
406.7
-14.3
-4.0
5.5
-14.1
71
27
3
70
30
3
FY11
280.6
145.0
23.8
449.4
-2.1
19.6
82.5
10.5
62
32
5
FY12
275.1
149.8
23.2
448.1
-2.0
3.3
-2.4
-0.3
61
33
5
FY13E
254.9
162.8
24.5
442.2
-7.3
8.7
5.6
-1.3
FY14E
246.4
175.0
25.2
446.6
-3.3
7.5
3.0
1.0
FY15E
250.4
188.1
26.0
464.5
1.6
7.5
3.0
4.0
Europe revenues
impacted by constrained
macro and are down 35%
from peak levels.
Contribution of LatAm
has increased from 27%
in FY09 to 37% currently
58
55
54
37
39
40
6
6
6
Source: Company, MOSL
9
13 February 2013

Havells India
Correcting LED and fixtures strategy could boost revenue growth rates
Sylvania is converting portfolio towards LED (contribution at ~10%) and the process is
to establish a central office in LatAm to bring more product introductions, particularly
in LED segment. Also, with the commissioning of Luminaires plant in Neemrana
(Rajasthan), the fixtures strategy for Sylvania, particularly in LatAm, could also be
accelerated (current revenue contribution from fixtures in LatAm is just 20%). Lamps
contribute 65% of revenues for the company and correcting the mix could be an
important driver.
Sylvania revenues have underperformed peers, also driven
by market shift towards LEDs (Jun-09 index to 100)
Neemrana plant can also help in correcting the fixtures strategy,
largely for LatAM
Source: Company, MOSL
OSRAM PBT margin (%)
Expect margin improvement of 175bp during FY13E-15E, driven by Europe
(+260bp)
Even in FY13 EBITDA margins are in the range of 7-10% for most of the countries and
the impact is largely in specific countries like Brazil, the US,Germany leading to lower
aggregate numbers in profitability. Further, several one-offs also contributed to
compounding of the effect: for instance, bad debt in Greece (EUR1.5m), import
restrictions in Argentina etc.
Sylvania: Region-wise EBITDA margins
FY10
FY11
13.9
13.2
-0.5
26.6
5.0
9.1
-2.1
5.9
FY12
24.6
12.5
0.3
37.4
8.9
8.3
1.3
8.3
FY13E
9.7
12.4
0.1
22.1
3.8
7.6
0.4
5.0
FY14E
13.0
13.6
0.3
26.8
FY15E
16.0
15.0
0.3
31.4
6.4
8.0
1.0
6.7
MOSL
EBIT margin improving (%)
Adj EBITDA (EUR M)
Europe
LatAm
Others
Total
Adj EBITDA %
Europe
LatAm
Others
Total
-4.0
10.5
0.6
7.1
-1.4
8.7
4.6
1.7
5.3
7.8
1.0
6.0
Source: Company,
13 February 2013
10

Havells India
Focus on manufacturing, brand, innovation - Key success mantra
Strategy of focusing on in-house production (v/s outsourcing at just 5-7% of revenues)
is the key differentiator for HAVL and enables a total control on quality and thus the
premium positioning in market. Management stated that bringing mechanical accuracy
was a key challenge to achieve electrical accuracy. There is also a strong focus on
brand and distribution, with initiatives like creating a service network in electrical
appliances that is comparable to consumer durables industry, again an industry first.
Over the past 5 years, HAVL spent INR8.4b to set up manufacturing plants and INR3.7b
in brand building (advertisement), which have created important entry barriers.
The InSites: Visit to HAVL's manufacturing plants
Over a three-day period, we visited Havells India's switchgear
manufacturing plants in Baddi, Himachal Pradesh (16% of revenues)
and Neemrana, Rajasthan (17-18% of revenues), India.
Baddi is the most automated switchgear manufacturing plant
in India, with a capacity of 50m domestic switchgear poles per
annum and 70m electrical wiring accessories per annum.
Neemrana plant manufactures motors (largest manufacturing facility in India),
CFL (among the largest plants in Asia) and consumer & industrial lighting (first
ever large scale lighting fixture plant in India).
#1
Various initiatives like
Total Quality
Management, Six Sigma
and lean manufacturing
provide enough
flexibility to respond
quickly to changes in
demand environment
Plant-wise revenue possibilities
Manufacturing excellence to achieve electrical excellence
Increased automation in Baddi plant:
The production process at Baddi is almost
fully integrated, with robotics systems also being planned for future expansions.
Management stated that in terms of manufacturing processes, Baddi is among the
top 4-5 plants globally for switches and MCBs and also among the best in Asia.
Increased automation led to lower rejection rates (0.1% at shop floor) and
improved quality, thus leading to premium positioning.
Neemrana is the first manufacturing plant for lighting fixtures in India and the
largest in Asia and also has the largest LV motors plant in India. The plant will now
replace sourcing from India and for LatAm from Chinese operations.
Neemrana plant (INR b)
Source: Company, MOSL
13 February 2013
11

