Thematic | June 2016 Light Electricals...Light Electricals Thematic | June 2016 Ankur Sharma...

Light ElectricalsThematic | June 2016

Ankur Sharma ([email protected]); +91 22 3982 5449

Amit Shah ([email protected]); +91 22 3029 5126

Change is in the air

Investors are advised to refer through important disclosures made at the last page of the Research Report.Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

June 2016 2

Capital Goods | Change is in the air

Contents

Summary .............................................................................................................................. 3

Infographic ........................................................................................................................... 4

Light Electricals to grow at 10% CAGR over FY16-19 ............................................................. 5

Premiumization trend visible across product categories ..................................................... 16

Multiple themes at play ...................................................................................................... 18

Fans – structural story intact ............................................................................................... 24

Lighting – LED movement underway ................................................................................... 29

Different types of lamps – LEDs v/s CFLs v/s ICLs ................................................................ 34

Pumps – weak industrial capex may constrain growth ........................................................ 36

Switchgear – safety paramount .......................................................................................... 39

Wires & Cables – revival in the offing ................................................................................. 42

Consumer Appliances – new entrants aplenty .................................................................... 45

Companies .......................................................................................................................... 48

CG Consumer Electricals: Geared for growth ................................................................. 49

Financials and Valuations .............................................................................................. 51

Havells India: Future-ready ............................................................................................ 53

Financials and valuations ............................................................................................... 55

June 2016 3


Change is in the air Premiumization the key trend

Higher disposable incomes, increased availability of power, implementation of 7th PayCommission wage hikes, government impetus on low cost housing and faster shift tothe organized sector post GST implementation are the key growth drivers for LightElectricals.

Premiumization trend is visible across product categories – there is a growingpreference towards aesthetics and energy efficiency.

Entry into new product categories, rising advertising spends, increasing distributionreach and focus on energy efficiency are key themes to play.

Our top picks in the Light Electricals segment are Crompton Greaves ConsumerElectricals (CROMPTON; TP: INR155) and Havells India (HAVL; TP: INR400).

Light Electricals industry to grow at 10% CAGR over FY16-19: We expect Appliances (15% CAGR), Lighting (12% CAGR), Fans (12% CAGR) and Switches (11% CAGR) to be the fastest growing segments over FY16-19. The key growth drivers are (a) rising disposable income of Indian households, (b) improved power availability and increased reach through the government’s rural electrification program, (c) implementation of the 7th Pay Commission wage hikes for central government employees, followed by hikes for state government and PSU employees, (d) Government impetus on low cost housing and (e) shift of sales towards the organized segment post GST implementation.

Premiumization trend visible across product categories: There is a clear trend of premiumization across product categories (Fans, Switches, Home and kitchen appliances), as consumers focus on higher aesthetic value and energy efficient products. The Indian consumer is increasingly focusing on the “cost of owning or life cycle cost for the product” rather than looking at just the upfront costs for the product. This has led to companies offering new variants that cater to these needs; moreover, margins in premium products are higher than on standard products.

Key themes – entry into new categories, higher advertising spends, increasing distribution and focus on energy efficient products: With the industry working on an “asset light model”, there is a clear trend of players entering new product categories. This is more so in Consumer Appliances, where most companies completely outsource manufacturing and where there is no or little R&D requirement and low capital investment. The key success factors in this segment are (a) brand extension, (b) dealer incentives offered, (c) advertising spends, (d)distribution reach, and (e) service centers for products.

Valuation and view: Our top picks in the Light Electricals segment are Crompton (Buy; TP: INR155) and Havells (Buy; TP: INR400). Key risks are delay in GST implementation and slower than expected pickup in construction demand.

Light Electricals

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Change is in the air

June 2016 4


Infographic

June 2016 5


Light Electricals to grow at 10% CAGR over FY16-19 Multiple drivers falling into place

Over FY16-19, we expect Light Electricals to grow at 10% CAGR, with faster growth inAppliances (15% CAGR), Lighting (12% CAGR), Fans (12% CAGR) and Switches (11%CAGR).

The key growth drivers are (a) rising disposable income, (b) improved poweravailability and increased reach through the government’s rural electrificationprogram, (c) implementation of the 7th Pay Commission wage hikes for centralgovernment employees, followed by hikes for state government and PSU employees,(d) government impetus on low cost housing and (e) shift of sales towards theorganized segment post GST implementation.

The Key Growth Drivers

Slowdown behind; expect growth to revive The Indian Light Electricals market stood at INR685b as at the end of FY16, having grown at a CAGR of 9% over FY11-16. Slowdown in construction activity had led to a slowdown in the sale of Light Electricals as well during this period. Over FY16-19, we expect Light Electricals to grow at 10% CAGR, with faster growth in Appliances (15% CAGR), Lighting (12% CAGR), Fans (12% CAGR) and Switches (11% CAGR).

June 2016 6


Exhibit 1: Segment-wise size of Indian Light Electricals market (INR b)

Description FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E % of Total

CAGR (FY11-16E, %)

CAGR (FY16-19, %)

Domestic Switchgear 14 16 17 18 18 20 21 23 24 3 7 7 LV Industrial Switchgear 28 30 30 34 38 38 40 43 46 6 6 7 Modular Switches 12 14 15 16 17 20 22 25 27 3 11 11 Domestic Wires and Cables(LT) 60 63 65 72 80 80 84 88 97 13 6 7 Industrial cables(HT) 100 100 100 100 120 120 132 145 160 19 4 10 Pumps 66 72 76 80 85 92 99 107 116 13 7 8 Lighting (incl. LED) 59 67 72 79 98 122 149 158 157 15 16 9 Luminaires 24 43 50 56 62 68 79 91 105 10 24 15 Consumer Appliances (Home/ Kitchen) 41 45 50 55 65 65 75 86 99 10 9 15 Fans 35 38 45 48 53 60 67 75 84 8 11 12 Total light electricals market size 439 488 519 558 636 685 769 841 915 9 10

Source: Industry, MOSL

Rising disposable income levels imply greater affordability Rising income levels across urban and rural India imply greater affordability for

Electrical Products. With growing disposable income, the Indian consumer hasbecome more discerning in his choice and taste.

Low penetration of Light Electrical Products, especially in rural areas, shoulddrive growth. The household penetration of Fans, for instance, is 90% in urbanareas and 65% in rural areas. The penetration of home and kitchen ppliances ismuch lower (see table below).

Exhibit 2: Low household penetration of home/kitchen appliances to drive growth Description % penetration Fans 80 Water Heaters 10 Mixer - Grinder 35 Induction cooktop <5 TV 77 Fridge 33 Air Cooler 8-10Washing machine 13 Air Conditioner 3-4

Source: MOSL, Industry

Exhibit 3: Rising disposable income to drive growth in Light Electricals (per capita; INR)

Source: RBI, MOSL

70,345 72,868 76,438 78,627 81,821 86,975 93,064

4%

5%

3%

4%

6% 7%

2012 2013 2014 2015 2016 2017 2018

Per capital income(Rs) YoY Growth(%)

The household penetration of Fans is 90% in urban areas and 65% in rural

areas.

June 2016 7


Exhibit 4: Rural incomes have been rising helped by MNREGA implementation and MSP increase

Source: GOI, MOSL

A Light Electrical Product lasts for 3-15 years. There is an increasing tendency totrade up, as these products are typically bought only once or twice over adecade and are much cheaper relative to the cost of the house. This, along withincreasing consumer focus on aesthetics and energy efficiency, has also resultedin a falling share of the unorganized segment (local players, Chinese imports)and a shift to the organized segment over the last few years.

Exhibit 5: Value of electrical equipment used in a typical 1,000sf house Description Units No. of units INR/pc INR Building Wires 1 sq. mm 7 coils 1,355 9,485

2.5 sq. mm 4 coils 3,205 12,820 4 sq. mm 2 coils 4,730 9,460 6 sq. mm 1 coil 7,115 7,115

MCB 40A 14 nos. 410 5,740 Distribution Box 4 way 1 nos. 3,500 3,500 Phase Selector 40 A 1 nos. 2,835 2,835 Switches, Sockets, Regulator Modular 70 nos. 5,575 Motor 1HP Equivalent 1 nos. 12,000 12,000 Fans 1200mm sweep 5 nos. 1,600 8,000 Ventilating Fan 250mm sweep 1 nos. 1,750 1,750 Lights With fittings 10 nos. 450 4,500 Total 82,880


51

52 55

58

64 71 83

100 120

140

161 173 183

2% 4%

5%

10% 11%

18% 20% 20%

17% 14%

8% 6%

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Rural wages/day

YoY growth(%)

June 2016 8


Exhibit 6: Average life of key Light Electrical Products Description Average life Building Wires 15+ years Distribution Boards 15+ years Miniature Circuit Breakers(MCB’s) 10+ years Switches 10+ years Fans 5-7 yearsGLS / CFL 2-3 yearsFluorescent Tube Lamps 2 years Consumer Appliances 5-7 years


Customers also take into account the safety features associated with theproduct while making the purchase decision. A case in point is the market forMiniature Circuit Breakers, which is largely with the organized players. This isprimarily because of the safety aspect.

Real Estate – mixed trends The Light Electricals industry is closely linked to the fortunes of the Real Estate

sector. We see a mixed picture here – the Urban Commercial (Office) and RetailReal Estate market has bottomed out and is on track for strong recovery.However, the Residential market remains subdued due to low affordability,developers’ reluctance to cut prices and constrained supply – this is especiallytrue for tier-1 cities (we define these as the top-7 cities). Low Cost Housingwould be driven by the government’s thrust towards “Housing for All by 2022”via the Pradhan Mantri Awas Yojna.

The Commercial Real Estate market was in a deep slump in CY12 (sales down27%) and was flat in CY13. Recovery in absorption set in from CY14 and pickedup pace from CY15, with office absorption at 38.1msf, higher than the previouspeak of 37msf in CY11.

Exhibit 7: Office space absorption and completion

Source: Industry, MOSL * we take top-7 cities in India

Exhibit 8: Vacancy rates declining, with higher absorption


Even within Retail Real Estate, CY14 was the bottom, with absorption declining69% to 1.6msf. However, CY15 has seen a sharp bounce, with 3.3msf sold; thestrong growth should continue over the next few years.

22 23 32 33

20 31 37

27 27 30 38 36 32

25

23 23

33

43 41 41 44

30 36

30 36

32 33 29

CY05

CY06

CY07

CY08

CY09

CY10

CY11

CY12

CY13

CY14

CY15

CY16

e

CY17

e

CY18

e

Office Space - Absorption Office Space - Completion

8.0 6.0 5.0

9.0

17.0 18.0 18.0 17.2 18.5

16.9 16.0 15.0 14.012.0

CY05

CY06

CY07

CY08

CY09

CY10

CY11

CY12

CY13

CY14

CY15

CY16

e

CY17

e

CY18

eVacancy (%)

Commercial Real estate has picked up pace from CY15

with office absorption at 38.1msf, higher than

previous peak of 37msf in CY11

June 2016 9


Exhibit 9: Retail space absorption and completion


Exhibit 10: Vacancy rates have peaked out


The Residential Real Estate market remains subdued. CY15 was another year ofdecline – 0.16m units were sold against the peak of 0.2m units in FY12. We alsohighlight that 0.45m units are lying unsold and at the current pace of saleswould take 3-4 years to be cleared out. New launches also declined to 0.2munits in CY15 against the peak of 0.26m units in CY12.

Given the builders’ reluctance to cut prices, reduced affordability, highinventory of unsold flats (0.56m as of December 2015) and the new clausesintroduced by the recent Real Estate Regulatory Act, there could be a lull in newlaunches over the next 6-9months. However, CY16 should be the bottom for themarket – we expect a recovery in CY17 in both new launches and unitabsorption. This would be driven by continued rate cuts by the RBI, a recovery inthe general economy and quicker completion of ongoing projects as requiredunder the new Real Estate Act.

Exhibit 11: Residential Real Estate to bottom out in CY16 (units)


Another key indicator of Housing growth is home loans by housing financecompanies, NBFCs and banks. These have grown at a CAGR of 19% over FY05-16.The slowdown in Residential Real Estate is more specific to the top-7 cities;smaller cities and towns have remained largely insulated.

