www.technoworld.

in

Havells India Ltd.

(Initiating Coverage)

HAVELLS
Powering Lives

SYLVANIA

9th August 2007

Techno Shares & Stocks Ltd.

OVERVIEW
BSE SENSEX NSE-50 EQUITY CAP (CURRENT) EQUITY CAP (DILUTED)* FACE VALUE # OF SHARES MARKET CAPITALIZATION BSE CODE NSE CODE BLOOMBERG CODE P/E (FY08)(fully diluted) 52 WEEK HIGH/LOW AVERAGE DAILY VOLUME 15,138 4,402 26.88 crores 30.00 crores Rs. 5 5.38 crores 2,633.07 crores 517354 HAVELLS HAVL:IN 13.51 566.00/273.00 1,17,115 shares

SHARE HOLDING PATTERN AS ON 30.06.2007

PROMOTERS FOREIGN PROMOTERS INSTITUTIONAL PUBLIC & OTHERS
*Assumption

67.31% NA 20.07% 12.62%

OVERVIEW
One of the fastest growing electrical products company in the country, now moving global. Turnover growth @ CAGR of 50% over FY02 to FY07. PAT growth@ CAGR of 70% over FY02 to FY07. Products ranging from Building Circuit Protection Devices, Domestic & Industrial Switch Gear, Cables & Wires, Energy Meters, Fans, Modular switches, CFLs, Luminaries & Lighting Fixtures and Bath Fittings. 7 manufacturing locations mainly in Northern region with corporate office in Noida (U.P). 43 branches & representative offices. 2000+ Distributors & 25000+ retailers in India. Around 3000 employees including 1000 sales personal. Business model : BRANDED RETAIL.

FORWARD
Capacity Expansion across all products segments in India. Product Additions : Capacitors, Electric Motors up to 500 HP. Expect CAGR of 35% from FY08 up to FY10 from India operations (on standalone basis). Acquired SLI Sylvania, HQ in Frankfurt, one of worlds largest manufacturer of artificial light sources. Acquisition would provide access to Sylvanias set up for Havells products particularly Circuit Breakers & CFLs globally and Sylvanias products to Havells retail network in India. Europe to phase out & move to mandatory use of CFLs post 2009 (Global Warming Issue). Australia to follow. India proposes by 2011-12. Improve Brand visibility with increasing advertisement spend. To open retail stores under name GALAXY across India to create brand value. Plans ~200 stores within next 2 years.
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MANUFACTURING LOCATIONS

1 2 3 4 5 6 7

Haridwar, Uttaranchal Baddi, HP Badli, Delhi Tilak Nagar, Delhi Alwar, Rajasthan Faridabad, Haryana Gurgaon, Haryana

: : : : : : :

Fans, CFLs MCBs, CFLs, and Switches MCBs, ELCBs, DBs Energy Meters Cable & Wires CFLs, & Industrial Products Luminaries & Lighting Fixtures

HAVELLS INDIA LTD.

Business Segments: Switchgear Segment. Cables & Wire Segment. Electrical Consumer Durable Segment. New Products : Capacitors. : Electric Motors.

SLI SYLVANIA
Artificial Light Sources. Lamps. Fittings. Lighting Solution.

SWITCHGEAR PRODUCTS

Industrial Application Domestic Application

: ACBs, MCCBs, Fuse Switches, : MCBs, RCCBs, ELCBs : Contactors, Starters. : DBs, Wiring Accessories. : Digital Dimming and Energy. Management System.

Wiring Accessories

: Premium Brand Crabtree.

Market leader in India in Building Circuit Protection Devices (CPD). Amongst Top 10 in the world in Building CPD.

Manufacturing Locations : Faridabad Badli Baddi : Industrial Products. : Building CPD. : EOU Unit : Local : Building CPD. : Building CPD.