Havells India
Over the past 5 years,
HAVL has spent INR8.4b
to set up manufacturing
plants, which have
created important entry
barriers
Post commissioning of
Neemrana plant, the
outsourcing component
in lighting business is
expected to decline
meaningfully. Also, in
consumer durables,
there are plans for in-
house manufacturing of
water heaters as the
business approaches
critical mass
Strong in-house manufacturing - a vital competitive advantage (Capex incurred)
Source: Company, MOSL
Outsourcing component stood at just 14% in FY12
Source: Company, MOSL
#2
Focus on brand and distribution
In house manufacturing provides total quality control, enhancing brand equity:
The most important benefit of control over the manufacturing process is complete
control over the product quality and in turn a better customer experience. For
instance: i) average variation range (in manufacturing process of switchgear) has
been lowered to 5 microns v/s the industry average of 20 microns. Thus, Indian
markets are also being offered products comparable to the European standards,
ii) manufacturing lamps at less than 1mg mercury levels v/s industry standard of
5-10mg and iii) target is that no CFL lamp should fail at the retailer's level and thus
every CFL lamp is being tested post 48 hours of manufacturing.
Bringing innovation to after sales service:
HAVL has also set up new industry norms
in after sales customer service and for the first time a network for the electrical
appliances industry that is comparable to consumer durables segment. This
initiative was started over the past 2 years and will also cover low value products
like Reo switches (INR20/switch) as well. Thus, 95% of the customers are being
serviced in 24 hours. A toll free customer care number is also the industry first and
also a practice that every customer complaint to be addressed at the customer's
residence, even for smaller value items. This is only possible due to complete
control on quality through in-house manufacturing.
Superior channel financing/dealer incentive lead to strong bonding:
Channel
financing is an important initiative for the dealers, which has lowered the working
capital requirements. Dealer incentives are being credited within 48 hours of the
monthly closing, while other companies take a longer time of ~1 month. Also,
dealer initiatives like annual trips, 0.3% of the sales for tour expenses etc have
led to a strong bonding.
12
13 February 2013

Havells India
HAVL spends ~5-6% of revenues in advertisement, highest among peers
Note:
For computing advertisement as a percentage of sales, revenues have been taken exclusive of cables and wires in Havells,
exclusive of power and industrial for Crompton and exclusive of project businesses for Bajaj
Source: Company, MOSL
Transfer of brand to listed entity without any consideration, a huge corporate
governance positive:
HAVL promoters have agreed to transfer the ownership of
the "Havells" brand to the listed entity from April 1, 2016 without any
consideration. The current trademark licensing agreement between HAVL and
promoters will expire in March 2016. HAVL pays royalty at 1% of sales/10% of
profits of Havells brand, subject to a cap of INR400m. Thus, with the transfer of
the brand in April 2016, the royalty payment to the promoters will stop. This will
result in a theoritical EPS benefit of ~6% for FY14E. While the actual gains in
financials will be visible only post April 2016, we believe that this development is
a big corporate governance positive. HAVL had raised dividend payout ratio in
FY12 to 25% from 12% in FY11, given the strong cash flow generation visibility.
Going forward, the intent to at least maintain/further increase the payout ratio.
We believe that this move to transfer the Havells brand is the second in series, in
terms of improving corporate governance.
Havells 'Galaxy' opens up interesting possibilities:
HAVL is successfully building a
chain of stores, called Havells Galaxy. These stores are exclusive in nature and
opens up interesting possibilities going forward. The number of Galaxy stores is
expected to increase from 50 around three years back to ~200 by March 2013.
HAVL now derives about 10% of its revenue from Galaxy stores. Recent initiatives
like connecting directly with the electricians could also expand possibilities and
strengthen the pull effect for HAVL's products.
#3
Culture of innovation
Addressing gaps in the market leading to premium positioning:
One of the key
strengths of brand HAVL has been innovation to address the existing gaps in the
market. This had also contributed significantly to the premium positioning of the
brand.
Strong R&D, integrating global network:
The global R&D network is also being
integrated and with a complete control on the manufacturing process, it will enable
HAVL to shorten the time period for new product introductions. The attempt is to
integrate various global R&D teams (Fixtures R&D in UK, Lamps R&D in Belgium,
~10 R&D centers in India/China etc). Also, there are plans to double the R&D
strength from 200 people currently over the next year, and thus a key focus area.
13
13 February 2013

