Light up the future prospects of your portfolio – Buy Havells

One of the largest and fastest growing electrical and power distribution equipment manufacturers – Havells India Ltd. is today a billion dollar plus company. But taking over Sylvania an international company 1.5 times its size landed Havells into a very sticky situation. Sylvania had major losses and it was a sick company. Most investors and debtors of Havells who supported Havells in this international takeover were concerned and wanted to withdraw their support and get back their debts. The inefficient management of Sylvania was the main concern. But the management in Havells never lost heart. They planned restructuring of Sylvania which started in 2009.

Now after the restructuring of Sylvania, it has reported flat results (much better than market expectations) and has a good order book. This has also helped Havells too report very good numbers for the last quarter, way ahead of street expectations.

Havells India expects to incur a capex of Rs 1250 mn during FY11 towards expanding capacity and building facilities. The company expects to incur Rs 800-Rs 1000mn during FY12. Havells has also enterd into Ceramic Metal Halide (CMH) business and it has a revenue target of Rs 1 billion from this new venture. Being a new product line and a high margin - low volume business, it would help the company to gain market interest due to improvement in overall margins along with benefits of being the first manufactures of CMH.

With expansion in product portfolio, strong distribution network and efficient acquisition, Havells India would be multiplying its sales going forward. Net sales and net profit of the company are expected to grow at a CAGR of 14.27% & 27.07 % over next two years.

Havells' margins are expected to increase in FY11 and FY12 backed by strong domestic growth and stabilization of Sylvania business post restructuring. The management expects company's revenue growth to remain strong in the range of 15-20% in India over next couple of years.

Against the background of an expected doubling of per capita electricity consumption over the next five years, we expect demand for electrical appliances to grow manifold. Havells is the company best placed to exploit this impending boom. Buy with a target price of 987 which offers a 24.15% upside from the current levels