Super 7 Picks - January 2016

amit.paprika

RR0201201688E62

2nd Feb ,

Havells India Ltd

Electrical Equipment

Buy

B P

W E A L T H

Technical View (Weekly Chart)

Execution Data

Breakout from Downsloping Channel

Target (Rs) 355

Stop Loss (Rs) 298

Buying Range (Rs) 321-310

Last Close Price (Rs) 321

% Change Weekly 5.18

Consolidation Before Breakout

Weekly Oscillator Direction

13 WMA Upwards

21 WMA Upwards

50 WMA Upwards

RSI has surpassed Downsloping Trendline

RSI

MACD

Buy mode

Buy mode

Source: Falcon, BP Equities Research

Technical View

The stock was moving in a downsloping channel for the past couple of months and has recently given

breakout from the channel which is a bullish signal for medium term trend. The breakout has come

after price has consolidated around the upper trendline for past few weeks which increases the reliability

of the breakout. RSI has surpassed the downsloping trendline which is a bullish signal and compliments

the bullish view of price. We recommend to BUY HAVELLS in the range of 321-310 with a

stop loss of 298 for the target of 355 in short term.

Investment Rationale

Stake sale in Sylvania and corporate restructuring value accretive

Sylvania was a huge drag on Havells as not only was the company making losses for the last 3 financial

years but also draining out Havell’s resources consistently (investment in Sylvania increased

from Rs. 1.6 Bn in FY08 to Rs. 9.8 Bn in FY15. The consistent increase in investment in Sylvania

brought down the ROE from 47% in FY07 to 21% in FY15. The stake sale should serve to release

capital and deploy it towards projects with better prospects. Apart from the stake sale, the management

has guided that it will aggressively restructure operations at loss making subsidiaries which

have been retained by scaling down operations at Chile and in the US and reducing losses at units in

Brazil and Thailand. We believe that the management is in the right direction as the restructuring

process is highly value accretive and should remove the overhang on the stock’s performance.

Management to concentrate on developing regional appliance franchise

We expect that the management and financial resources which were being drained by Sylvania will

now be deployed more efficiently in developing the company’s regional appliance franchise. We expect

the company to strengthen the domestic appliance franchise by either strengthening the distribution

network or adopting the inorganic growth route. The management also plans to withdraw/

streamline extra discounts to distributors which is strong trigger for revenue growth going ahead.

Change in industry dynamics to be market share accretive for Havells

We believe that competition has intensified significantly with several players popping up in the consumer

appliances space. However, we believe that the industry is headed for a consolidation through

exits from various product categories and rationalizations. This development is value accretive for

Havells’ market share, given it’s product mix and resources at hand.

Sector Outlook

Neutral

Stock

BSE code 517354

NSE Symbol

HAVELLS

Bloomberg

HAVL IN

Reuters

HAVEL.BO

Key Data

Nifty 7,963

52 Week H/L (Rs) 322/235

O/s Shares (Rs mn) 625

Market Cap (Rs bn) 201

Face Value (Rs) 1

Average volume

3 months 2,046,685

6 months 1,431,716

1 year 1,613,102

5

Similar magazines