Havells India
Maintain Buy, with a target price of INR860
HAVL's stock has outperformed the BSE mid cap index by 40% over the past year.
Going forward, we believe the key stock price drivers are: 23% consolidated
earnings CAGR till FY15E (factoring an improvement in Sylvania's profitability),
strong balance sheet, improving free cash generation and potential increase in
dividend payout ratio.
Outlook for cash flow is strong as there would be limited capex requirements
(~INR1.5b pa) till FY15E. Net working capital requirement is also limited
(standalone business at 3.5-4% of revenues), while the company is trying to
replicate the channel financing scheme for Sylvania, which could further free up
NWC (~20% of revenues). HAVL has reduced the consolidated net debt by INR1.8b
in FY12 and we expect a reduction of INR3.7b in FY13E/INR2.8b in FY14E, resulting
in debt-free status by FY15E.
Management had increased the dividend payout to 25% in FY12 from ~12% in FY11
and we believe that given the robust free cash generation, payout ratios can
further increase. Maintain
Buy
with a target price of INR860 (upside of 26%).
Expect consolidated FCF to improve meaningfully (INR m)
Return ratios remain healthy (%)
Outlook for cash flows is strong as there would be limited capex requirements (~INR1.5b pa) till FY15E.
Source: Company, MOSL
Domestic net working
capital requirement is
limited, company is
trying to replicate the
channel financing
scheme in Sylvania,
which could further free
up NWC (~20% of
revenues)
Standalone business reported NWC cycle at just 15 days, while consolidated at 72 days
FY10
Working capital (Reported)
Debtors factoring
Acceptances
Adj working capital (Adjusted)
14
43
5
63
Standalone
FY11
FY12 FY13E
8
45
16
70
13
52
20
84
15
51
20
85
Consolidated
FY10
FY11
FY12
8
20
2
31
FY13E
19
21
22
23
29
31
10
21
20
52
71
72
Source: Company, MOSL
13 February 2013
14

Havells India
Trend in standalone and consolidated EPS (INR/sh)
Source: Company, MOSL
HAVL SOTP valuations - Standalone
A. Standalone
Target FY15 PE (x)
Impied Value (INR m)
Value/sh (INR) -
A
B. Sylvania
Target FY15 EV/EBITDA (x)
Enterprise Value
Net debt
Impied Value (INR m)
Value/sh (INR) -
B
Total Value /sh (INR) {A+B}
18
95,274
764
8
15,303
3,439
11,864
95
860
Source: Company, MOSL
13 February 2013
15

Havells India
HAVL operating matrix: Standalone operations and Sylvania
FY10
Standalone business (INR m)
Revenues
Swtichgear
Cables and wire
Consumer Durables
Lighting and Fixtures
Others
Total
Revenue Growth (% YoY)
Swtichgear
Cables and wire
Consumer Durables
Lighting and Fixtures
Total
EBIT Margin (%)
Swtichgear
Cables and wire
Consumer Durables
Lighting and Fixtures
Standalone EBIT (%)
FY11
FY12
FY13E
FY14E
FY15E
6,941
10,686
3,372
3,569
339
24,907
11.4
-3.4
21.8
27.3
6.4
37.6
8.3
30.2
19.8
12.7
7,344
12,318
4,692
4,447
16
28,817
11.1
27.4
40.1
28.0
15.7
37.0
7.3
27.6
18.4
11.4
8,962
15,930
5,721
5,544
0
36,156
22.0
29.3
21.9
24.7
25.5
37.5
9.2
28.8
25.1
11.5
10,664
17,363
7,895
6,653
0
42,575
19.0
9.0
38.0
20.0
17.8
35.0
10.1
24.8
23.0
11.6
13,330
19,099
10,263
7,651
0
50,343
25.0
10.0
30.0
15.0
18.2
35.0
10.3
24.0
22.5
11.8
15,996
21,964
12,316
8,607
0
58,883
20.0
15.0
20.0
12.5
17.0
36.0
10.5
26.0
22.0
12.3
Sylvania (Euro m)
Revenue
Europe
LatAm
Others
Total
Revenues % YoY
Europe
LatAm
Others
Total
Adj EBIDTA %
Europe
LatAm
Others
Total
287
121
13
407
-14.3
-4.0
5.5
-14.1
-1.4
8.7
4.6
0.4
281
145
24
449
-2.1
19.6
82.5
10.5
5.0
9.1
-2.1
6.5
275
149
24
448
-2.0
2.8
0.6
-0.3
8.9
8.0
3.3
8.4
254
156
26
435
-7.7
4.4
7.5
-2.9
3.7
7.4
12.1
5.5
246
167
26
440
-3.2
7.5
3.0
1.0
250
180
27
457
1.7
7.5
3.0
4.0
5.3
6.5
7.8
8.0
1.0
1.0
6.0
6.8
Source: Company, MOSL
13 February 2013
16

