18 January 2017
3QFY17 Results Update | Sector: Capital Goods
Havells India
BUY
BSE SENSEX
27,236
Bloomberg
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val. (INR m)
Free float (%)
S&P CNX
8,398
HAVL IN
624.6
236.7 / 3.5
460 / 259
14/5/25
603
38.4
CMP: INR378
TP: INR440 (+16%)
Market share gains neutralize demonetization impact
3QFY17 operating performance meaningfully above expectations:
Revenue
grew 13.2% YoY to INR15.1b in 3QFY17, significantly exceeding our estimate of
INR13.3b. Operating profit of INR1.9b (+4.0% YoY) too was above our estimate
of INR1.0b. Similarly, adjusted PAT of INR1.3b (+12% YoY) came in higher than
our estimate of INR0.7b.
Sales growth driven by market share gains:
Revenue beat was primarily driven
by market share gains across product categories. HAVL took several initiatives
to counter the impact of demonetization on sales, such as providing working
capital support to dealers and launching booster incentive schemes on reduced
targeted sales. These initiatives helped the company to gain market share and
grow despite overall contraction in the market place. The key business segment
Cables & Wires registered 17.4% YoY revenue growth to INR6.8b, supported by
volume growth of 21% YoY in Industrial segment and 17% YoY in Wires.
Electrical consumer durables’ revenues grew 19% YoY to INR3.4b, led by strong
revenue growth in Water heater and Fans segments.
Margins impacted due to launch of support schemes for dealers:
Gross margin
contracted 230bp YoY to 39%, as management launched schemes for dealers
to counter the demonetization impact. EBITDA margin contracted 110bp YoY to
12.7% (v/s est. of 7.8%). Ad spend stood at 3.5% of sales (4.2% in 3QFY16);
HAVL expects it to remain at similar levels in the coming quarters.
Working capital cycle elongates as Havells provides support to dealers:
Net
working capital cycle elongated to 30 days from 20 days in 3QFY16, led by
higher credit days provided to dealers. Creditors’ days were up to 30 from 20 in
3QFY16.
Valuation and view:
We raise our FY17/FY18E EPS by 19/6% to factor in the
lower-than-estimated impact of demonetization on the company’s financials.
We maintain
Buy
with a revised TP of INR440 (prior: INR390). We ascribe 32x
P/E (20% premium to 5 year average) multiple on its FY19E EPS of INR13.8.
(INR Million)
FY16E
2Q
3Q
4Q
13,359 13,304 14,754
-2.1
6.7
9.3
1,890 1,835 2,196
2.9
1.1
11.1
14.2
13.8
14.9
261
266
237
31
20
48
98
134
291
1,683 1,699 2,208
488
500
567
29.0
29.4
25.7
1,195 1,199 1,641
-0.1
3.2
34.7
1,204 1,183 1,637
-1.0
-0.4
23.6
1Q
14,668
17.1
2,004
23.7
13.7
280
16
307
2,022
567
28.0
1,456
36.3
1,450
33.7
FY17
FY16 FY17E MOSL
2Q
3QE
4QE
3QE
14,522 15,060 15,896 54,369 61,308 13,318
8.7
13.2
7.7
3.8
12.8
-0.9
2,034 1,907 1,819 7,479 7,861 1,034
7.6
4.0 -17.1
2.9
5.1 -43.0
14.0
12.7
11.4
13.8
12.8
7.8
308
301
370
922 1,259
300
19
15
0
126
50
19
253
264
323
687 1,147
270
2,030 1,877 1,773 7,119 7,699
985
572
537
518 1,988 2,194
281
28.2
28.6
29.2
27.9
28.5
28.5
1,458 1,340 1,255 5,130 5,505
704
22.0
11.8 -23.5
10.3
7.3 -41.7
1,409 1,325 1,255 5,109 5,585
704
17.0
12.0 -23.4
6.0
9.3 -40.9
Var.
13.1%
84.4%
Financials & Valuations (INR b)
2016 2017E 2018E
Y/E Mar
Net Sales
77.1
64.2
72.7
EBITDA
8.0
9.0
10.4
Adj PAT
4.8
5.6
7.5
Adj EPS (INR)
7.8
8.9
12.0
EPS Gr. (%)
-6.0
15.0
34.0
BV/Sh(INR)
41.0
45.8
50.7
RoE (%)
19.0
19.5
23.6
RoCE (%)
20.4
23.2
24.1
P/E (x)
48.8
42.4
31.7
P/BV (x)
9.3
8.3
7.5
Estimate change
TP change
Rating change
Quarterly Performance (Standalone)
Y/E March
Sales
Change (%)
Adj EBITDA
Change (%)
Adj EBITDA margin (%)
Depreciation
Interest
Other Income
PBT
Tax
Effective Tax Rate (%)
Reported PAT
Change (%)
Adj PAT
Change (%)
E: MOSL Estimates
1Q
12,523
-1.9
1,620
-1.4
13.1
248
30
170
1,489
421
28.2
1,068
-0.4
1,085
-0.4
90.6%
90.3%
88.1%
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Ankur Sharma
(Ankur.VSharma@MotilalOswal.com); +91 22 6129 1556
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 6129 1543

