Concern over Lloyd numbers, stock tanks

NEW DELHI: Did the Lloyd Electric & Engineering management misguide its investors? In its December earnings call, the management gave a very strong outlook on its consumer business, which comprises of AC, washing machines and LED TVs. It is, therefore, that the sale of this business at a dirt cheap valuation to Havells India surprised investors, who rushed to dump Lloyd's shares.The stock tanked 16.8% on Monday .
The slump sale, if concluded, would be at `1,550 crore, at less than one-time sales, for a company whose business was growing by nearly 50%.

What is perceived by the Street as a governance issue is the discrepancy in the profit figures of the consumer business provided by the two companies. In its latest results, Lloyd reported consumer business EBIT of `87.5 crore for the first nine months of FY17.

However, Havells said that the EBIDTA of the business was just over `75 crore for the same period.This raises questions over the authenticity of Lloyd's financial reporting since the EBIT of the consumer business should be even less than `70 crore after deducting depreciation.

In a conference call with analysts, Havells stated that the numbers it mentioned in the release were the ones provided by the Lloyd's management and it is yet to do the due diligence.

“We will address all these issues on the call on Tuesday ,“ said Anita Kakar, company secretary , Lloyd's Electric & Engineering.

Despite the sharp correction, investors should consider exiting Lloyd's counter. The fair valuation of the company after the deal should be 20% lower. After the sale, the company will be left with over `670 crore after repayment of `650 crore of debt.

At a 60% discount according to industry practice, the cash on books can be valued at `270 crore. The remaining business is expected to be worth `620 crore, giving a multiple of eight on FY17E earnings. This would value the company at `880 crore as against its mcap of `1,100 crore on Monday's closing.