Havells India
Financials and Valuation
Income Statement
Y/E March
Net Sales
Change (%)
Raw Materials
Staff Cost
Other Expenses
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
PBT
Tax
Rate (%)
Extra-ordinary Inc.(net)
Reported PAT
Change (%)
Adjusted PAT
Change (%)
2011
56,126
8.7
31,925
6,405
12,226
5,570
9.9
804
902
237
4,101
1,031
25.1
(31)
3,036
nm
2,584
271.6
2012
65,182
16.1
36,272
7,904
14,432
6,573
10.1
949
1,281
414
4,757
1,058
22.2
0
3,699
21.9
4,252
64.6
2013E
70,425
8.0
40,202
7,658
14,242
8,324
11.8
1,021
1,172
369
6,500
1,008
15.5
0
5,492
48.5
4,120
-3.1
2014E
77,593
10.2
44,681
7,650
17,133
8,129
10.5
1,178
776
311
6,487
1,419
21.9
0
5,068
-7.7
5,080
23.3
(INR Million)
2015E
87,223
12.4
50,111
8,094
19,303
9,715
11.1
1,272
757
355
8,040
2,050
25.5
0
5,990
18.2
6,002
18.2
Balance Sheet (Consolidated)
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deffered Tax Liability
Minority Interest
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Goodwill
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other Current Assets
Current Liab. & Prov.
Creditors
Other Liabilities
Provisions
Net Current Assets
Misc. Expenses
Application of Funds
E: MOSL Estimates
2011
624
5,914
6,537
11,065
559
6
18,166
28,454
18,499
9,955
249
3,354
22,081
10,860
7,724
1,779
1,206
512
17,729
6,637
9,898
1,195
4,352
0
18,166
2012
624
8,932
9,556
9,795
556
6
19,913
27,577
17,293
10,284
663
3,625
27,187
13,678
8,905
2,336
1,682
585
21,846
6,953
12,816
2,076
5,341
5
19,913
2013E
624
13,329
13,953
7,579
556
6
22,094
28,427
17,858
10,569
719
3,562
30,111
14,566
9,115
3,994
1,810
627
22,866
7,898
12,744
2,224
7,245
0
22,094
(INR Million)
2014E
624
17,083
17,707
5,958
556
6
24,227
29,489
18,540
10,949
838
3,543
32,999
15,822
9,299
5,326
1,906
646
24,103
8,560
13,073
2,470
8,896
0
24,227
2015E
624
21,613
22,237
5,338
556
6
28,137
31,113
19,812
11,301
973
3,543
38,498
17,635
9,957
8,306
1,954
646
26,179
9,528
13,946
2,705
12,319
0
28,137
13 February 2013
17

Havells India
Financials and Valuation
Ratios
Y/E March
Basic (INR)
Adjusted EPS
Growth (%)
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E (consolidated)
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
24.3
20.7
271.6
31.0
52.4
2.5
11.8
2012
29.6
34.1
64.6
37.2
76.6
6.5
25.5
2013E
44.0
33.0
-3.1
52.2
99.2
7.5
19.9
2014E
40.6
40.7
23.3
50.1
141.9
9.0
25.9
2015E
48.0
48.1
18.2
58.2
178.2
10.0
24.4
20.0
18.3
8.9
0.9
8.9
1.0
20.7
13.1
10.7
1.3
6.9
1.1
16.8
13.6
10.6
1.1
4.8
1.3
14.2
11.7
8.5
0.9
3.8
1.5
39.5
17.9
44.5
26.4
29.5
23.1
28.7
23.5
27.0
23.3
50
71
43
3.1
50
77
39
3.3
47
75
41
3.2
44
74
40
3.2
42
74
40
3.1
1.7
1.0
0.5
0.3
0.2
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO Income
CF from Oper. incl. EO Items
(Inc)/Dec in FA
(Pur)/Sale of Investments
CF from Investments
(Inc)/Dec in Net Worth
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
13 February 2013
2011
4,101
804
902
1,031
-1,542
3,234
-31
3,203
-1,799
0
-1,941
243
401
902
363
-621
641
1,481
1,779
2012
4,757
949
1,281
1,058
-431
5,498
0
5,498
-1,691
0
-1,961
193
-1,270
1,281
943
-3,301
236
1,779
2,337
2013E
6,500
1,021
1,172
1,008
-247
7,437
0
7,437
-1,362
0
-1,299
3
-2,216
1,172
1,095
-4,480
1,659
2,336
3,994
(INR Million)
2014E
6,487
1,178
776
1,419
-319
6,703
0
6,703
-1,678
0
-1,660
-2
-1,621
776
1,314
-3,713
1,330
3,994
5,326
2015E
8,040
1,272
757
2,050
-443
7,577
0
7,577
-1,759
0
-1,759
-2
-620
757
1,460
-2,839
2,978
5,326
8,306
18

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Havells India
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