3.8 3.7 9.6 6.6 4.0 4.0 10.7 4.5 5.1 1.6 3.3 4.9 6.0 4.6

2.8 4.1

9.4 8.56.3 6.9

13.8

4.1 5.7

1.3 3.6

7.5 7.5 5.4

CY05

CY06

CY07

CY08

CY09

CY10

CY11

CY12

CY13

CY14

CY15

CY16

e

CY17

e

CY18

e

Absorption(mn sq ft) Completion(mn sq ft)

15

18

20

18 17

16 16

18 18 18

CY09

CY10

CY11

CY12

CY13

CY14

CY15

CY16

e

CY17

e

CY18

e

Vacancy (%)

90,000

130,000

247,000

203,000

256,000 237,621 225,821

200,334

102,000 101,000

184,000 167,000 198,000 193,386 165,840 157,798

2008 2009 2010 2011 2012 2013 2014 2015

Units launched Units soldExpect a recovery in CY17 for Residential Real Estate

demand, both new launches and unit

absorption driven by continued rate cuts by the

RBI, a recovery in the general economy and quicker completion of

ongoing projects

June 2016 10


Exhibit 12: Housing loans have grown at 19% CAGR over FY05-16


“Pradhan Mantri Awas Yojna” aims to add 30m houses by FY19 In June 2015, the Union Cabinet approved the “Pradhan Mantri Awas Yojna” to provide “Housing for All” by 2022. The aim was to construct 20m houses in urban areas. The highlights of the scheme are: On an average, central grant of INR0.1m/house would be available under the

slum rehabilitation program. The state government would have flexibility indeploying this slum rehabilitation grant to any slum rehabilitation project takenfor development using land as a resource for providing houses to slum dwellers.

Under the credit-linked interest subsidy component, interest subsidy of 6.5% onhousing loans availed up to tenure of 15 years would be provided toeconomically weaker section (EWS) / low income group categories, wherein thesubsidy payout on NPV basis would be ~INR0.23m/house.

Central assistance at the rate of INR0.15m/house for EWS category would beprovided under affordable housing in partnership and beneficiary-led individualhouse construction or enhancement. State governments or housing boards cantake up affordable housing projects to avail the central government grant.

The scheme would cover the entire urban area consisting of 4,041 statutorytowns with initial focus on 500 class-I cities and it will be implemented in threephases till April 2019. Phase-I (April 2015 - March 2017) to cover 100 cities to be selected from

states/UTs as per their willingness Phase-II (April 2017 - March 2019) to cover additional 200 cities Phase-III (April 2019 - March 2022) to cover other remaining cities

As seen in the table below, ~0.7m EWS houses have been taken up for funding across states with a total budgeted spend of INR100b as of May 2016.

1.7 2.4 3.0 3.4 3.8 4.3

5.1 6.2

7.2 8.4

9.9

11.5

41

25

13 12 13 19

22 16 17 18 16

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Housing loan O/S YoY Growth(%)

“Pradhan Mantri Awas Yojna” aims to provide

“Housing for All” by 2022 with target to construct

20m houses in urban areas.

June 2016 11


Exhibit 13: Progress of Pradhan Mantri Awas Yojna as of May 2016 (INR in Crore)

Sr. No. Name of the State

No of Cities considered for funding

Project Proposals

Considered

EWS Houses

Central Assistance

involved

Central Assistance

Released (projects)

1 A&N Island (UT) - - - - - 2 Andhra Pradesh 59 110 1,93,147 2,897.21 334.95 3 Arunanchal Pradesh - - - - - 4 Assam - - - - - 5 Bihar 85 85 30,216 453.24 79.89 6 Chandigarh (UT) - - - - - 7 Chhattisgarh 9 11 12,670 190.05 76.02 8 D&N Haveli (UT) - - - - - 9 Daman & Diu (UT) - - - - - 10 Delhi (UT) - - - - - 11 Goa - - - - - 12 Gujarat 12 77 66,983 853.62 318.05 13 Haryana - - - - - 14 Himachal Pradesh 9 9 1,077 16.16 6.46 15 Jammu & Kashmir 2 2 224 3.36 - 16 Jharkhand 38 38 20,239 303.59 121.43 17 Karnataka 15 21 16,522 247.83 - 18 Kerala - - - - - 19 Lakshdweep (UT) - - - - - 20 Madhya Pradesh 37 45 43,393 644.12 208.44 21 Maharashtra 10 17 71,701 1,063.74 - 22 Manipur - - - - - 23 Meghalaya - - - - - 24 Mizoram 8 8 10,286 154.29 8.18 25 Nagaland - - - - - 26 Orissa 2 6 11,548 143.22 33.29 27 Puducherry (UT) - - - - - 28 Punjab 1 1 1,280 12.80 - 29 Rajasthan 19 23 12,307 184.61 37.53 30 Sikkim - - - - - 31 TamilNadu 175 197 34,013 510.20 40.50 32 Telangana 63 144 80,481 1,207.22 261.76 33 Tripura - - - - - 34 Uttar Pradesh - - - - - 35 Uttrakhand 19 21 2,757 41.36 13.76 36 West Bengal 108 108 74,880 1,123.20 88.85 Grand Total 671 923 6,83,724 10,049.77 1,629.11

Source: Ministry of Housing and Urban Development

In March 2016, the Union Cabinet approved the “Pradhan Mantri Awas Yojna”for rural areas. All the existing rural housing programs have devolved into this.Highlights of the scheme:

Subsidy provided by the state and central governments under this scheme hasincreased by more than 70%; from INR70,000, the allocation has now gone up toINR120,000. In hilly and difficult areas, it has increased from INR75,000 toINR130,000. Additionally, taking into account benefits of labor under MNREGA(90 days) and INR12,000 under Swach Bharat Mission, the total benefit adds upto INR150,000 for house construction. Bringing transparency in the selection ofbeneficiaries, the data from the census conducted in 2011 will be used.

Subsidy provided by the state and central

governments under this scheme has increased by

more than 70%; from INR70,000, the allocation

has now gone up to INR120,000.

June 2016 12


In the years from 1985 to 2015, around 35m houses have been constructed;under the new program, the government targets to construct 10m houses inthree years till FY19.

The central government will spend INR820b on rural housing till FY19; inaddition, the states will be spending over INR500b as their share. The annualallocation from the central government will go up from INR100b to overINR270b. In our view, the infusion of resources of this magnitude will be agame changer in the rural housing scene and the rural economy.

Our view: If the government is able to construct 30m new houses under thisprogram, it would alone generate demand for ~60m new fans (assuming twofans used in one house) or 20m fans per year over a three-year period to FY19.To put this in perspective, the Indian Fan industry sells ~47m fans per year.

GST implementation to drive faster shift to organized segment The Goods and Services Tax (GST) legislation was passed in the Lok Sabha (lower

house of Parliament) on May 6, 2015. The Government of India seemscommitted to replace all indirect taxes levied on goods and services by thecenter and the states with a common GST by April 2017. With GSTimplementation, it is anticipated that the tax base will be comprehensive, as allgoods and services will be taxable, with minimum exemptions.

In India, there is significant presence of the unorganized segment in LightElectricals. We estimate that in FY15, the unorganized segment constituted~25% of overall industry sales, though down from ~40% in FY10.

GST implementation is expected to narrow the large indirect tax differentialbetween the organized and unorganized players. This would be achieved byensuring better compliance and enforcement by (a) reducing the threshold limitfor exemption from indirect taxes to INR1m under GST from INR15m under thecurrent excise duty regime, (b) tracking the flow of GST credit in the entire valuechain using technology platforms, (c) ensuring availability of seamless inputcredit, and (d) reducing the overall effective tax rates.

Exhibit 14: Measures that will lead to shift of trade from unorganized to organized segment

Source: Havells, Frost, Industry, MOSLe

In FY15, the unorganized segment constituted ~25%

of overall industry sales, though down from ~40% in

FY10.

http://www.ey.com/IN/en/Services/Tax/VAT--GST-and-Other-Sales-Taxes

June 2016 13


Exhibit 15: Unorganized players as a % of overall category sales for Light Electricals Description FY10 FY15 Fans 40 25 Lighting 60 40 Pumps 45 30 Domestic Switchgear 20 <5 Industrial Switchgear 30 20-25Switches 50 30

Source: Havells, Frost, Industry, MOSLe

7th Pay Commission wage hike implementation to accelerate demand growth over next two years The central government constitutes the Pay Commission every 10 years to

recommend revisions in pay scales for central government employees. Veryoften, these recommendations are also adopted by the states after somemodifications. Recommendations of the 7th Pay Commission, which came intoeffect from January 2016, are expected to impact 4.8m central governmentemployees and 5.5m pensioners.

The 7th Pay Commission has recommended a 24% increase in pay andallowances for government employees. Pay would go up by 16%, allowances by63% and pensions by 24%. It has also recommended an annual increment of 3%for central government employees.

The government estimates the impact of the Pay Commission recommendationsat INR1.02t for FY17. Moreover, the state governments would also be revisingthe salaries of their employees (~10m), followed by similar revisions by publicsector undertakings (PSUs).

The impact of the 6th Pay Commission was much bigger, as (a) it hadrecommended a 36% pay hike, and (b) the hike was paid with arrears of twoyears. The 6th Pay Commission was set up in July 2006 and its recommendationswere submitted in March 2008. 40% of the arrears were paid in 2009 and 60% in2010 instead of the originally scheduled 2006.

Exhibit 16: 6th Pay Commission impact on pay and allowances of central government employees

Source: MOSL, GOI

Exhibit 17: Pay and allowances as a percentage of the government’s total expenditure

Source: MOSL, GOI

We expect the wage hikes recommended by the 7th Pay Commission to be paidon current basis. Unlike the previous occasion, there wouldn’t be a significantarrears portion. We believe the limited bounty would result in a

460

737

966 928 993 1,116

1,252 1,392

60

31

-47 12 12 11

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Pay and Allowances(INRb) YoY (%)

6.45

8.34 9.43

7.75 7.61 7.91 7.87 7.76

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

% of total expenditure

The government estimates the impact of the Pay

Commission recommendations at

INR1.02t for FY17.

June 2016 14


disproportionate benefit for smaller ticket items like Light Electricals and also lead to increased premiumization of the same product.

Exhibit 18: CY09 and CY10 see increased lighting sales post 6th Pay commission pay out


Exhibit 19: FY10 fan volumes see a spurt post the 6th Pay Commission payout


Exhibit 20: Breakdown of employees by rank

Source: 7th Pay Commission, MOSL

Exhibit 21: Employee break up by age

Source: 7th Pay Commission, MOSL

Exhibit 22: Break up of Central Government employees by area of residence

Source: 7th Pay Commission , 2011 Census, MOSL

968 1,057

1,126

1,140

1,218

1,305

1,317

1,384

1,492 1,418

9% 7%

1%

7% 7%

1%

5% 8%

-5%

CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14

Lighting(Units m) YoY (%)

18.0 20.8 20.9 29.1 37.4 36.2 39.2 40.3 44.8

23.8

16.1

2.6

29.9 28.6

(3.1)

8.3 2.7

10

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Fans (mn units) YoY Growth(%)

Senior Management position, 3%

Middle management,

9%

Supervisory and clerical tasks, 89%

22%

22%

26%

29%

1% 20-30 years

30-40 years

40-50 years

50-60 years

Others

Metros, 18%

Top 67 cities (ex metros), 29%

Others, 53%

June 2016 15


Increased pace of village electrification and improved power availability to drive rural demand for Electricals Rural electrification has been a challenge for successive central governments.

Given India’s federal structure, the states provide last-mile connectivity andmaintain infrastructure; the center provides policy and financial support.

With its aim of “Power for All”, the Government of India has put villageelectrification at the top of its agenda. The Modi government launched the“Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY)” to ensure rapidelectrification, feeder separation, and strengthening of rural distributioninfrastructure. The aim is to electrify the remaining 18,452 villages across Indiaby May 2018. (Note: A village is considered electrified if all the public places and10% of households have electricity).

Exhibit 23: Villages electrified in India – 7,008 villages electrified in FY16

Source: CEA, MOSL

In FY16, a record 7,008 villages were electrified (target: 7,000 villages), higherthan the total villages electrified in the preceding three years. A total 580kvillages (~98% of total villages) have been electrified and the aim is to completethe electrification of all villages in FY17 itself, much before the deadline of May2018 that the government has set for itself.

An increase in grid connected villages, and in turn, higher availability of powerfor households would lead to higher demand for Light Electrical Products suchas Fans, Lights, Switches, etc.

512,513

482,864

556,633 560,552 572,414 577,629 584,637

FY02 FY07 FY12 FY13 FY14 FY15 FY16

Villages electrified

In FY16, a record 7,008 villages were electrified (target: 7,000 villages),

higher than the total villages electrified in the

preceding three years.

June 2016 16


Premiumization trend visible across product categories Key drivers: Need for energy efficiency I Focus on aesthetics

In our view, the drive towards premiumization is because of two key critical factors:(a) need for energy efficiency, and (b) focus on aesthetics.