Plan to close unit at Badli & increase production capacity at Baddi, HP. Installed Capacity
End of FY07 Domestic Switchgear Industrial Switchgear 39.60 mn. Nos. 2.60 mn. Nos. 42.20 mn. End of FY06 33.60 mn. Nos. 1.80 mn. Nos. 35.40 mn.

(Capacity utilisation : 64% over FY06 installed capacity.) Electrical wire accessories 20 mn. Nos. 6 mn. Nos.

MARKET SIZE (INDIA)

Building Products Market Size Competitor's Position : : : : : : : : : : Rs.800 cr. Havells. MDs/Legrand. Indo Asian. Schneider. Rs.1100 cr. L & T. Siemens. Schneider. Havells.

Industrial Products Market Size Competitors Position

Products acceptance worldwide. Increasing Export opportunity through Sylvaniaa marketing and distribution network. FY07 Sales : Rs.4289 mn (25.51% of total sales) Expect a CAGR growth of 40%+ for next few years.
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CABLES & WIRES SEGMENT

Products Wires : FR / FRLs Wires. Power Cables : High & low Voltage PVC & XLPE Cables. Manufacturing location : Alwar, Rajasthan. Retail and Institutional / Project Sales. 2nd Largest selling Brand after Finolex in retail. Developed & started manufacturing 66KV HT cables. Installed Capacity
End of FY07 7 lac km End of FY06 4.70 lac km

Capacity utilisation @70% over FY06 capacity. Estimated Indian Market Size : Rs. 5,000 cr for Power Cables. : Rs. 7,500 cr for Wires. Competitors Position :
Cable Wires Polycab Havells Gloster Finolex Havells Anchor Matsushita

FY07 Sales : Rs. 7780 mn (46.28% of total sales) Expect CAGR of 30% + for next few years.

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ELECTRICAL CONSUMER DURABLES SEGMENT

Products i. COMPACT FLUORESCENT LAMPS (CFLs). ii. FANs. iii. LIGHTING FIXTURES. FY07 Sales : Rs.4086 mn (24.31% of total sales) Except CAGR of 30% + for next few years.

i.

CFLs
CF Lamps lasts 8 times longer than normal GLS bulbs. Saves 80% energy. Expensive by 3-4 times than GLS.

Manufacturing locations : Baddi, HP Faridabad, Hariyana Neemrana, Rajasthan (under construction) Largest manufacturers of CFLs in India.
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Installed Capacity
FY09(E) * 80 mn CFLs *(in phases) FY07 26.4 mn CFLs

New facility at Neemrana, Rajasthan. Planned commissioning by Dec07 Energy Savings Lamps Market Size in India Competitors Position : Rs. 7000 cr./pa : Phillips. : Havells. : Osram. : Surya Roshni. Mandatory Phase out of Incandescent Bulbs on Global Warming Threat : Europe post 2009. : Other countries such as USA, Australia, UK to follow. : PM in India proposed phase out of GLS bulbs by 2011-12. : Can take longer than proposed. Worldwide opportunity for CFL demand. Opportunity to cater through Havells and Sylvanias marketing and distribution network across the globe.
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ii. Fans
High Premium segment positioning Innovative designs, premium finishes, energy efficient Growing at the rate of over 60% Manufacturing location : Haridwar, Uttaranchal* Noida, UP (Facility closed) (*Fully Integrated state of art manufacturing plant) Set up in FY07 Installed Capacity Haridwar Capacity Utilisation Market Size in India : 2.4 mn. Nos. (Mar07) : ~60% : Crompton : Orient : Usha : Bajaj : Havells
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iii. Lighting Fixtures

Wide range of products saving energy upto 80% Products : Innova. : Lonova. : E-lite. Ranging from consumer to commercial, Industrial, street lighting. Manufacturing Plant : Gurgaon, Haryana. Largest state of art manufacturing capacity in the country. Growth of over 100% for the past two years. Market size : Rs. 11000 crs/PA Competetors Position : Phillips : Bajaj : Crompton : Havells Opportunity for launch of many innovative products from Sylvania fold & access to technology with Sylvania Long Term Growth opportunity as moving towards energy efficient products & opening up of organisal, retail, malls, multiplexes, housing sector etc.
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OTHER PRODUCT SEGMENTS

BATH FITTINGS: World class luxury bath fittings and accessories. Being sold under brand name CRABTREE. Premium end products in over 20 designs. Manufacturing Plant State of Art at Bhiwandi, Rajasthan.