Havells India
3QFY17operational performance meaningfully above our estimates
Revenues grew 13.2% YoY to INR15.1b in 3QFY17, meaningfully above our
estimate of INR13.3b. Revenue beat was primarily driven by market share gain
across product categories. Key business segment like Cables and wires segment
registered 17.4% revenue growth YoY to INR6.8b supported by 21% YoY volume
growth in industrial segment and 17% YoY growth in the wires segment.
Electrical consumer durables segment registered 19% YoY growth to INR3.4b led
by strong revenue growth in the water heater segment and fans segment.
Gross margins declined 230bp YoY to 39%, as management launched schemes to
support dealers to counter negative impact of demonetization impact. Havells
took multiple steps like providing working capital support to dealers, launching
booster incentive schemes on reduced targeted sales etc. These initiatives
helped the company to gain market share and grow despite overall contraction
in the market place.
EBITDA margin declined 110bp YoY to 12.7% (our estimate: 7.8%). Advertising
spend stood at 3.5% of sales (4.2% of sales in 3QFY16), and the company
expects it to remain at similar levels in the coming quarters.
HAVL’s 3QFY17 adjusted PAT at INR1.3b (+12% YoY) was ahead of our estimate
of INR0.7b. The beat was primarily on account of higher than estimated
revenue. The company’s advertising spend as a % to sales declined YoY
(INR530m, 3.5% of sales vs. INR561m, 4.2% of sales in Q3FY16). Going forward,
company has guided for the ad spend to stand at 3.5-4.0% of sales for FY17 as it
continues to grow and invest in brand.
Segmental Performance: Revenue growth driven by market share gains
Switchgears segment witnessed muted growth of 1.7% to INR3.5b led by weak
demand from industrial and housing sector. Demand from the industrial and
housing segment continues to remain weak. Contribution margins for the
switchgear segment stood at 38.3% stable YoY.
Electrical consumer durables segment registered robust growth of 19% YoY to
INR3.4b with all sub segments like water heaters, fans and domestic appliances
registering double digit growth. Contribution margin declined by 160bps YoY to
23.6%. Margin declined was on account of the dealer support provided by the
company.
Lighting division sales were up 1.7% YoY to INR2.2b. Conventional lighting
products continue to witness de-growth (-40% YoY) and now forms only 13% of
the overall lighting division sales. LED sales have witnessed 22% YoY growth and
now forms major proportion of the Lighting sales (70% of the lighting division
sales). Contribution margins at 26.8% were up 80bps. Absence of trade schemes
and lower provisioning led to improvement of the contribution margin
Cable & Wires revenues registered a strong growth of 17% YoY to INR6.8b led by
21% volume growth for the industrial segment where as domestic cables
segment had 17% YoY volume growth. Copper price increase of 15% has been
taken by the company but however it will get reflected with a lag effect in
4QFY17.
18 January 2017
2