Energy efficiency: “Life cycle cost versus cost of purchase” As consumers realize the longer-term benefits of savings on “higher star”

products, they are more willing to pay higher upfront prices to take advantageof the savings over the life of the product. The government’s initiative to driveenergy efficiency through increased use of LEDs and five-star-rated Pumps andFans has led to higher consumer awareness. A five-star-rated Fan costs~INR1,900 (50W) against INR1,400-1,500 (75W) for a normal Fan. We estimate asaving of INR300/year as a result of using the five-star-rated Fan versus thenormal Fan, which consumes 40% more power.

Energy Efficiency Services Limited (EESL) has recently started a pilot project inAndhra Pradesh, where it intends to distribute five-star-rated fans normallypriced INR1,900 at INR995 – the reduction in price is possible due to bulkpurchases. Tenders have already been called for. The fans would be distributedon an upfront payment of INR100 followed by 24 installments of INR50 each.

EESL is driving a similar movement in Lamps, where it targets to replaceIncandescent Lamps (ICLs) with Light-emitting Diodes (LEDs). In CY14, ~725mICLs were sold in India at an average price of INR10. Currently, the average priceof an LED Lamp in the market is INR220-250/unit while EESL is able to source9W LED Lamps for INR80-85/unit. It distributes these to end consumers throughDISCOMs. We note that despite retail prices of LED Lamps being 3-4x the retailprices of Compact Fluorescent Lamps (CFLs), there is a clear trend towardsbuying more LED Lamps.

Energy Efficiency Services Limited (EESL) started a pilot project in Andhra

Pradesh, where it intends to distribute five-star-rated

fans normally priced INR1,900 at INR995

June 2016 17


Despite Havells selling only through dealers, LED sales account for 45% of itsoverall sales and this is expected to rise to 70-75% in the next 2-3 years. Havellshas not participated in EESL’s program for residential lighting, but isparticipating in LED street lighting through its subsidiary, Promptec.

Exhibit 24: Cost comparison – LED v/s CFL v/s ICL Description Units ICL CFL LED Life Span hours 1,500 10,000 50,000 Equivalent Wattage watts 60 14 6 Power consumed per hour Kilowatt-hour (kWh) 0.06 0.014 0.006 Cost of usage for one hour @Rs 6 per kWh rupees 0.36 0.084 0.036 Cost of usage for 50,000 hours (A) rupees 18,000 4,200 1,800 Bulbs needed for 50,000 hours of running no of bulbs 33 5 1 Bulb Cost rupees 10 60 200 Cost of replacement(B) rupees 330 300 200 Total 50,000 hour lighting cost (A+B) rupees 18330 4500 2000 Ratio of cost ratio 9.2 2.2 1

Source: MOSLe, Industry

Increasing consumer focus on aesthetics The Indian consumer is becoming increasingly discerning and trading up is

evident across product categories. Companies have begun launching productswith better aesthetics and additional features.

Exhibit 25: Premium products being offered across product categories Product Category

Premium Products

Name of company and model

Fans Decorative Fans, 5 Star rated fans Kids fans, Under light fans with remote BLDC fans

Crompton: Prudence, Harmoni, Kohinur, Obernon, Luster Eros, Titanis, Nebula, Jupiter, Kanon Painted, Karissa, Triton, Twirl, SAIL, Radiance,Aura, Diamnond, Embera Bajaj: Disney Range, Magnifique, Euro, Cruzair, Havells: Momenta, Opus, Ebony, Lumos , ES50, Florina, Veneto, Melania, Aureues, Avion, Cedar, Dew,Florence Orient: New Breeze, Subaris, Adalia, Andrea, Valeria, Spectra, Arista, Curl, Jazz, Cristo, Cyril, Joan, Avalon Usha: Barbie Glam, Daraemon, Chota Bheem, Fontana, E Series,Striker Galaxy Khaitan: Flamingao, Flair, Magnate, Vega, Newtec, Decora, Hunar, LA Vega, Hunar

Switches Aesthetic switches Shock resistant

Anchor: Woods, Roma, Ave, Vision, Viola Havells: Euro II, Pearlz, Oro Schneider Electric: Livia, NEO, ZEN Cleo, Legrand: Myrius, Mylinc, Arteor

Kitchen appliances

Multi-function and premium appliances

Usha: Cold press Juicers, Morphy Richard: Deluxe Food processor Havells: Riso cooker, Insta Cook (induction cooktop)

Source: MOSL, Company

June 2016 18


Multiple themes at play New category entry I Rising ad spends I Focus on after sales and distribution

With the industry working on an “asset light model”, there is a clear trend of playersentering new product categories. This is more so in kitchen and home appliances.

To win in an environment of intense competition, companies are focusing more onadvertising, sales network and after sales services.

Entry into new categories by existing players as a brand extension An interesting trend observed over the last few years is brand extension by

existing players into related product categories. This trend is more visible inkitchen and home appliances, where most companies follow an outsourcingmodel. The companies source products from China and only handlemarketing/distribution. With no or little R&D requirement and low capitalinvestment, this is an attractive business opportunity.

The success of entry into related categories depends on the existing brandpositioning and perception, dealer margins offered, advertising spend to build aconnect with the consumer, distribution reach (electronics dealers v/s hardwaredealers to sell Consumer Appliances) and service centers.

Exhibit 26: Recent entries into new product categories by existing players Company Core Product New product categories Orient Electric Fans Consumer Appliances, Switchgear, Lighting Finolex Cables Lighting, Switches, Fans Anchor Switches Lighting, Switchgears, Fans, Wires and cable Eveready Batteries Lighting, Electric Appliances Surya Roshni Lighting Fans, Consumer Durables V-Guard Voltage Stabilizers, Inverters Fans, Switchgears, Kitchen Appliances Crompton Greaves Fans, Lighting, Pumps Consumer Appliances, Air Cooler, Havells Switchgear, Lighting, Fans Consumer appliances, Coolers, Pumps Luminous Invertors Fans, Switches, Lighting, Switchgears Polycab Wires Fans, Lighting, Switches

Source: MOSL, Industry, Company

The key reason behind entering related product categories is to get a higherwallet share of the retail store and the customer while leveraging on existingbrand equity.

For most companies that have recently entered the Consumer Appliancesbusiness, the challenge is to develop the appliance network since the existingelectricals dealer network is not suitable for distribution of appliances.

June 2016 19


Exhibit 27: Company wise presences across electrical and kitchen appliances Electric Appliances Kitchen Appliances

Name of company Fans Water Heaters Air Coolers Irons Mixer Grinders Toasters Havells Y Y Y Y Y Y Crompton Greaves Y Y Y Y Y Y Bajaj Electricals Y Y Y Y Y Y Khaitan Electricals Y Y Y Y Y Usha Y Y Y Y Y Y Orient Electricals Y Y Y Y Y Eveready Y TTK Prestige Y Y Y Philips Y Y Y Y Panasonic Y Y Y Y Inalsa Y Y Y Sunflame Y Y Y Y


Exhibit 28: Asset turns for the industry high given the asset light business model

Source: Company, MOSLe

Increasing advertising spends to gain market share in new product categories A key differentiator in the Light Electricals segment is advertising spends to gain

consumer mind share and develop a “pull” factor for the company. Our analysis of the advertising spends across key listed players in FY15 highlights

that advertising spends range between 0.7% and 4.1% of revenue. V Guard,which is expanding from its traditional base in South India to other regions inNorth, West and East India, has the highest advertising spends. It spent 4.3% ofits sales on advertising in FY16.

Exhibit 29: Advertising spends by company (% of sales) Name of company FY15 FY14 FY13 FY12 FY11 Bajaj Electricals 1.3 1.6 1.3 1.3 2.2 Crompton ** 2.5 2.7 2.7 2.2 1.7 Havells 3.4 2.5 3.1 3.1 2.5 V Guard 4.1 4.2 4.5 4.2 3.8 Surya Roshni 0.7 0.3 1.2 0.6 1.3

Source: Company, MOSL, ** ad spend for entire Crompton Greaves, For Bajaj, we exclude the E&P segment

25.9 24.2

14.5 16.0

4.1 3.9 6.7 7.3

4.0 4.3

11.0 11.2

FY14 FY15

Bajaj CG Havells V Guard Surya Roshni Average

V Guard, has the highest advertising spends led by

expanding from its traditional base in South India to other regions in

North, West and East India,.

June 2016 20


Crompton has spent ~2% of its sales on advertising over the past six years.However, this is set to change with the new management, which intends toaggressively increase advertising spends to gain higher market share. This isalready evident from the number of television commercials (TVCs) Cromptonhas been airing over the last few months, with a focus on Lighting, Fans andAppliances. The management intends to bring advertising spends in line withthe competition.

Havells has deftly used advertising spends (3-3.5% of sales) to create a premiumpositioning. This has enabled it to charge a premium on its products.

With most companies now eyeing market share in new product categories,advertising campaigns are becoming more important.

R&D spends across key players remain low Within the Consumer Appliances space, most companies use an outsourcing

model. They buy products from China and distribute these in India. Havells isone of the few companies preferring to “insource”. It has set up factories inIndia to manufacture Water Heaters and Kitchen Appliances, and will beextending this to other product categories as well.

Even in the case of other product categories such as Fans, Pumps and Lighting,the industry has an “outsource and assemble” model. Most components areoutsourced and assembled by the seller.

Exhibit 30: R&D spending by company Name of company FY15 FY14 FY13 FY12 FY11 FY10 Bajaj Electricals 1.0 0.3 0.4 0.4 0.3 0.3 Crompton Greaves 0.8 0.7 0.6 0.6 0.8 0.6 Havells 0.5 0.5 0.4 0.2 0.3 0.3 V Guard 0.3 0.4 0.3 0.2 0.2 0.3

Source: Company, MOSL

This “outsource and assemble” model is in turn reflected in the R&D spends, which stand at 0.3-1% of sales across companies.

A comparison of the “outsourced/traded” components across players reveals that Havells has the fewest traded products. It focuses on “insourcing” products to have a better control on quality and the supply chain. This has also resulted in Havells having the highest gross margins in the industry (~42%). Bajaj Electric has the least “insourcing” – it manufactures only ~3% of its products.

Exhibit 31: In-house manufacturing of Electricals portfolio Name of company FY16 Bajaj Electricals 3% Crompton Greaves 50% Havells >90%V Guard 40%


The industry is based on “outsource and assemble”

model and thus the R&D spends, which stand at 0.3-

1% of sales across companies.

June 2016 21


Exhibit 32: Higher in-house manufacturing results in higher gross margins Name of company FY16 Bajaj Electricals 30% Crompton Greaves 29% Havells 42% V Guard 31%


Most companies operating in the Kitchen Appliances segment outsourceproduction to China and market these products through theirdistribution/dealer network. Havells is among the few companies to have“insourced” manufacturing of Water Heaters; it has also commissioned a newplant to manufacture Kitchen Appliances.

Distribution reach: A key differentiator in Light Electricals industry One of the key differentiators in the Light Electricals industry is distribution

reach and dealer touch points. Bajaj Electricals has the widest reach across Consumer Electricals companies. It

has been in the Indian market for almost 80 years and also has a wide productportfolio across Consumer Appliances (Induction Cookers, Irons, Water Heaters,Mixers, Grinders, etc), Fans and Lighting.

Exhibit 33: Retail touch points by player (number of units) Name of company FY16 FY15 Other touch points

Bajaj Electricals 500,000 400,000 5,000 authorized dealers and 104 “Bajaj World” showrooms

Crompton Greaves +150,000 134,000 60 Crompton “Exclusive” showrooms Havells +100,000 +100,000 375 Havells Galaxy stores

V Guard 30,000-33,000 25,000 2000 channel partners

Surya Roshni 200,000 200,000 Eveready 30,000 3.2mn touch points for batteries

Source: Company, MOSL, ** Eveready touch points for electrical outlets only

Exhibit 34: Distributors by company Name of company FY15 Bajaj Electricals 1,000 Crompton Greaves 4,000 Havells 6,300 V Guard 500 Surya Roshni 20,000 Eveready 4,000


While having a high number of retail touch points is important, it is equallyimportant to have a high share of retail store sales. Crompton has ~50% share ateach electrical outlet selling its products – this implies that sales per store aremuch higher than peers. However, with its entry into Consumer Appliances, itneeds to get its products into Home Appliance/Hardware stores, where it is arecent entrant, having started this business only in FY11.