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NEW PROJECTS i. Power Capacitors

Set up a plant at a Capex of Rs. 8 cr. Mainly for extension of product basket. Industrial Application on Low Voltage. Manufacturing Location Installed Capacity : Noida, UP. : 6 lac KVAR per month

Expected Turnover of Rs. 50 cr. at full capacity

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ii. Electric Motors

Setting up a plant at a Capex of Rs. 60 cr. Motors Rating : 12 HP 500 HP. Plant expected to commence operation from Sept / Oct 07 Technical JV with Lafert S.P.A., Italy. High Energy efficient motors operating at 1/3rd 1/5th cost than ordinary motors. Manufacturing Location : Neemrana, Rajasthan Installed Capacity : 15000 motors in various combination Expected Turnover of Rs. 250 cr. at full capacity utilisation, to achieve by FY 09. Industry growing at around CAGR of 25% +.

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SLI SYLVANIA
Acquired 100% shares of three companies of SLI Sylvania i. ii. iii. SLI Lighting Products Inc.. SLI Europe BV Eighthouse Investment Holdings through its subsidiaries

Transaction completed in April 2007 Total Consideration Acquisition Cost = = Euro 227.50 mn 8.00 mn --------------------Euro 235.50 mn

Funding Method : Pension Liability in Sylvania books Debt from Barclays

Non Recourse Debt

: Euro 35 mn : Non Recourse : Euro 120 mn Recourse : Euro 80 mn -----------------Euro 235 mn :Euro 120 mn (in Sylvanias books)
- Euro 80 mn Term Loan @ 4.1 libor + 175 bps - Euro 40 mn working Capital
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SLI SYLVANIA
Recourse Debt : Euro 80 mn - Euro 50 mn (Equity Issue) QIP (mainly) Dilution of 10-12 % of existing equity - Euro 30 mn (Term Loan) @4.1 libor+ 135 bps. SLI Sylvania is one of the worlds largest manufacturer of artificial light sources. Strong presence in Europe and Latin America. Expanding rapidly in fast growing markets in Asia. Havells acquired worldwide right to the Sylvania Brand except Australia, New Zealand, USA, Canada & Mexico. Sylvania has 10 manufacturing plants in UK, Belgium, Netherland, Germany, France, Tunisia, Brazil, Colombia, Costa Rica. Employee strength of around 4000. Product presence in over 40 countries. Over 10000 distributors spread in Latin America, Europe, Africa and Asia.
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PRODUCTS OFFERING
Products Offering : Incandescent Light Bulbs. Halogen & Low Energy Lamps. Compact Fluorescent Lamps (CFLs). High Intensity discharge Lamps (HID). Fluorescent Tubes. Luminaries : Lumiance 800 products. : Concord : Marlin.

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BUSINESS STRATEGY : FORWARD

Combined Entity - 18 Plants across the globe. - 12000 + dealers. - 7000 + Employees. Value Creation - Thrust on building Brand Value. - Focus on products which are at higher end of value chain. - Focus on global markets. To compete effectively with all other global and local lighting companies using combination of portfolio of lighting technology and Sylvania brand. Leverage Sylvanias network for Havells product offerings mainly circuit Breakers & CFLs. Sylvanias lighting technology products available for Indian market. Cultural Adjustment & Synergy.
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FINANCIAL STRATEGY
SLI SYLVANIA Focus on sales Growth to reach double digit rate in two years from existing 4-6%. Develop outsourcing from India, China to reduce cost. Improve over Debtors day of 82. Improve EBIDTA margin from 6.34 % to 8% in two years. HAVELLS INDIA Maintain sales growth over 35% on higher base for next 2-3 years. Maintain EBIDTA margin @ 9%.