Havells India
HAVL has planned a capex of INR2.5b in FY17 where it intends to set up a
manufacturing facility for Cables and wires, switch gears, consumer durable
appliances which will help company to set up infrastructure to cater to the
emerging demand over the next 4-5 years.
HAVL has recently ventured into the home automation segment where it
expects to generate revenue of INR1b over the next 4-5 years.
Exhibit 2: EBIDTA margins impacted by introduction of
dealer oriented schemes to counter demonetization effect
EBITDA (INR m)
EBITDA Margin (%)
Exhibit 1: Revenues improved 13% YoY as Havells gained
market share acrtoss product categories
Standalone Sales (INR b)
30
28 24 25
21
22
19
13 18
16
12 12
12
2
Growth- YoY (%)
17
5 3
7
-2-2
9
9
13
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: Segmental performance (INR m)
Y/E March
1Q
Sales
Switchgear
Cables & Wires
Consumer Durable
Lighting & Fixtures
Others
% YoY
Switchgear
Cables & Wires
Consumer Durable
Lighting & Fixtures
Profit Contribution
Switchgear
Cables & Wires
Consumer Durable
Lighting & Fixtures
Others
Contribution Margin (%)
Switchgear
Cables & Wires
Consumer Durable
Lighting & Fixtures
Others
2,936
5,079
2,903
1,607
FY16
2Q
3,459
6,273
2,546
2,058
FY17
3Q
3,402
5,817
2,888
2,209
4Q
3,272
6,090
3,074
2,318
1Q
3,529
5,330
3,514
1,962
334
20.2
4.9
21.1
22.1
1,435
719
913
513
79
40.7
13.5
26.0
26.2
23.7
2Q
3,624
6,303
3,175
2,233
259
4.8
0.5
24.7
8.5
1,445
793
821
567
64
39.9
12.6
25.8
25.4
24.7
3Q
3,459
6,829
3,436
2,248
248
1.7
17.4
19.0
1.7
1,291
869
809
641
55
37.3
12.7
23.6
28.5
22.1
-4.5
-5.0
7.8
-2.9
1,125
717
731
344
2.1
6.1
5.5
6.3
1,310
756
554
463
3.9
17.5
25.1
13.9
1,302
732
727
543
7.1
7.0
7.2
23.3
1,284
895
857
567
38.3
14.1
25.2
21.4
37.9
12.1
21.8
22.5
38.3
12.6
25.2
24.6
39.2
14.7
27.9
24.5
Source: MOSL, Company
18 January 2017
3

Havells India
Valuation and view: Maintain BUY with target price of INR440
We increase our FY17/FY18 EPS estimates by 18/6% each to factor in in lower than
estimated impact of demonetization on the financials of the company. We maintain
our
BUY
rating with a target price of INR440. We ascribe 32x P/E multiple on its
FY19E EPS of INR13.8.
Change in Estimates
We increase our earnings estimate for FY17/FY18 by 19/6% each to factor in lower
than estimated impact of demonetization on the financials of the company.
Exhibit 4: Estimate Change
Description
Sales
EBITDA
Margin (%)
PAT
New estimates
FY16
FY17
77,142
64,154
8,002
8,982
10.4%
14.0%
4,849
5,578
FY18
72,660
10,388
14.3%
7,472
Old estimates
FY17
FY18
59,860
68,926
7,677
9,749
12.8%
14.1%
4,677
7,064
Change in estimates
FY17
FY18
7%
5%
17%
7%
1.2%
0.2%
19%
6%
Source: MOSL, Company
18 January 2017
4

Havells India
Exhibit 5: Key operating metrics
INR M
Havells Standalone
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 (%)
Consolidated EPS (INR/sh)
Standalone
Sylvania
Total
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
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
3.7
-2.5
1.1
7,344
12,318
4,692
4,447
16
28,817
5.8
15.3
39.1
24.6
15.7
37.0
7.3
27.6
18.4
11.4
3.7
0.4
4.1
8,962
15,930
5,721
5,544
-
36,156
22.0
29.3
21.9
24.7
25.5
36.1
7.9
28.1
23.8
11.5
5.1
1.8
6.8
10,781
16,925
7,893
6,652
-
42,250
20.3
6.2
38.0
20.0
16.9
33.9
9.1
25.1
23.6
11.5
6.0
0.9
6.9
12,192
19,264
8,534
7,207
-
47,197
13.1
13.8
8.1
8.3
11.7
36.5
11.0
27.0
24.8
13.1
8.2
0.5
8.7
12,790
21,904
10,283
7,410
-
52,387
4.9
13.7
20.5
2.8
11.0
36.5
12.1
25.1
26.6
12.5
7.7
0.5
8.3
12,861
22,081
11,411
8,017
-
54,369
0.6
0.8
11.0
8.2
3.8
39.2
14.2
25.2
24.1
13.2
8.2
-0.4
7.8
13,890
25,393
13,237
8,818
1,040
62,378
8.0
15.0
16.0
10.0
12.8
39.0
12.5
25.0
27.0
12.6
8.9
0.0
8.9
15,279
29,202
15,222
10,141
1,040
70,884
10.0
15.0
15.0
15.0
15.6
39.5
13.0
26.0
27.5
14.7
12.0
0.0
12.0
18,334
33,582
17,506
11,662
1,040
82,125
20.0
15.0
15.0
15.0
15.9
39.5
13.0
26.0
25.0
14.7
13.8
0.0
13.8
18 January 2017
5