E-commerce as a channel to go to market has been gaining importance andmost companies have opted to have separate SKUs for the online and offlineplatforms. This helps to reduce cannibalization of sales by aggressive

Bajaj Electricals has the widest reach across

Consumer Electricals companies whereas

Crompton has ~50% share at each electrical outlet

selling its products

June 2016 22


discounting by online stores. Companies such as Bajaj Electricals, Murphy Richards and Philips also sell their products online through their own website. Companies such as Havells and V Guard, however, push sales only through their authorized distributors and dealers.

Exhibit 35: Product category-wise “Go to Market” channels

Name of company Electricals Store

Appliance Store

Multi Brand retail E Commerce

Fans Y N Y Y Lighting Y N Y Y Switches Y N Y Y Pumps N N N Y Cable and Wires Y N N Iron N Y Y Y Mixer/Grinder N Y Y Y Cookware N Y Y Y Water Heater Y Y Y Y


Attractive commissions and incentives necessary to gain and retain dealers Given the intensely competitive environment in the Light Electricals sector,

dealer commissions and incentives are key to gaining acceptance at retail stores.Crompton has been ahead of peers in offering dealer commissions andincentives and this explains its high share in the retail stores where it is present.Dealer incentives and commissions ensure that the distribution channelcontinues to push the company’s products into the market.

While Crompton’s new management has been pushing up advertising spends asit tries to garner greater consumer connect, we believe it could also raise dealercommissions/incentives to increase its penetration.

Exhibit 36: Dealer commissions/incentives offered across players (% of sales) Name of Company FY15 FY14 FY13 FY12 FY11 Bajaj Electricals 1.2 0.8 0.6 0.6 0.4 Crompton 1.4 1.8 2.0 1.6 2.6 Havells 0.8 0.7 0.8 0.7 0.8 V Guard 1.0 1.0 0.9 0.6 4.2 Surya Roshni 1.1 0.9 1.2 1.0 0.8

Source: MOSL, Company, ** we have considered only the consumer business for the comparison

After sales service: Equally important, as Electricals can last for 5-7 years After sales service is equally important in the case of Consumer Electricals, as

these products typically last for 7-10 years. This is more so in the case ofConsumer Appliances and Fans.

Crompton offer highest dealer commissions and incentives amongst the

peers

June 2016 23


Exhibit 37: Service center strength of key players in the Light Electricals segment Name of company Nos. Bajaj Electricals 400 Crompton Greaves +500Racold India +100Phillips +180V Guard 150 Murphy Richard 150


Havells has a different model, where it has tied up with electricians (>0.15m allover India), who repair the product at the consumer’s house, saving theconsumer the effort to go to a service center.

June 2016 24


Fans – structural story intact Medium term threat from government’s bulk tendering program

Industry shifting to premium fans with 40% of sale from these models vs. ~10-15% inFY06; Havells market leader in this segment with a +25% share

Governments’ bulk procurement programme targets to replace 160m fans over FY16-19e; save 30% power compared to normal fans

Fan sales to grow 12% CAGR in FY16-19e; premiumisation drives value growth The Indian Fan market has grown at a CAGR of 11% in value terms to ~INR60b

over FY11-16. Of this, 6-7% growth has come from volumes and the balancefrom price increases. In volume terms, ~50m Fans are sold in India, with theorganized market at 75%.

There is a shift towards Premium Fans, which now account for 40% of themarket against 10-15% in 2006. The Indian consumer’s increasing focus onaesthetics and energy efficiency is driving the premiumization trend.

Key players in the organized market are Crompton, Orient Electricals, UshaInternational, Khaitan, Bajaj Electricals, and Havells. The unorganized segment(local and Chinese products) contributes ~20-25% of sales.

Exhibit 38: Growth in Indian Fan industry over FY11-19e

The Bureau of Energy Efficiency (BEE) launched the voluntary standard labelingprogram from 2009. This forced the industry to look at infusing technology andrework marketing campaigns to highlight energy efficiency. Over 2009-12,manufacturers imported motor testing lines, air delivery measurement systemsand computerized testing systems for motors to meet newly-definedparameters in air delivery, fan speed and power input.

Orient introduced energy-efficient fans under its Summer Crown brand in 2009-10 while Cromptom Greaves developed such fans in 2010-11. Bajaj unveiledeight models (four each in the 4-star and 5-star categories) in 2011-12.

The Fan market also saw the emergence of the ‘children’ category, with Bajajand Havells being the market leaders in introducing child-focused models. Bajajentered the category by signing an exclusive tie-up in 2008-09, which allowed itto unveil Fans with Disney characters. The company continued with newlaunches in this category in 2010-11 and 2011-12.

35 38 45 48 53 60 67 75 84 9%

18%

7%

10%

13% 12% 12% 12%

FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e FY19e

Fans (INRm) YoY (%)

The unorganized segment (local and Chinese products)

contributes ~20-25% of sales.

June 2016 25


Exhibit 39: Fans – share of unorganized segment has been falling

Another category that has gathered pace in the past few years isDecorative/Premium Ceiling Fans. Havells took the lead in this category(>INR2,500/unit) and enjoys over 25% share. Orient introduced its Remote-controlled Premium Fans range in 2009-10. Crompton too launched a full rangeof Premium Ceiling Fans. We highlight below the key models being offeredacross players in the Premium, Decorative and Children categories.

Exhibit 40: Premium Ceiling Fans by key players in the industry Product Category

Premium Products Name of company and model

Fans

Decorative Fans,

5 Star rated fans

Kids fans, Under light fans with remote

BLDC fans

Crompton - Prudence, Harmoni, Kohinur, Obernon, Luster Eros, Titanis, Nebula, Jupiter, Kanon Painted, Karissa, Triton, Twirl, SAIL, Radiance, Aura, Diamnond, Embera Bajaj - Disney Range, Magnifique, Euro, Cruzair, Havells -Momenta, Opus, Ebony, Lumos , ES50, Florina, Veneto, Melania, Aureues, Avion, Cedar, Dew,Florence Orient -New Breeze, Subaris, Adalia, Andrea, Valeria, Spectra, Arista, Curl, Jazz, Cristo, Cyril, Joan, Avalon Usha - Barbie Glam, Daraemon, Chota Bheem, Fontana, E Series,Striker Galaxy Khaitan - Flamingao, Flair, Magnate, Vega, Newtec, Decora, Hunar, LA Vega, Hunar

Premium Fans now account for 40% of total Fan sales, up from 10-15% in 2006.Companies are focusing more on Premium Fans, driven by shifting consumerpreference and higher margins in this category.

Crompton, which is present across the entry and mid segments, has ~30% of itsmodels in these segments. It has ~70% of its models in the premium and star-rated segments. Havells is clearly positioned in the premium segment, with just~13% of its models in the standard range.

Crompton, which offers 75 models of Ceiling Fans, has the biggest portfolio.Usha, the second-largest player, has a portfolio of 62 models.

50%

30% 30% 25%

FY07 FY12 FY13 FY14

Unorganized Sector(%)

Premium Fans now account for 40% of total Fan sales,

up from 10-15% in 2006.

June 2016 26


Exhibit 41: Ceiling Fan categorization by segment and player Ceiling fans Crompton Havells Orient Usha Bajaj Under light fans 18% 17% 22% 15% 8% Kids fans 4% 6% 4% 13% 13% Decorative fans 40% 61% 47% 30% 48% BEE 5 Star rated 9% 4% 10% 29% 13% Standard/Plain fans 30% 13% 18% 15% 18% Total no. of models 75 54 49 62 39

Source: Company websites, MOSL

Exhibit 42: Fans sold by type in India


Crompton remains market leader by wide margin Crompton remains the undisputed market leader in Fans, despite severe

competition from both domestic players and cheap Chinese imports. It has builta reputation for offering reliable, durable and trouble-free Fans.

Exhibit 43: Market share in Fans (FY11-FY16E)

Source: Industry, MOSL,

Ceiling fans, 70%

Pedestral/Desk fans, 20%

Fresh Air, 5%

Cooler Fans, 2% Industrial, 2%

26% 24% 25% 27% 28% 27%

14% 15% 14% 14% 14% 11%

14% 15% 15% 15% 15% 16%

15% 15% 15% 18% 18% 17%

31% 31% 32% 26% 25% 29%

FY11 FY12 FY13 FY14 FY15 FY16

CG Bajaj Elec Havells Orient Others

June 2016 27


Exhibit 44: Market share in Fans (FY16)


Focus on energy efficiency increasing; EESL takes lead by distributing BEE 5-star-rated fans Energy Efficiency Services Limited (EESL) is implementing the government’s

“National Energy Efficient Fan” program. It is procuring BEE 5-star-rated Fans(50W) with a replacement warranty of 2.5 years and intends to replace 160mFans till FY19.

EESL is able to procure 5-star-rated Fans at INR1,100-1,200/unit, though theusual market price of similar Fans is INR1,800-1,900/unit. The government hasput a cap of two fans per household under this program.

Usage of 50W BEE 5-star-rated Ceiling Fans distributed under the programwould reduce the average consumer’s electricity bills by INR700-730/year. Thecost of the Fans would be recovered in less than two years. These Fans are 30%more energy efficient than the usual 75-80W Conventional Fans.

EESL has launched the scheme in Vijayawada, where it is providing two energy-efficient Fans to each consumer at an equated monthly installment (EMI) ofINR60/fan. The EMI would be added to the consumers’ electricity bills for twoyears. The consumer can also purchase the Fan by paying INR1,250 upfront.Consumers can participate in the program by providing copies of the latestelectricity bill and residence proof at the designated distribution center.

EESL is procuring the Fans via bulk tendering from leading manufacturers suchas Crompton, Orient, Usha and Bajaj Electricals. The Fans are provided toconsumers through the state distribution company or EESL outlets.

Crompton Greaves, 27%

Bajaj Electricals, 11%

Havells, 16%

Orient fans, 17%

Others, 29%

EESL is able to procure 5-star-rated Fans at INR1,100-

1,200/unit, though the usual market price of

similar Fans is INR1,800-1,900/unit.

June 2016 28


Exhibit 45: Comparison – normal Ceiling Fan v/s BEE 5-star-rated Fan v/s BLDC motor Fan

Source: MOSL, Bijllee Bachao Note: Super-efficient fans have BLDC motors

Major Fan manufacturers are launching Fans with brushless direct current(BLDC) motors that use just 50% of the energy used by regular Fans. While BLDCFans consume 50% of the electricity consumed normal Fans, they also cost~INR1,500 more. The typical payback for a BLDC Fan is ~1 year. Orient launchedBLDC Fans priced at INR4,800/unit last year. Others including Crompton are alsolooking to launch Fans in this segment.

Our channel checks indicate that while a 5-star-rated Fan saves 35-40% powercost, its air circulation is 200-210 cubic meters/minute against a standard Fan’s230-240 cubic meters/minute.

June 2016 29


Lighting – LED movement underway Expect 13% CAGR over CY15-18, driven by strong jump in LED sales

Government’s UJALA programme drives switch of ICL/FTL’s to LEDs’ Governments’ bulk procurement programme targets to replace 770m ICL’s and 35m

streetlights by FY19

Lighting sales to grow 13% CAGR in FY16-19e; LEDs’ replace traditional lamps The Prime Minister, Mr Narendra Modi launched the “National Program for LED-

based Home and Street Lighting” with the aim to replace incandescent lamps(ICLs) with light-emitting diodes (LEDs) for residential and street lighting. Theoriginal aim was to install LED lamps for household and street lighting in 100cities by March 2016.

The Power Minister, Mr Piyush Goyal has said that the aim is to replace 770mICLs and 35m street lights with LEDs by FY19 under the government’s demand-side management initiatives.

This program has recently been named as “UJALA” or “Unnat Jyoti byAffordable LEDs for All”. UJALA is successfully running across 12 states –Rajasthan, Maharashtra, Karnataka, Kerala, Uttar Pradesh, Himachal Pradesh,Delhi, Andhra Pradesh, Puducherry, Jharkhand, Bihar and Uttarakhand.

The LED market, which stood at INR5b in CY10, is expected to jump to INR115bby CY17, driven by the government’s initiatives and would form 45-50% of theoverall lighting market v/s 6% in CY10 and 15-20% currently.

The Indian lighting market has grown at 17% CAGR over CY10-14 and is set togrow at 13% CAGR over CY15-18, driven by a strong jump in LED sales.

Exhibit 46: India lighting industry growth (CY08-18E)

Source: Industry, MOSLe

Exhibit 47: Lighting market by source Source type % of total GLS/FTL/CFL 70-75%LED 15-20%Others 10-15%

65,

670

71,

670

84,

500

101

,400

117

,190

135

,040

160

,010

190

,247

228

,532

249

,299

262

,165

15%

9%

18%

20%

16%

15%

18%

19%

20%

9% 5%

CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15E CY16E CY17E CY18E

Lighting market(INRm) YoY(%)

Mr Piyush Goyal aims to replace 770m ICLs and 35m

street lights with LEDs by FY19 under the

government’s demand-side management initiatives.

