‘Havells India Will Continue To Source Products From Lloyd’s Facilities’
Havells India bets on Lloyd’s consumer unit’s brand building and distribution reach.
Havells India Ltd. has acquired Lloyd Electric & Engineering Ltd.’s consumer durables division. The total outflow will be around Rs 1,600 crore, including cash and debt, Anil Rai Gupta, chairman and managing director, Havells India, told Bloomberg Quint over the phone. The company, which expects to complete the acquisition by March-end, will continue to source products from Lloyd’s facilities. Excerpts from the interview...
How will the entire transaction be financed by Havells India?
The financing will be done largely through internal accruals. After the divestment of Sylvania, we have a fairly healthy cash position on the balance sheet. We will augment that with a certain degree of debt. We are yet to finalise the exact quantum, but it could be Rs 500-700 crore of debt and balance through our internal cash accruals. We will not require any fresh equity or dilution during this process.
You mentioned Rs 1,600 crore in enterprise value and also that it will be a no-cash, no-debt deal. What will be the net cash outflow?
The gross outflow will be Rs 1,600 crore. As of now, we are not aware how much debt will be coming over. It will be ascertained at the closure of the deal around March 31. Once it is confirmed, that amount will be deducted. We believe, debt will be circa Rs 300-400 crore, but that’s something that we can only comment on when the numbers are finalised... But you should assume for all practical purposes, the company has to spend Rs 1,600 crore. Whether we give cash to them (Lloyd) or to lenders, I think it is the same thing as far as Havells is concerned.
What is the gross debt on Havells India’s balance sheet?
We don’t have any debt on the balance-sheet. We are net cash-positive company.
What is the kind of market share you expect from the acquisition of Lloyd’s consumer business?
Lloyd already has a volume market share of approximate 12-13 percent (in air conditioners). And they are among the top three players and have been growing the market share quite significantly over the last few years.
Lloyd’s consumer division has fairly thin operating margins as compared to Havells. What levers can you use to ensure that margin dilution doesn’t take place in FY18 when the acquisition comes into effect?
This is an additional business and Havells has already reached an optimum level of good margins in the electrical category. This business (Lloyd) also structurally has the ability to get into double-digit margins. I think over the last few years, Lloyd has grown quite aggressively through brand building and extensive distribution expansion and now they are at the cusp of utilising the strength of the brand and the product category. Over the next few years, we shall be able to expand their margin towards the industry levels.
Lloyd’s consumer unit is also into other segments like televisions, washing machines, etc. Will there be a significant opportunity to enter those categories?
Being a strong player in the air conditioner business, Lloyd is also expanding product categories so that it can utilise the relationship with the channel in the same manner and this is just a start for them. I think it will take a few years for them to be a larger player in the consumer electronics counter.
What kind of infrastructure will be part of the deal? Are you getting all the manufacturing facilities or will you be using existing manufacturing facilities?
Lloyd Electric will continue to retain the OEM (original equipment manufacturer) facilities and capabilities, and we would continue to source from Lloyd Electric in the future. But over a period of time, we will develop new manufacturing facilities for air conditioners and other products.
By when will you start manufacturing the products yourself?
We will have to evaluate -- it’s more of a make-and-buy kind of decision. But Havells has been more of a company that has been doing in-house manufacturing. Over the next few years, we will be developing more capabilities at our end.
The deal allows access to logos and trademark. Will you extend the brand beyond the existing Lloyd products?
Lloyd is an extremely strong brand. As far as utilising the same brand for more product categories in the same channel, it will always remain an option and we will continue to nurture the brand. We believe there will be more possibilities for future brand extensions.
What will be the effective date of acquisition and will the entire benefit come in only in FY18?
This is subject to certain regulatory approvals, especially by Competition Commission of India. Our endevour would be to capture the (benefit of the acquisition) from April 1, 2017.
You will be getting over Rs 1,800 crore in revenue and Rs 110 crore in profits. What is the plan to ensure that the margins are not dilutive in FY18?
That’s a journey that we have to do. We believe that it should ultimately be in line with the industry margins. There is no reason why it shouldn’t be there. Having said that, it is premature to comment that it can be achieved in FY18 itself. In a few years, we should be benchmarked with the best in the industry in terms of margins as well.