Havells India
Financials and Valuations
Income Statement (Consolidated)
Y/E March
Net Sales
Change (%)
Raw Materials
Staff Cost
Other Expenses
EBITDA
% of Net Sales
Depreciation
Amortization
Interest
Other Income
PBT
Tax
Rate (%)
Extra-ordinary Inc.(net)
Reported PAT
Change (%)
Adjusted PAT
Change (%)
2014
81,858
12.9
46,398
10,869
17,167
7,425
9.1
1,155
741
413
5,941
1,478
24.9
0
4,463
-23.3
5,410
26.1
2015
85,694
4.7
48,292
11,875
18,316
7,211
8.4
1,387
640
504
5,689
1,836
32.3
0
3,853
-13.7
5,159
-4.6
2016
77,142
-10.0
43,832
8,595
16,713
8,002
10.4
1,267
449
863
7,149
2,300
32.2
7,240
12,089
213.7
4,849
-6.0
2017E
64,154
-16.8
36,483
5,488
13,200
8,982
14.0
1,321
50
1,147
8,758
2,190
25.0
1
6,649
-45.0
5,578
15.0
(INR Million)
2018E
72,660
13.3
42,426
5,996
13,850
10,388
14.3
1,430
25
1,400
10,333
2,941
28.5
0
7,472
12.4
7,472
34.0
2019E
83,901
15.5
49,413
6,555
15,780
12,153
14.5
1,501
25
1,400
12,027
3,424
28.5
0
8,603
15.1
8,603
15.1
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
2014
624
16,036
16,660
10,506
517
1
27,687
32,075
20,451
11,624
444
4,380
36,929
14,934
10,005
8,819
2,114
1,057
25,690
9,988
12,684
3,018
11,239
0
27,687
2015
622
17,557
18,180
4,191
434
1
22,808
30,298
18,469
11,829
383
3,581
32,519
13,663
6,232
7,775
1,723
3,127
25,504
8,338
13,645
3,521
7,015
0
22,808
2016
625
24,954
25,579
1,297
744
84
27,704
28,272
17,486
10,786
214
204
27,636
8,371
2,594
14,652
1,656
363
13,710
5,203
4,277
4,230
13,926
0
27,704
2017E
625
27,951
28,576
500
0
84
29,160
20,604
7,143
13,461
315
204
29,986
8,432
1,989
17,436
992
1,137
14,805
5,090
5,138
4,577
15,180
0
29,160
(INR Million)
2018E
625
31,040
31,665
500
0
84
32,249
21,604
8,573
13,031
363
204
35,679
9,109
2,263
22,026
1,054
1,227
17,028
6,045
5,586
5,397
18,651
0
32,249
2019E
625
35,260
35,885
500
0
84
36,469
22,604
10,074
12,529
420
204
41,930
10,495
2,585
26,408
1,123
1,321
18,614
6,969
6,042
5,603
23,316
0
36,469
18 January 2017
6

