CVR-Assignment

Havells
Valuation Analysis

Submitted By:

Arvind Pandey WMP5013

Future Demand: As indicated by various macroeconomic factors in Indian economy we can safely assume that: Industrial growth will continue in India Construction Activities will also increase With increase in industrial growth and construction activities, the demand for cables/wires, lighting and consumer durables will continue to increase. Revenue in these segments will also increase. So the industry has promising future. Being a major player in the industry the overall market demand for Havells is expected to be very favorable. Revenues: The following factors in the environment may contribute significantly towards future revenue of Havells: Acquisition of Sylvania gave Havells access to large European Market. Sylvanias 70% revenue is more European markets and the remaining 30% from Emerging markets. Outsourcing to India and China helps Havells to reduce cost. Margins are higher in emerging markets. Mix of European and contribution to profit. Emerging markets have a significant

Thus in spite of a weak European market, rapid expansion in Asia and Latin America with help profit margins. Even the adverse scenario of a recession in Europe, the growth rate would fall, however there would always be demand for cables and lighting for replacement. The companys standalone revenues increased by 16% in FY11. The growth in top-line was largely driven by the cables & wires and lighting & fixtures divisions that reported more than 20% growth over the previous fiscal. Havells India is a billion dollar organization and Indias one of the largest and fastest growing electrical and power distribution equipment manufacturer.

P&L Statement: EPS is expected to increase.

PAT is also expected to show steady growth rate of 5-6%, though it

was not stable in the past.

Havells has maintained an OMITDA margin between 5-10% in the

last 7 years. Expecting an OBITDA margin between 8.5 to 10.2% for the next 10 years also looks ambitious. However shifting centers to India and China may help the cost structure and revenues from emerging economies may lower dependence on Europe. Having said this, the projected growth rate and the OBITDA margins still look high to be maintained for a period of 10 years. Hence the company seems to be overvalued.

Forecasted revenue growth rate and EBITDA margins: Although there are strong consumption trends to drive performance, but maintaining sustained revenue growth of 9 to 15% year-on-year for 10 years seems like a difficult target. More so because of the expected slowdown in world economy, in general; and Europe, in particular.