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RISKS
Any slowdown in global market can affect growth and actual sales of Sylvania. Any fallout of cultural Issues can affect integration of two businesses Any increase in material prices can affect the margins.

VALUATIONS
At the current market price of Rs 480 the stock is quoting at 14.9x FY08e consolidated earnings and 10.6x FY09e consolidated earnings and an FY08e consolidated EV/EBITDA of 7.3x . We initiate a coverage on the company with an accumulate rating.

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SEGMENTAL REVENUE BREAK UP( IN INR crores)

HAVELLS INDIA LTD (Consolidated)
FY2007 Switchgears % of total revenues Cables & Wires % of total revenues Electrical Consumer Durables % of total revenues Bath Fittings % of total revenues TOTAL REVENUES 428.9 25.51% 778.0 46.28% 408.6 24.31% 65.6 3.90% 1,681.1 FY2006 329.9 29.58% 465.5 41.74% 274.5 24.61% 45.3 4.06% 1,115.2

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HAVELLS INDIA LTD. (Standalone)

FY07 Net Sales Growth EBITDA EBITDA (%) Depreciation Interest Other Income PBT Tax Tax Rate PAT Dividends Retained Earnings Dividend/Reported Profit (%) Gross Block Accumulated Dep Net Block Capex Depreciation Charge Working Capital WC/Sales (%) Debt 4.71% 84.47 5.46% 56.06 1,547.20 54.71% 145.80 9.24% 9.74 20.94 5.40 120.52 18.35 15.23% 102.17 13.44 88.73 13.15% 244.35 31.36 212.99 FY08E 2,100.00 35.73% 186.9 8.90% 15.29 8.44 1.50 164.67 25.52 15.50% 139.15 18.30 120.84 13.15% 404.35 46.65 357.70 160.00 4.71% 114.64 5.46% 91.80 FY09E 2,900.00 38.10% 261.00 9.00% 19.53 5.51 1.50 237.46 36.81 15.50% 200.65 26.40 174.26 13.15% 424.35 66.18 358.17 20.00 4.71% 158.32 5.46% -

All in INR crores

FY10E 3,800.00 31.03% 349.60 9.20% 21.18 22.76 351.17 54.43 15.50% 296.74 39.03 257.71 13.15% 474.35 87.37 386.98 50.00 4.71% 207.45 5.46% -

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HAVELLS INDIA LTD. (Standalone)

---continued Interest Cost Networth Capital Employed Cash ROCE ROE Equity Dilution Total Diluted Equity Face value CMP MKT Cap EV EPS P/E EBIT / EV PAT Depreciation WC Changes Capex Free Cash Flow FY07 25.24% 262.41 318.46 33.169 46.89% 46.71% 26.9 3.1 30 5 480.2 2,881.20 2,904.09 17.03 28.20 4.69% 102.17 9.74 (54.51) 75.47 90.95 23.19 20.71 5.91% 139.15 15.29 30.18 160.00 (35.74) 33.44 14.36 8.31% 200.65 19.53 43.67 20.00 156.51 FY08E 12.00% 386.35 478.15 68.91 43.46% 42.90% FY09E 572.34 572.34 69.50 46.64% 42.24%

All in INR crores

FY10E 840.95 840.95 284.76 50.59% 42.75%

49.46 9.71 11.31% 296.74 21.18 49.13 50.00 218.79

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SYLVANIA
All in INR crores

CY06 Net Sales Growth 2,615.69

CY07E 2,838.02 8.50%

CY08E 3,121.83 10.00%

CY09E 3,434.01 10.00%

EBITDA EBITDA (%)