Havells India
Financials and Valuations
Ratios
Y/E March
Basic (INR)
Adjusted EPS
Growth (%)
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/Sales
P/E (standalone)
P/E (consolidated)
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2014
7.2
8.7
26.1
10.5
26.7
3.0
49.1
2015
6.2
8.3
-4.7
10.5
29.1
2.9
57.6
2.7
44.5
44.5
35.1
21.6
1.8
12.6
0.8
32.5
19.2
31.3
45
67
45
3.0
0.6
28.4
17.0
31.4
27
58
36
3.8
0.2
2016
19.4
7.8
-6.0
9.8
41.0
4.0
93.0
3.0
47.4
47.4
37.6
26.7
2.8
9.0
1.1
19.0
20.4
43.3
12
40
25
2.8
0.1
2017E
10.6
8.9
15.0
11.0
45.8
5.0
54.9
3.6
41.2
41.2
33.3
23.7
3.3
8.0
1.4
19.5
23.2
54.0
11
48
29
2.2
0.0
2018E
12.0
12.0
34.0
14.3
50.7
6.0
58.7
3.2
30.8
30.8
25.8
20.0
2.9
7.3
1.6
23.6
24.1
61.4
11
46
30
2.3
0.0
2019E
13.8
13.8
15.1
16.2
57.5
6.0
50.9
1.4
26.7
26.7
22.7
16.8
2.4
6.4
1.6
24.0
25.1
79.8
11
46
30
2.3
0.0
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
Free Cash Flow
(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
2014
5,941
1,155
741
1,891
2,453
8,399
0
8,399
-1,424
6,975
0
-2,109
3
722
741
2,190
-2,206
4,084
4,736
8,820
2015
5,689
1,387
639
1,836
3,180
9,058
0
9,058
-1,531
7,528
0
-732
-198
-6,315
640
2,219
-9,372
-1,045
8,819
7,774
2016
7,148
1,267
447
2,300
-33
6,530
7,240
13,770
-54
13,716
-2,575
748
131
-2,895
365
4,511
-7,640
6,878
7,775
14,653
2017E
8,758
1,321
130
2,190
1,529
9,548
1
9,549
-4,098
5,452
2,575
-1,523
-743
-797
50
3,653
-5,243
2,784
14,652
17,436
2018E
10,333
1,430
105
2,941
1,119
10,046
0
10,046
-1,048
8,998
0
-1,048
0
0
25
4,383
-4,408
4,590
17,436
22,026
(INR Million)
2019E
12,027
1,501
25
3,424
-284
9,846
0
9,846
-1,056
8,790
0
-1,056
0
0
25
4,383
-4,408
4,381
22,026
26,408
18 January 2017
7

Havells India
Corporate profile
Company description
Havells India is one of the largest electrical
companies in India, and also has a presence in
Europe / LatAm in lighting business through
Sylvania. It owns some of the prestigious global
brands like Crabtree, Sylvania, Concord, Luminance,
Linolite, & SLI Lighting.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Dec-16
Promoter
DII
FII
Others
61.6
2.7
26.2
9.5
Sep-16
61.6
2.9
26.7
8.8
Dec-15
61.6
4.1
25.1
9.1
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Nalanda India Equity Fund Limited
Government Pension Fund Global
Smallcap World Fund, Inc
New World Fund Inc
% Holding
5.3
2.9
2.3
1.3
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Anil Rai Gupta
Rajesh Gupta
Sanjay Kumar Gupta
Designation
Chairman & Managing Director
Director (Finance)
Company Secretary
Exhibit 5: Directors
Name
Adarsh Kishore*
Ameet Kumar Gupta
Anil Rai Gupta
Avinash P Gandhi*
Pratima Ram*
Puneet Bhatia
Name
Rajesh Gupta
S K Tuteja*
Sunil Behari Mathur*
Surjit Gupta
T V Mohandas Pai
Vijay Kumar Chopra*
Source: Capitaline
*Independent
Exhibit 7: MOSL forecast v/s consensus
Exhibit 6: Auditors
Name
Sanjay Gupta & Associates
S R Batliboi & Co LLP
V R Bansal & Associates
Type
Cost Auditor
Statutory
Statutory
EPS
(INR)
FY17
FY18
MOSL
forecast
8.9
12.0
Consensus
forecast
10.2
12.2
Variation
(%)
-13.0
-1.3
Source: Bloomberg
Source: Capitaline
18 January 2017
8

Havells India
NOTES
18 January 2017
9

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HAVELLS INDIA
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