June 2016 30


Switch from traditional lamps to LEDs to drive growth Growth in the lighting industry would be driven by a sharp jump in LED sales.

The LED market, which stood at INR5b in CY10, is expected to jump to INR113bby CY18, driven by the government’s initiatives. LEDs would form 45-50% of theoverall lighting market in CY18 v/s 6% in CY10 and 15-20% currently. We expectthe overall lighting market to grow at a CAGR of 13% over CY16-18 to INR262b.

Replacement of incandescent lamps (ICLs) and compact fluorescent lamps (CFLs)with LEDs makes economic sense, as LEDs have a longer life (50,000 hours v/s10,000 hours for CFLs and 1,500 hours for ICLs), are more energy efficient (80-100 lumens/watt v/s 50 lumens for CFLs and 13-15 lumens for ICLs), and have apayback period of 2-2.5 years vs. CFL’s.

The key driver of increased usage of LEDs over the next few years would be thegovernment’s push to replace street lighting (via municipalities) and residentiallighting (via state DISCOMs) to achieve energy efficiency and savings. There are~27m street lights in India, which the government targets to replace by FY19. Ithas banned the sale of 100W ICLs and intends to ban 60W and 40W ICLs byCY17. This along with a further fall in LED prices (already down to INR200 fromINR1,000-1,200 earlier) would fuel a large scale switchover to LEDs. We alsoexpect commercial establishments (retail outlets/offices/shops) to increasinglyopt for LED down-lights instead of the less efficient FTLs and CFLs, especially asthe price gap between LED and CFL down-lights has narrowed significantly.

Exhibit 48: LED sales over CY13-18E

Source: ELCOMMA, MOSLe

New players have entered the market (Eveready, Syska LED, Oreva), sensing thelarge opportunity in LEDs over the next few years. As seen in the CFL segment,we expect the industry to consolidate after the initial euphoria. With thegovernment’s thrust on replacing ICLs with CFLs, the number of CFLmanufacturers in India doubled from 30 in 2009 to 60 currently. These 60 CFLmanufacturers have a cumulative capacity of 1b units per year.

19,250 33,950

61,799

95,023 110,150 113,923

76% 82%

54%

16% 3%

CY13A CY14A CY15E CY16E CY17E CY18E

LED Sales(INR m) YoY (%)

Government targets to replace~27m street lights in

India by FY19

June 2016 31


Exhibit 49: Cost comparison – ICL v/s CFL v/s LED Description Units ICL CFL LED Life Span hours 1,500 10,000 50,000 Wattage watts 60 14 6 Power consumed per hour Kilowatt-hour (kWh) 0.06 0.014 0.006 Cost of usage for one hour @Rs 6 per kWh rupees 0.36 0.084 0.036 Cost of usage for 50,000 hours rupees 18000 4200 1800 Bulbs needed for 50,000 hours of running no of bulbs 33 5 1 Bulb Cost rupees 10 120 300 Cost of replacement rupees 330 600 0 Total 50000 hour lighting cost rupees 18330 4800 2100 Ratio of cost ratio 8.7 2.3 1.0

Exhibit 50: LED usage by end market


The “UJALA” programme aims to replace ICLs with LEDs for residential andstreet lighting. According to ELCOMA, 725m ICLs were sold in CY14 (780m inCY13). Replacement of these ICLs with LEDs would help save 50b units of powerand INR25b in costs.

General Lighting, 60%

TV/ Mobile,

25%

Automobiles, 5%

Others, 10%

June 2016 32


Exhibit 51: State-wise sale of ICLs State M units Andhra Pradesh 68 Assam 9 Bihar 62 Chhattisgarh 18 Delhi 51 Gujarat 42 Haryana 19 HP 4 J & K 6 Jharkhand 16 Karnataka 43 Kerala 21 Maharashtra 93 Manipur 1 Meghalaya 1 MP 36 Nagaland 1 Odisha 12 Punjab 18 Rajasthan 26 Tamil Nadu 51 Tripura 2 UP 82 Uttrakhand 7 WB 62 Other states 7 Total 758

Source: EESL, ELCOMA

Energy Efficiency Services Limited (EESL) has also initiated the street lightreplacement program in various municipal corporations across the country.India has 27.5m streetlights, which could be replaced with LEDs at a total cost ofINR177b. Each fixture is likely to cost INR6,500 against the usual INR8,000 onbulk procurement by EESL.

Market share by player The top five players in the industry have a 51% share, with Philips being far

ahead of its peers. To tap into the LED opportunity, new players have entered the market

(Eveready, Syska LED, Oreva).

June 2016 33


Exhibit 52: Market share in the Indian lighting industry


Exhibit 53: Market share in the Indian lighting market in FY16

0%

25%

50%

75%

100%


Bajaj Havells CG Surya Phillips Others

Bajaj Electricals,

6%

Havells, 4%

Crompton, 6%

Surya Roshni, 8%

Philips, 25%

Others, 52%

June 2016 34


Different types of lamps – LEDs v/s CFLs v/s ICLs LEDs are more efficient and environment friendly

How does an LED bulb really work? A light-emitting diode (LED) is a sort of semiconductor. The movement of free electrons across a diode releases energy in the form of a photon (basic unit of light). An LED is heat sensitive; to ensure that heat moves away and does not damage the semiconductor, an aluminum heat sink plate is used to move heat away. The heat sink plate becomes part of the design of the bulb and from the heat sink plate, the heat moves into the air surrounding the bulb.

Exhibit 54: LED bulb

An LED bulb has four key components: 1. LED chip/module: LED chips come in a wide range of performance standards.

High performance lamps use CREE or OSRAM brand chips. The chip usuallyconstitutes 30% of the lamp’s cost.

2. LED driver: The second key component is the power system, commonly referredto as the driver. It is the limiting factor in the lamp’s longevity.

3. Heat sink: LEDs are temperature-sensitive; hence, a heat sink is required in anLED bulb. Most products use an aluminum alloy heat sink for its cost efficiency.

4. Printed circuit board: The PCB connects the chip to the heat sink. The materialused for the PCB and its design are important. A PCB with low thermalconductivity results in a hot lamp. Metal and ceramic core PCBs have good heattransfer coefficient, but most manufacturers choose fiberglass to save money.

Working of an incandescent lamp Conventional light bulbs have two metal contacts, which connect to the ends of an electrical circuit. The metal contacts are attached to two stiff wires, which are attached to a thin metal filament. As electric current flows from one contact to the other through the filament, it gets heated. When heated to ~4,000 degree Fahrenheit (2,200 degree Celsius), the bulb emits a good deal of light. However, only 10% of the energy is converted to light – the remaining goes into heat generation.

The chip constitutes 30% of the LED lamp’s cost.

http://science.howstuffworks.com/electricity.htm

http://science.howstuffworks.com/light.htm

June 2016 35


Exhibit 55: Incandescent bulb

Source: Industry,

Working of a compact fluorescent lamp (CFL)Compact fluorescent lamps (CFLs) are designed to replace incandescent lamps (ICLs). A CFL uses a tube, which is curved or folded to fit into the space of an ICL, with a compact electronic ballast at the base. The tube contains argon and mercury vapor. When electric current passes through the vaporous mixture, it excites the gas molecules and produces ultraviolet light. The ultraviolet light, in turn, stimulates a fluorescent coating painted on the inside of the tube. As this coating absorbs energy, it emits visible light. CFLs are more energy efficient than ICLs.

Exhibit 56: Compact fluorescent lamp


http://en.wikipedia.org/wiki/Fluorescent_lamp

http://en.wikipedia.org/wiki/Incandescent_light_bulb

http://en.wikipedia.org/wiki/Electronic_ballast

June 2016 36


Pumps – weak industrial capex may constrain growth Government promoting star-rated pumps; move towards energy efficiency

Weak industrial capex a dampener on pump sector growth – accounts for 54% ofindustry sales

Governments’ bulk procurement programme targets to replace 20m grid connectedpumps with energy efficient pumps by FY19

Pump sales to grow 8% CAGR in FY16-19e; solar pumps a non starter There are over 800 players in the Indian Pumps industry, with most in the MSME

category. Centrifugal Pumps constitute 95% of the Pumps sold in the country. The Indian Pumps industry has grown at 6% CAGR over FY11-15 to INR85b, with

2m pumps sold each year. Weak monsoons in the last two years led to a declinein the sale of Agricultural Pumps (27% of market); with above average monsoonexpectations for FY17, we expect demand to pick up.

We expect the industry growth to remain subdued at 7-8% over the next 2-3years on weak industrial capex (46% of the end market).

Exhibit 57: Indian Pumps market (INR m) and YoY growth (%)


The Industrial segment constitutes 46% of the Pumps sold in India. Pumps foragricultural use account for 27% of the total Pumps sold.

Exhibit 58: End-market-wise usage of Pumps

Source: Industry, MOSLe

72 76 80 85 92 99 107 116

8%

6% 6% 6%

8% 8% 8% 8%

FY12 FY13 FY14 FY15 FY16 FY17e FY18e FY19e

Pumps(INRm) YoY(%)

Agriculture, 27%

Building Services, 19% Water and Waste

water, 17%

Power Generation, 12%

O&G, 8%

Metal and Mining, 4%

Others, 13%

Industry growth to remain subdued at 7-8% over the

next 2-3 years on weak industrial capex (46% of the

end market)

June 2016 37


Our views on the key end markets for Pumps over the next few years: Agriculture: Demand is subdued following two years of weak monsoon. Hopes

of an above average monsoon in CY16 should provide a boost to AgriculturalPumps. ABB and KSB Pumps are now targeting Solar Power Pump Sets (KSBlaunched in July 2015). EESL wants to replace all existing 20m AgriculturalPumps with Solar Pumps.

Oil & Gas: Demand has been subdued in the last few years. However, with newrefineries likely to come up, demand should revive.

Power Generation: Boiler Feed Pumps are used in power plants. Due to theslump in power generation orders, the market is subdued. Supercritical Pumpsshould witness growth, but these are imported. Fertilizers: New fertilizer plantsare being planned. This should boost demand for Pumps.

Water/Wastewater: Increased government spending on urban infrastructureand 100 smart cities, and the Namami Ganga Program should give a boost to theindustry.

Pulp/Steel: We expect both these end markets to decline, though not muchfrom here.

Power consumption, reliability and service are key differentiating factors Power costs constitute 70% of the running cost of a Pump. There is a clear

preference for higher star-rated Pumps, which consume less power. The other key factors are reliability, service and zero downtime for the Pump.

Exhibit 59: Lifecycle costs for a Pump – power costs are the highest

Exhibit 60: Pump usage by type Description HP rating End market Residential/ Domestic pumps 0.25-20 Agriculture, Residential and Commercial buildings Industrial 2- 500 Across industries - Cement, Steel, Oil & Gas Pumps used for EPC projects 500HP and above Power plants, Irrigation and Municipal projects

Market share by player The Pumps market in India is fragmented, with only 56% of the market with the

organized players. The top-5 players control about 44% of the overall market. Kirloskar Brothers is the market leader in this segment because of its market

leadership in supply of Agricultural Pumps.

Power costs, 70% Pump, 15%

Maintaineince, 15%

June 2016 38


Exhibit 61: Market share by player in the Indian Pumps industry

Government plan to replace inefficient pumps via EESL; big demand driver for the industry Under the National Energy Efficient Agriculture Pumps Program, Energy

Efficiency Services Limited (EESL) intends to replace 20m grid connected pumpsets with BEE star-rated energy efficient agricultural pumps. These pumps willcome enabled with smart control panels and SIM cards, giving farmers theflexibility to remotely control them from their mobile phones.

This will result in energy savings for the DISCOMs, as farmers get electricityeither free or at a subsidized rate. EESL purchases these star-rated energy-efficient pumps via the competitive bidding route.

EESL replaces the old pumps with new energy-efficient ones free of cost andalso undertakes their repair and maintenance during the project duration. TheDISCOMs save some energy, which is then multiplied with the prevailing powerrates to monetize the same. This is then shared between the DISCOMs and EESL.

EESL targets to replace ~7m grid-connected pumps in Maharashtra, AndhraPradesh, Karnataka and Rajasthan in the next two years. The total energy saved,assuming most of the pumps replaced are 5HP pumps, is ~25%. The total energyconsumed in these four states through pumps is 60b units; hence, 15b units willbe saved. At the average power rate of INR4.5/unit, it implies annual savings ofINR60b. The cost of procurement of 7m pumps at INR30k/unit works out toINR200b-230b, which EESL can recover in 2-3 years.

