We upgrade Havells India shares to 'buy' (from neutral) and increase the target price to Rs 802 (Rs 571 earlier) as we increase our FY14/FY15f ebitda by ~11%. We roll forward our sum-of-the-parts-based target price to FY14f from H1FY14f. Our target price implies a one-year forward target EV/ebitda target multiple of 9.6x, ~8% premium to its three-year historical average EV/ebitda multiple. In our sum-of-the-parts, we ascribe a per share value of Rs 751 to the domestic business, Rs 38 to Sylvania and Rs 13 pertaining to removal of royalty payments to promoters.
In our interaction with distributors, they indicated that Havells has gained market share in fans from its competitors in FY13 and overall in other categories as well. More importantly, our survey indicates that Havells is budgeting for aggressive growth targets in its domestic business for switches (driven by the Reo launch and increase in capacity in the Baddi plant), lighting fixtures (ongoing capacity expansion in its Neemrana plant), fans, consumer durables (driven by new launches) and wires. Implied valuation multiple moves up given greater growth visibility.
The company intends to expand its dealer and distribution network aggressively and is planning to add ~1,500 dealers (to its current base of ~6,000) across the country in FY14f. The launch of Reo switches, targeting the rural market, would also lead to an expansion in the distribution network which will be used to push other products.