165.90 6.34%

198.66 7.00%

249.75 8.00%

274.72 8.00%

Depreciation Interest Other Income

51.91 48.53

56.32 70.17

61.95 88.89

68.15 82.46

PBT Tax Tax Rate PAT Dividends Retained Earnings Dividend/Reported Profit (%)

65.47 19.64 30.00% 45.83 45.83 0.00%

72.17 21.65 30.00% 50.52 50.52 0.00%

98.90 29.67 30.00% 69.23 69.23 0.00%

124.12 37.23 30.00% 86.88 86.88 0.00%

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HAVELLS INDIA LTD. (Consolidated with Sylvania)

All in INR crores

FY06* Net Sales Growth EBITDA EBITDA (%) Depreciation Interest Other Income PBT Tax Tax Rate PAT Dividends Retained Earnings Dividend/Reported Profit (%) Debt Equity Face value CMP (AS ON AUG 6 2007) MKT Cap EV EPS P/E EBIT / EV
* HAVELLS INDIA LTD

FY07* 1,547.20 54.71% 145.80 9.24% 9.74 20.94 5.40 120.52 18.35 15.23% 102.17 13.44 88.73

FY08E 5,008.97 117.48% 398.33 8.90% 73.02 83.29 1.50 243.52 50.29 20.65% 193.23 25.43 167.80 13.16% 1,661.30

FY09E 6,099.87 19.70% 516.99 9.00% 83.04 92.79 1.50 342.66 70.49 20.57% 272.17 35.82 236.35 13.16% 1,469.50

FY10E 7,319.86 18.23% 631.19 9.20% 91.04 82.46 22.76 480.45 94.89 19.75% 385.56 50.74 334.82 13.16% 1,349.50

1,003.53 71.28% 104.07 10.37% 6.54 22.55 3.59 78.57 15.28 19.45% 63.28 6.72

10.62% 109.84 30.00 5.00 480.20 2,881.20 2,904.09

13.15% 56.06

17.03 28.20 4.69%

32.20 14.91 11.20%

45.36 10.59 14.94%

64.26 7.47 18.60%

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DISCLAIMER: This information & opinions in this report have been prepared by TECHNO SHARES & STOCKS LTD. The report & the information contained herein are strictly confidential and meant solely for the authorized recipient and may be restricted by law or regulation in certain countries. This report is for information purposes only for the authorized reader and does not construe to be any investment, legal or taxation advice. This report is based on the information obtained from public sources and sources believed to be reliable, however, no warranty, express or implied, are given for the accuracy or correctness of the same and it should not be construed as such. It is also not intended as an offer or solicitation for the purchase and sale of any financial instrument. Techno Shares & Stocks Ltd and/or its subsidiaries and/or directors, employees, officers or associates including the persons involved in the preparation/issuance of this report may have (a) from time to time, any interest or positions (buy/sell etc.) financial (including in derivatives/commodities market) or otherwise in the companies/securities covered/mentioned in this report and may have acted upon the information &/or (b) been engaged in any other transaction, commercial or otherwise, in respect of the companies/securities covered in this report, like earning brokerage, commission or act as a market maker &/or (c) performed or may seek to perform any merchant/investment banking services for such companies or act as advisor or lender/borrower to such companies &/or (d) have other possible conflict of interest with respect to any recommendation or any information/opinions that could affect the objectivity of this report. As a result, the authorized recipients of this report should rely on their own investigations and analysis & seek professional advice. Any action taken by any one solely on the basis of the information contained herein is their own responsibility alone and Techno Shares & Stocks Ltd and its subsidiaries or its directors, employees or associates will not be liable in any manner whatsoever for the consequences of such action taken. No data/information contained in this report shall be copied, forwarded, transmitted or distributed, in part or in whole, in any form or in any media, without the previous written consent of Techno Shares & Stocks Ltd.

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