The eventual aim is to replace 10m diesel power pumps with solar powerpumps. However, the cost of one solar pump is INR300k, which makes thiscurrently unfeasible for EESL.

Kirloskar Brothers, 12%

CRI, 11%

KSB Pumps, 8%

Crompton Greaves, 7%

Texmo, 6% Grundfos, 4%

WPIL, 3%

Others, 5%

Unorganized, 44%

Energy Efficiency Services Limited (EESL) intends to

replace 20m grid connected pump sets with BEE star-

rated energy efficient agricultural pumps.

EESL targets to replace ~7m grid-connected pumps in

Maharashtra, Andhra Pradesh, Karnataka and

Rajasthan in the next two years.

June 2016 39


Switchgear – safety paramount Share of unorganized segment declining

Weak industrial capex to weigh on industry growth Increasing focus on safety, durability and reliability reducing share of unorganized

segment in this product category

LV Switchgear sales to grow 7% CAGR in FY16-19e Switchgear is as an assembly of switching and interrupting devices, providing

control, metering, protection, and power regulating applications. Keycomponents include (a) switching and interrupting devices used for turning thepower on or off, (b) control devices used for checking and/or regulating the flowof electric current, (c) metering devices used for measuring the flow of electriccurrent, and (d) protective devices used to protect power service frominterruption and prevent/limit damage to equipment.

Exhibit 62: MCB constitutes 23% of the market share Types of LV switchgears Application

Air circuit breaker These are circuit protection devices with air as the insulating medium

MCCB These are circuit protection devices, whose current carrying components, mechanisms, and trip circuits are completely enclosed within a molded case of insulating material

Change over switches These are meant to move a circuit from one set of connections to another

Contractors and Relays Contactor is a type of relay that can handle high power required to directly drive an electric motor and a relay is an electrically operated switch, used where it is necessary to control a circuit by a low-power signal or where several circuits must be controlled by one signal.

MCB MCB is a small trip-switch operated by an overload and is used to protect an electric circuit, especially, in a domestic circuit as an alternative to a fuse.

Residual current devices Residual Current devices monitor residual current and switch off the circuit quickly if it rises to a preset level and can be broadly classified into earth leakage circuit breaker and residual current circuit breakers.

Distribution board It is a component of an electricity supply system, which divides an electrical power feed into subsidiary circuits, while providing a protective fuse or circuit breaker for each circuit in a common enclosure with a main switch.

Source: Industry Report, MOSL

Market overview and competitive intensity As of FY16, the LV switchgear market (residential and industrial) stood at an

estimated INR56b. We expect the market to grow at 7% CAGR over FY16-19 toINR70b. Muted growth in the segment is on account of factors like sluggishindustrial capex, muted investment cycle and slowdown in investments acrossinfrastructure power utilities projects.

In terms of region-wise demand, North India accounts for 34%, South India for29%, West India for 26% and East India for 11%.

The market for LV switchgears is highly competitive, with more than 40participants operating. The market is dominated by MNCs with domesticmanufacturing capacities. Imports, particularly those from China and Korea, areless prevalent in this industry.

Competition from unorganized market participants is restricted to a fewproducts like switching devices and distribution boards due to low technologyintensity. For the larger part of the market, the LV switchgear industry iscomprised of organized participants. L&T is the market leader, with 22% share.

Switchgear to have muted growth at 7% CAGR over FY16-19 to INR70b led by sluggish industrial capex, muted investment across

infrastructure power utilities projects

June 2016 40


Exhibit 63: Region-wise breakup of switchgear sales in India


L&T, Schneider Electric and ABB are the key players, with presence across allConsumer segments. Siemens has a strong presence in the Industrial (and PowerUtilities) segment, whereas companies like Havells, Legrand and Anchor have apresence primarily in the Residential and Commercial segments.

Market players catering to the Industrial segment have expanded their productportfolio to include Modular Switchgear Devices, increasing their reach tocapture the Residential market. Further, manufacturers of Wires & Cablescontinue to enter the market for Modular Switchgear Devices.

Exhibit 64: MCB constitutes 23% share of the overall Switchgear market


Exhibit 65: 55% of the demand is generated from Retail segment


Exhibit 66: Industry to grow at 6% CAGR over FY15-19


Exhibit 67: Market share by player in the switchgear market


North, 34%

South , 29%

East , 26%

West, 11%

MCB, 23

MCCB, 20

C&R, 20

ACB, 15

DB, 8 SD, 6

RCD, 4 Cos, 2 MPCB, 2

Retail , 55

Industrial, 28

Utilities, 17

46 47 52 56 58 61.5 65.3 70.2

2.2

10.6

7.7

3.6

6.0 6.2 7.5

2012 2013 2014 2015 2016 2017e 2018e 2019e

Industry Revenue (INR b) Growth YoY (%) L&T, 22

Schneider, 18

Siemens, 11 ABB, 10

Legrand, 10

Havells, 9

HPL, 5

C&S electric, 4

Indoasian, 4

BCH Electric, 2

Others, 5

June 2016 41


Key growth drivers for Switchgear industry Revival of Industrial segment: Growth in the LV Switchgear segment depends

primarily on revival of the Industrial segment, which accounts for 28% of LVSwitchgear demand. Government initiatives to address issues plaguing Industryand Infrastructure should benefit Manufacturing. Additionally, focus oninitiatives such as ‘Make in India’ is likely to further propel Manufacturing andIndustrial segment growth, whetting demand for LV Switchgear.

Growth in Residential segment: 55% of LV Switchgear demand comes from theRetail segment (primarily Residential and Commercial projects). Over the lastfew years demand from this segment has remained muted due to weak demandfor Residential and Commercial projects on weak economic activity. However,recent initiatives – allowing 100% foreign investment in Real Estate, tax benefitsfor foreign investors, focus on establishment of smart cities – should contributeto higher growth in the Residential segment over the next decade. Further,increasing urban population and growing household income are among themajor factors that influence demand for Residential Real Estate. Moreover,increasing construction in tier-II and tier-III cities and increasing awarenessamong end users for protective devices are expected to have a positive impacton the LV Switchgear market over the medium to long term.

T&D reforms and augmentation of Power Generation capacity: Thegovernment is planning significant investment in Power Distribution to increaseaccess to reliable power supply and reduce AT&C losses through schemes suchas Deendayal Upadhyaya Gram Jyoti Yojana and Restructured AcceleratedPower Development and Reform Program. Modernization of the existingnetwork will also boost demand for LV Switchgear. Besides, additionalgeneration capacity will increase the requirement for evacuation devices foradditional power, driving demand for LV Switchgear.

Increased demand from Renewable Energy segment: Government incentives,favorable foreign investment policy and vast untapped potential will driveRenewable Energy generation in India. The government plans an installedcapacity of 175GW for Renewable Energy by 2022, up from the current installedbase of 26GW. As a result, demand for LV Switchgear, especially for MCCB andMCB products, is expected to increase significantly.

55% of LV Switchgear demand comes from the

Retail segment (primarily Residential and Commercial

projects).

June 2016 42


Wires & Cables – revival in the offing Hardening of copper prices to buoy sales growth

FY16 industry sales hit by sharp decline in copper prices which offset the strongvolume growth

Growth to be driven by revival in demand from Real Estate segment

Wire and Cable sales to grow 8% CAGR in FY16-19e The Electrical Wires & Cables market in India is estimated at INR200b (FY16), of

which Low Tension Wires & Cables constitute ~40% (INR80b). Unorganized andregional market players account for ~30% of the Low Tension Electrical Wires &Cables market.

The Retail segment – primarily Domestic Electrical Wires – is the major end usersegment, where building strong brands and distribution reach is essential. TheRetail segment primarily caters to electrical contractors and builders, whoexecute electrical projects across Residential and Commercial segments.

Exhibit 68: Electrical Wires & Cables market at INR200b

Source: MOSL, Company

Growth to be driven by revival in demand from Real Estate segment We expect the Low Tension Electrical Wires & Cables market to grow at a CAGR

of 5% and reach INR100b by FY19. The Low Tension Electrical Wires & Cables market in India is primarily driven by

growth of the end-user segments – Residential/Commercial Real Estate,Industries, Utilities and Infrastructure.

The Low Tension Electrical Wires & Cables market has been witnessing subduedgrowth over the last few years due to unfavorable market sentiment, mutedinvestments, and weak macroeconomic environment. These trends haveespecially impacted the growth of Industry-driven Power Cables.

Though the Residential and Commercial segments have witnessed flat growth,increased awareness for safety and reliability has prompted healthy demand forDomestic Electrical Wires, especially Copper Wires.

To kickstart revival in capex activity, the government has initiated programs likeMake in India and Smart Cities, and is increasing infrastructure spending.Growth is likely to be moderate in the next two years, post which it shouldimprove, with fresh investments and better macroeconomic performance.

LT cables , 40%

HT Cables, 60%

Low Tension Electrical Wires & Cables market to grow at a CAGR of 5% and

reach INR100b by FY19.

June 2016 43


Exhibit 69: Domestic Wires & Cables industry FY12-19 (INR m)


Market share by players The Wires & Cables market in India is quite concentrated, with ~71% of the

market with organized players. The top-5 players control ~61% of the market. Polycab is the market leader in the Wires & Cables segment, with 24% market

share. Havells stands third, with 12% market share.

Exhibit 70: Polycab is the market leader, with 24% share

Source: Industry Report,MOSL

Key drivers and triggers Revival of Industrial segment: The government’s focus on “Make in India” and

increasing “ease of doing business” is likely to propel Manufacturing / Industrialgrowth.

Growth in Residential segment: Real Estate plays an important role in theIndian economy. With various reforms such as allowing 100% FDI, tax benefitsfor foreign investors, smart cities, and Atal Mission for Rejuvenation and UrbanTransformation, the segment is likely to grow at ~30% over the next decade. Therevised National Electrical Code, which emphasizes use of certified CopperElectric Wires, will ensure strong demand for Electrical Wires & Cables.

T&D reforms and augmentation of Power Generation capacity: To provideaccess to reliable power supply and to reduce technical and commercial losses,the government intends to increase investments at the Distribution levelthrough schemes such as Deendayal Upadhyaya Gram Jyoti Yojana andRestructured Accelerated Power Development and Reform Program. In addition,under the 13th Five-year Plan, the government intends to add ~100GW to meet

63 65 72 80 80 84 88

97

5%

3%

11% 11%

0%

5% 5%

10%

FY12 FY13 FY14 FY15 FY16 FY17e FY18e FY19e

Domestic Wires and Cables YoY Growth(%)

Polycab, 24

Finolex cables, 14

Havells, 12

RR kabel, 5

KEI, 6

Other organised, 10

Unorganised, 29 The Wires & Cables market

in India is quite concentrated, with ~71% of

the market with organized players. The top-5 players

control ~61% of the market.

June 2016 44


the ever-growing demand for power. This will require evacuation of power through additional investment in T&D infrastructure. Increased demand from Renewable Energy segment: Power generation from renewable sources is rising, with the share of Renewable Energy in India’s total energy mix rising from 7.8% in FY08 to 12.3% in FY15. Government incentives, favorable foreign investment policy, and vast untapped potential will drive Renewable Energy generation in India over the next few years.

June 2016 45


Consumer Appliances – new entrants aplenty Distribution a challenge

Slew of new players have entered the home and kitchen appliances segment over lastfew year

Building distribution network key challenge for new entrants Low penetration to drive growth in coming years

Consumer appliances sales to grow 15% CAGR in FY16-19e A clear trend in Consumer Appliances is increasing number of new entrants over

the past few years. These players intend to use their existing brand strength toincrease presence in this segment. Since most companies outsourcemanufacturing to Chinese vendors, entering this category is relatively easy.

With no or little R&D requirement and low capital investment, ConsumerAppliances offers an attractive market for Light Electricals players.

Exhibit 71: Consumer Appliances market growth FY11-16


Exhibit 72: Recently entered product categories by player Company Core Product New product categories Orient Electric Fans Consumer Appliances, Switchgear, Lighting Finolex Cables Lighting, Switches, Fans Anchor Switches Lighting, Switchgears, Fans, Wires and cable Eveready Batteries Lighting, Consumer Appliances Surya Roshni Lighting Fans, Consumer Durables V-Guard Voltage Stabilizers, Inverters Fans, Switchgears, Kitchen Appliances Crompton Greaves Fans, Lighting, Pumps Consumer Appliances, Air Cooler, Havells Switchgear, Lighting, Fans Consumer appliances, Coolers, Pumps Luminous Invertors Fans, Switches, Lighting, Switchgears Polycab Wires Fans, Lighting, Switches


Building distribution network key challenge for new entrants For most companies that have recently entered the Consumer Appliances

business, the challenge is to develop the appliance network since their existingelectricals dealer network is not suited for the same.

