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Havells India stock factors in near term improvement in Sylvania business

LiveMint logoLiveMint 28-05-2014 Krishna Merchant

Havells India Ltd reported a better-than-expected March quarter, buoyed by a sharp jump in other income and forex gains, while the Sylvania business continued to report a loss.

Stand-alone net profit rose 25% to `137 crore from a year ago and better than analysts’ estimate of `118 crore. A sixfold jump in other income and a twofold rise in forex gains helped boost net profit. Interest income propped up other income. Havells India reported sales growth of 12% to `1,300 crore.

Graphic by Yatish Asthana/MintNet profit in the cable and wire segment, which contributes over 40% to revenue, grew at a faster pace of 21% compared with the previous quarter, driven by growth in industrial cables on a low base. However, expansion in the switchgear segment, which contributes around one fourth of sales, slowed to 3% year-on-year, the lowest in over four quarters. Profit declined by 19% in this segment due a one-time provision. Revenue growth also improved for the electrical consumer durables, and lighting and fixtures segments.

Overseas lighting subsidiary Sylvania, which contributes around 42% of consolidated sales, posted a net loss of €3.3 million (`27 crore) due to a one-time pension liability. Net revenue for Sylvania’s stand-alone business improved marginally. Anil Rai Gupta, joint managing director of Havells India, said, “The worst is over for Sylvania and operational profit is expected to improve as interest costs are coming down. We are expecting 5% revenue growth at Sylvania as demand for lighting product improves with operating profit margin rising to 6-7% in the coming fiscal from 5.1% in FY14, excluding pension liability.”

Sylvania’s long-term borrowings remain unchanged at $83.5 million (`495 crore) at the end of the March quarter. “The cash flow is quite strong to meet our debt requirement and we are not looking at raising money in the near term,” Gupta said, dousing any listing hopes of the overseas unit. The firm had `1,000 crore in cash at the end of 2013-14, up 16% from a year ago.

The Havells India stock is trading at five times price-to-book multiple for the current fiscal year and has underperformed the BSE 200 index in the past month. After the 30% run-up in the past year, the stock seems to have factored in the near-term improvement in the Sylvania business.

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