41 45

50 55

65 65

10% 10% 10%

18%

0%


Consumer Appliances Sales(INRm) YoY (%)

June 2016 46


Exhibit 73: Dealer-wise sale of products

Product category Electricals Store

Appliance Store

Multi Brand retail

E Commerce

Fans Y Y Y Y Lighting Y Y Y Y Switches Y N Y Y Pumps N Y N Y Cable and Wires Y N N Iron N N Y Y Mixer/Grinder N N Y Y Cookware N N Y Y Water Heater Y N Y Y


1. We estimate the industry would grow 15% CAGR over FY16-19e. Lowpenetration rates compared to other product categories, rising disposableincome and focus on aesthetics would drive this growth.

Exhibit 74: Low penetration of home/kitchen appliances to drive growth Description % penetration Fans 80% Water Heaters 10% Mixer - Grinder 35% Induction cooktop <2-3% TV 77% Fridge 33% Air Cooler 8-10%Washing machine 13% Air Conditioner 3-4%


Competitive intensity is high – Bajaj the undisputed market leader Bajaj Electricals is the clear market leader in Consumer Appliances. It has been

present in this market for over 75 years and has an extensive distribution reach. We highlight that this is an extremely competitive market, with a large number

of players, both Indian and multi-national.

Exhibit 75: Market share of players in Consumer Appliances segment (%)

0%

25%

50%

75%

100%

FY12 FY13 FY14 FY15 FY16

CG Orient Bajaj Havells Murphy Others

June 2016 47


Exhibit 76: Company wise presences across electrical and kitchen appliances Electric Appliances Kitchen Appliances

Name of company Fans Water Heaters Air Coolers Irons Mixer Grinders Toasters Havells Y Y Y Y Y Y Crompton Greaves Y Y Y Y Y Y Bajaj Electricals Y Y Y Y Y Y Khaitan Electricals Y Y Y Y Y Usha Y Y Y Y Y Y Orient Electricals Y Y Y Y Y Eveready Y TTK Prestige Y Y Y Philips Y Y Y Y Panasonic Y Y Y Y Inalsa Y Y Y Sunflame Y Y Y Y

Within water heaters (INR14-15b market), the market leader is Racold India witha ~25% market share. Crompton, Havells and Bajaj Electricals have 10-11% sharein this market. With just 10% penetration in this category, there is immensescope for growth of this segment over the coming years.

The Induction cooktop (INR15b market size), the market leader is TTK Prestigefollowed by Bajaj Electricals.

June 2016 48


Companies BSE Sensex: 26,626 S&P CNX: 8,170 June 2016

Companies

CG Electricals 49

Havells India 53

June 2016 49


BSE SENSEX S&P CNX CMP: INR134 TP: INR155 (+17%) Buy 26,626 8,170

Stock Info Bloomberg CGCEL IN Equity Shares (m) 626.8 52-Week Range (INR) 150/126 M.Cap. (INR b) 82.7 M.Cap. (USD b) 1.2 Avg Val ( INR m) 429 Free float (%) 65.6

Financials Snapshot (INR b) Y/E MAR 2016 2017E 2018E Net Sales 18.1 41.2 47.3 EBITDA 2.1 4.6 5.6 Adj PAT 1.1 2.6 3.3 EPS (INR) 1.9 4.2 5.2 EPS Gr. (%) (70.3) 119.9 25.6 BV/Sh. (INR) 3.6 5.8 8.6 RoE (%) 52.1 88.3 73.0 RoCE (%) 28.1 34.2 38.5 Payout (%) - 40.0 40.0Valuations P/E (x) 69.5 31.6 25.2 P/BV (x) 36.2 22.7 15.4 EV/EBITDA (x) 43.1 19.2 15.5 Div Yield (%) - 1.2 1.6

Shareholding pattern (%)

As On May-16

Promoter 34.4

Public 65.6

Others 8.0

Stock Performance (1-year)

Geared for growth Set for strong innings over next few years

With its experienced management team, strong product portfolio, established brand and wide distribution network, we believe CROMPTON is well placed to capture growth opportunities in the light electricals industry.

It’s strategy in place for sustainable growth in the core business portfolio and also for penetrating into new business segments.

Quality growth with robust free cash flow generation of INR3-4b annually should ensure valuation premium. We initiate coverage with a Buy rating.

Well positioned to take advantage of upcoming opportunities: The light electricals industry is poised for robust double-digit growth over the coming few years, and we believe that CROMPTON is well positioned to take advantage of the upcoming opportunities. The company has an experienced management team, a strong product portfolio (market leader in key product categories), an established brand (leading Fan brand) and a wide distribution network (150,000+ touch points). This, coupled with the new five-dimensional strategy (developing a robust and wide product portfolio, creating brand excellence, an effective go-to-market approach, and developing robust operational and organizational excellence) devised by new management, should ensure higher-than-industry growth for the company, in our view.

Strategy in place for sustainable growth in core business portfolio and penetrating into new business segments: CROMPTON aims to sustain and grow the “core” segments of fans and pumps, while the lighting and appliances segments should record disproportionate growth over the coming few years, in our view. It’s strategy for the next few years, which aims at: a) sales growth to be at levels higher than the industry by gaining market share, b) profit growth to be in line or higher than sales growth and c) cash flow to be more than 100% of profit. The new management team has been with the company for over six months now, and the implementation of this strategy is already underway.

Quality growth with robust annual free cash flow generation of INR3-4b: According to management, CROMPTON’s intent is to generate cash flow of at least 100% of profits. This strategy should ensure quality growth for the company. We expect CROMPTON to record free cash flow generation of INR3-4b annually, led by strong operational cash flow generation of INR 3.5-4.5b and muted capex requirement of INR400-500m.

Initiating coverage with Buy: Given the company’s strong product portfolio, established brand, market leadership position, wide distribution network and robust ROCE profile (33%/39% in FY17/18), we believe it deserves to trade at around the same multiples as Havells (30x its FY18E EPS). We expect CROMPTON to register earnings growth of 16% over FY17-18E. We initiate coverage on the stock with a Buy rating, and value CROMPTON at 30x its FY18E EPS of INR5.2 at a target price of INR155.

128

133

138

143

148

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7-Ju

n-16

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n-16

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Crompton Gr. ConSensex Rebased

June 2016Initiating Coverage | Sector: Capital Goods

CG Consumer Electricals

June 2016 50


Operating Matrix

Operational Matrix Description FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E Segmental Rev. (INR m) Fans 9,122 11,138 12,848 14,782 16,112 18,529 21,309 24,505 Lighting 6,667 7,689 9,010 9,836 10,525 12,103 13,919 16,006 Pumps 5,019 5,869 5,790 6,585 7,112 7,965 8,921 9,992 Appliances 1,211 2,120 1,817 2,010 2,171 2,605 3,126 3,751

YoY Growth (%) Fans 0% 22% 15% 15% 9% 15% 15% 15% Lighting 17% 15% 17% 9% 7% 15% 15% 0% Pumps -4% 17% -1% 14% 8% 12% 12% 0%

Appliances 0% 75% -14% 11% 10% 20% 20% No.2 or No. 3 in

this

Net Sales 22,018 26,816 29,465 32,327 18,117 41,203 47,274 54,254 Growth (%) 10% 22% 10% 10% -44% 9% 15% 15%

RM Costs (%) 70.1% 69.7% 69.7% 69.7% Contribution Margins (%) 100.0% 100.0% 100.0% 100.0% 29.9% 30.3% 30.3% 30.3% EBITDA margin (%) 12.3% 10.7% 11.8% 12.8% 11.6% 11.2% 11.8% 12.2%

Net Working Capital (Days) 0.0 0.0 81.0 0.0 -7.5 -7.5 -11.5 -11.5Net Cash / (Debt), INR M - - - - -5,600 -4,293 -2,091 -387

E: MOSL Estimates

June 2016 51


Financials and Valuations

Income Statement (INR Million) Y/E March FY16 FY17E FY18E FY19E Total Revenues 18,117 41,203 47,274 54,254 Change (%) - 127.4 14.7 14.8 Raw Materials 12,702 28,724 32,957 37,823 Staff Cost 1,005 2,432 2,727 3,190 Other Expenses 2,315 5,417 6,007 6,648 EBITDA 2,095 4,630 5,584 6,594 % of Total Revenues 11.6 11.2 11.8 12.2 Depreciation 63 136 149 167 Other Income 2 19 25 49 Interest 318 660 550 440 PBT 1,716 3,853 4,910 6,036 Tax 525 1,233 1,620 1,992 Rate (%) 30.6 32.0 33.0 33.0 Adjusted PAT 1,191 2,620 3,290 4,044 Extra-ordinary Income (net) -139 0 0 0 Reported PAT 1,052 2,620 3,290 4,044 Change (%) -96.7 149.1 25.6 22.9 Adj. Consolidated PAT 1,052 2,620 3,290 4,044 Change (%) -96.7 149.1 25.6 22.9

Balance Sheet (INR Million) Y/E March FY16 FY17E FY18E FY19E Share Capital 1,254 1,254 1,254 1,254 Reserves 1,034 2,396 4,107 5,724 Net Worth 2,287 3,650 5,360 6,978 Loans 6,500 5,500 4,500 3,500 Deferred Tax Liability -43 -43 -43 -43Capital Employed 8,744 9,106 9,817 10,435 Gross Fixed Assets 2,030 2,330 2,630 2,930 Less: Depreciation 1,244 1,380 1,528 1,695 Net Fixed Assets 787 951 1,102 1,235 Capital WIP 0 0 0 0 Goodwill 7,794 7,794 7,794 7,794 Curr. Assets 7,907 9,255 11,125 13,116 Inventory 2,100 2,412 2,767 3,176 Debtors 4,165 4,784 4,971 5,705 Cash & Bank Balance 900 1,207 2,409 3,113 Loans & Advances 734 844 968 1,111 Other Assets 7 8 9 11 Current Liab. & Prov. 7,742 8,894 10,204 11,711 Current Liabilities 7,317 8,405 9,644 11,068 Provisions 425 488 560 643 Net Current Assets 164 361 921 1,405 Application of Funds 8,745 9,106 9,817 10,434 E: MOSL Estimates

June 2016 52


Financials and Valuations

Ratios Y/E March FY16 FY17E FY18E FY19E Basic (INR) Adj EPS 1.9 4.2 5.2 6.5 Cash EPS 2.0 4.4 5.5 6.7 Book Value 3.6 5.8 8.6 11.1 DPS 0.0 1.7 2.1 3.2 Payout (incl. Div. Tax.) 0.0 40.0 40.0 50.0

Valuation (x) P/E 71.0 32.3 25.7 20.9 Cash P/E 67.5 30.7 24.6 20.1 EV/EBITDA 43.1 19.2 15.5 12.9 EV/Sales 5.0 2.2 1.8 1.6 Price/Book Value 37.0 23.2 15.8 12.1 Dividend Yield (%) - 1.2 1.6 2.4

Profitability Ratios (%) RoE 52.1 88.3 73.0 65.6 RoCE 28.1 34.2 38.5 42.7

Turnover Ratios Debtors (Days) 42 42 38 38 Inventory (Days) 21 21 21 21 Creditors. (Days) 68 68 68 68 Asset Turnover (x) 2.1 4.5 4.8 5.2

Leverage Ratio Debt/Equity (x) 2.8 1.5 0.8 0.5

Cash Flow Statement (INR Million) Y/E March FY16 FY17E FY18E FY19E PBT before EO Items 1,716 3,853 4,910 6,036 Depreciation 63 136 149 167 Interest 318 660 550 440 Direct Taxes Paid -525 -1,233 -1,620 -1,992(Inc)/Dec in WC (229) 108 643 220 CF from Operations 1,342 3,524 4,631 4,871 EO Income 0 0 0 0 CF from Oper. Incl. EO Items 1,342 3,524 4,631 4,871 (Inc)/Dec in FA (1) (300) (300) (300)Free Cash Flow 1,342 3,224 4,331 4,571 Investment & Others 0 0 0 0 CF from Investments -1 -300 -300 -300(Inc)/Dec in Networth (18) 0 0 0 (Inc)/Dec in Debt -316 -1,000 -1,000 -1,000Interest Paid -318 -660 -550 -440Dividend Paid 0 -1,258 -1,579 -2,426Others 210 CF from Fin. Activity (442) (2,918) (3,129) (3,866) Inc/Dec of Cash 900 307 1,202 704 Add: Beginning Balance 1 900 1,207 2,409 Closing Balance 900 1,207 2,409 3,113 E: MOSL Estimates

June 2016 53


BSE SENSEX S&P CNX CMP: INR360 TP: INR400 (+11%) Buy 26,626 8,170

Stock Info Bloomberg HAVL IN Equity Shares (m) 623.9 M.Cap. (INR b)/(USD b) 224.6/3.3 52-Week Range (INR) 378/233 1, 6, 12 Rel. Per (%) -5/14/35Avg Val (INR m) 443 Free float (%) 38.4

Financials Snapshot (INR b) Y/E MAR 2016 2017E 2018E Net Sales 77.1 63.3 74.5 EBITDA 8.0 8.6 11.0 Adj PAT 4.8 6.3 7.8 Adj EPS (INR) 7.7 10.1 12.5 EPS Gr. (%) -6.6 31.0 23.4BV/Sh(INR) 41.0 45.2 50.7 RoE (%) 18.8 22.4 24.6 RoCE (%) 20.4 22.2 25.3 P/E (x) 46.6 35.6 28.9 P/BV (x) 8.8 8.0 7.1

Shareholding pattern (%)

As On Mar-16 Dec-15 May-16

Promoter 61.6 61.6 61.6

Public 4.2 4.1 2.6

Public 25.6 25.1 26.0

Others 8.6 9.1 9.8

Stock Performance (1-year)

Future-ready Consistent introduction of booster products to drive growth

Consistently launching new products at regular intervals: Over the last few years, HAVL has consistently added new segments / product lines, which have become ~INR5b revenue categories. Its new product portfolios (i) Appliances (FY15; INR2b), (ii) Reo (INR1b), (iii) Pumps (INR0.2b), and (iv) Air Coolers have the potential to generate annual revenue of INR5b+. Consistent introduction of booster categories would support long-term growth. New launches are likely to contribute INR10b in three years. Standard revenue would expand from INR2b in FY15 to INR10b in FY20 and Promtech revenue from INR350m to INR2.5b.

Expanding channel reach, cementing relationships with dealers: HAVL is India’s number-1 Consumer brand, but does not dominate any business segment (except MCBs). It is attempting to capture an increasing pie of dealers’ sales through product diversification, brand extensions, and product innovation. ‘Sampark 2015’ is an engagement program with retailers, which also aims at providing market intelligence. ‘Sampark Plus’ is a program to connect with 150k electricians for servicing. HAVL is pursuing the shop-in-shop concept, where host retailers designate a separate space to the Havells brand. With the launch of Reo switches, HAVL is expanding its distribution network to tier-2/3 towns, which it intends to leverage for most products. Galaxy stores contribute ~INR8.5b to revenue (20%+ of Consumer sales), and HAVL has ramped up from 270 outlets to 375 outlets in FY16.

Reinforcing premium positioning to address ‘lifestyle’ changes: HAVL has attempted to remain at the forefront of the evolution led by the lifestyle changes of the Indian consumer, whose aspirations and demands have shifted from basic electrical products to more evolved lifestyle products. In Automation Solutions, HAVL is working on adopting several innovations, including among others (a) Bluetooth-enabled Switches, Fans and Home Appliances, (b) Home Automation Solutions, (c) Smart Street Lights, and (d) Automatic Transfer Switches. HAVL has also introduced a mobile application, ‘M-Connect’ with an augmented reality feature that enables customers to visualize products at the place of installation. Its premium positioning reflects in its higher share in the Premium and Super-premium categories. While its market share in the overall Fans segment is 15%, its share in Premium/Super-premium Fans is 23-27%.

Valuation and view: We maintain Buy, with a price target of INR380 (30x FY18E EPS of INR12.6). We believe that the premium valuations are justified, given (i) its demonstrated track record of accelerating growth through new launches, (ii) robust dividend payout, and (iii) impressive consolidated return ratios.

200

250

300

350

400

Jun-

15

Sep-

15

Dec-

15

Mar

-16

Jun-

16

Havells IndiaSensex - Rebased

June 2016

Update | Sector: Capital Goods

Havells India

June 2016 54


Havells: Operating metrics

Havells Standalone (INR m) FY13 FY14 FY15 FY16 FY17E FY18E Revenues Swtichgear 10,781 12,192 12,790 12,861 14,147 16,976 Cables and wire 16,925 19,264 21,904 22,081 24,730 28,687 Consumer Durables 7,893 8,534 10,283 11,411 13,922 16,706 Lighting and Fixtures 6,652 7,207 7,410 8,017 9,019 10,642 Others - - - - - - Total 42,250 47,197 52,387 54,369 61,818 73,012

Revenue Growth (% YoY) Swtichgear 20.3 13.1 4.9 0.6 10.0 20.0 Cables and wire 6.2 13.8 13.7 0.8 12.0 16.0 Consumer Durables 38.0 8.1 20.5 11.0 22.0 20.0 Lighting and Fixtures 20.0 8.3 2.8 8.2 12.5 18.0 Total 16.9 11.7 11.0 3.8 13.7 18.1

EBIT Margin (%) Swtichgear 33.9 36.5 36.5 39.2 37.3 37.5 Cables and wire 9.1 11.0 12.1 14.2 12.8 12.8 Consumer Durables 25.1 27.0 25.1 25.2 26.0 26.0 Lighting and Fixtures 23.6 24.8 26.6 24.1 27.0 27.5 Standalone EBIT (%) 11.5 13.1 12.5 13.2 14.2 15.2

Consolidated EPS (INR/sh) Standalone 6.0 8.2 7.7 8.2 10.2 12.5 Sylvania 0.9 0.5 0.5 -0.5 0.0 0.0 Total 6.9 8.7 8.3 7.7 10.1 12.5


June 2016 55


Financials and valuations

Income Statement (Consolidated) (INR Million) Y/E March 2013 2014 2015 2016 2017E 2018E Net Sales 72,478 81,858 85,694 77,142 63,298 74,492 Change (%) 11.2 12.9 4.7 -10.0 -17.9 17.7 Raw Materials 41,628 46,398 48,292 43,832 37,890 44,606 Staff Cost 9,054 10,869 11,875 8,595 4,359 4,721 Other Expenses 15,051 17,167 18,316 16,713 12,414 14,190 EBITDA 6,745 7,425 7,211 8,002 8,636 10,974 % of Net Sales 9.3 9.1 8.4 10.4 13.6 14.7 Depreciation 1,097 1,155 1,387 1,267 1,231 1,340 Interest 1,232 741 640 449 50 25 Other Income 279 413 504 863 1,297 1,400 PBT 4,695 5,941 5,689 7,149 8,652 11,009 Tax 824 1,478 1,836 2,300 2,417 3,299 Rate (%) 17.5 24.9 32.3 32.2 27.9 30.0 Extra-ordinary Inc.(net) 1,944 0 0 7,240 0 0 Reported PAT 5,816 4,463 3,853 12,089 6,315 7,790 Change (%) 57.2 -23.3 -13.7 213.7 -47.8 23.4 Adjusted PAT 4,290 5,410 5,159 4,821 6,315 7,790 Change (%) 0.9 26.1 -4.6 -6.6 31.0 23.4

Balance Sheet (Consolidated) (INR Million) Y/E March 2013 2014 2015 2016 2017E 2018E Share Capital 624 624 622 625 625 625 Reserves 13,797 16,036 17,557 24,954 27,617 31,024 Net Worth 14,420 16,660 18,180 25,579 28,241 31,648 Loans 9,785 10,506 4,191 1,297 500 500 Deffered Tax Liability 480 517 434 744 0 0 Minority Interest 1 1 1 84 84 84 Capital Employed 25,102 27,687 22,808 27,704 28,826 32,233

Gross Fixed Assets 30,054 32,075 30,298 28,272 19,341 20,341 Less: Depreciation 18,503 20,451 18,469 17,486 7,053 8,393 Net Fixed Assets 11,551 11,624 11,829 10,786 12,288 11,948 Capital WIP 249 444 383 214 316 372 Goodwill 3,694 4,380 3,581 204 204 204

Curr. Assets 29,468 36,929 32,519 27,636 30,829 36,896 Inventory 13,184 14,934 13,663 8,371 8,438 9,310 Debtors 8,623 10,005 6,232 2,594 1,965 2,285 Cash & Bank Balance 4,736 8,819 7,775 14,652 17,492 22,135 Loans & Advances 2,052 2,114 1,723 1,656 1,798 1,940 Other Current Assets 874 1,057 3,127 363 1,137 1,227

Current Liab. & Prov. 19,860 25,690 25,504 13,710 14,811 17,188 Creditors 9,026 9,988 8,338 5,203 5,094 6,183 Other Liabilities 8,761 12,684 13,645 4,277 5,116 5,572 Provisions 2,073 3,018 3,521 4,230 4,602 5,433 Net Current Assets 9,608 11,239 7,015 13,926 16,018 19,709 Misc. Expenses 0 0 0 0 0 0 Application of Funds 25,102 27,687 22,808 27,704 28,826 32,233 E: MOSL Estimates

June 2016 56


Financials and valuations

Ratios Y/E March 2013 2014 2015 2016 2017E 2018E Basic (INR) 9.3 7.2 6.2 19.4 10.1 12.5 Adjusted EPS 6.9 8.7 8.3 7.7 10.1 12.5 Growth (%) 0.9 26.1 -4.7 -6.6 31.0 23.4 Cash EPS 8.6 10.5 10.5 9.7 12.1 14.6 Book Value 23.1 26.7 29.1 41.0 45.2 50.7 DPS 1.5 3.0 2.9 4.0 5.0 6.0 Payout (incl. Div. Tax.) 28.3 49.1 57.6 60.3 57.8 56.3 Valuation (x) P/Sales 1.3 1.5 1.8 1.5 P/E (standalone) 43.6 46.6 35.6 28.9 P/E (consolidated) 43.6 46.6 35.6 28.9 Cash P/E 34.3 36.9 29.8 24.6 EV/EBITDA 21.6 26.1 24.1 18.5 EV/Sales 1.8 2.7 3.3 2.7 Price/Book Value 12.4 8.8 8.0 7.1 Dividend Yield (%) 0.8 1.1 1.4 1.7 Profitability Ratios (%) RoE 29.7 32.5 28.4 18.8 22.4 24.6 RoCE 21.9 19.2 17.0 20.4 22.2 25.3 RoIC 31.8 31.3 31.4 43.3 51.1 66.4 Turnover Ratios Debtors (Days) 43 45 27 12 11 11 Inventory (Days) 66 67 58 40 49 46 Creditors. (Days) 45 45 36 25 29 30 Asset Turnover (x) 2.9 3.0 3.8 2.8 2.2 2.3 Leverage Ratio Debt/Equity (x) 0.7 0.6 0.2 0.1 0.0 0.0

Cash Flow Statement (INR Million) Y/E March 2013 2014 2015 2016 2017E 2018E PBT before EO Items 4,695 5,941 5,689 7,148 8,652 11,009 Add : Depreciation 1,097 1,155 1,387 1,267 1,231 1,340 Interest 1,644 741 639 447 130 105 Less : Direct Taxes Paid 824 1,891 1,836 2,300 2,417 3,299 (Inc)/Dec in WC -1,868 2,453 3,180 -33 748 951 CF from Operations 4,744 8,399 9,058 6,530 8,344 10,106 EO Income 1,944 0 0 7,240 0 0 CF from Oper. incl. EO Items 6,688 8,399 9,058 13,770 8,344 10,106 (Inc)/Dec in FA -1,950 -1,424 -1,531 -54 -2,836 -1,056Free Cash Flow 4,738 6,975 7,528 13,716 5,509 9,050 (Pur)/Sale of Investments 0 0 0 -2,575 2,575 0 CF from Investments -2,020 -2,109 -732 748 -261 -1,056(Inc)/Dec in Net Worth 67 3 -198 -1,458 -744 0 (Inc)/Dec in Debt -10 722 -6,315 -2,895 -797 0 Less : Interest Paid 1,232 741 640 365 50 25 Dividend Paid 1,095 2,190 2,219 2,922 3,653 4,383 CF from Fin. Activity -2,270 -2,206 -9,372 -7,640 -5,243 -4,408Inc/Dec of Cash 2,399 4,084 -1,045 6,878 2,840 4,642 Add: Beginning Balance 2,336 4,736 8,819 7,775 14,652 17,492 Closing Balance 4,735 8,820 7,774 14,653 17,493 22,135 E: MOSL Estimates

SECTOR UPDATES

SECTOR UPDATES

SECTOR UPDATES

THEMATIC GALLERY

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June 2016 58


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