Havells yesterday said it had completed the Rs 1,600-crore acquisition of Lloyd's consumer durable business, which would pave the way for its foray into that segment.
Throwing more light on the acquisition and the outlook for the company going forward Anil Rai Gupta, CMD, Havells India told CNBC-TV18 that the acquisition was financed through internal accruals and cash balance.
“We did not acquire any debt, it was a complete transfer of business. There is no debt associated with the business,” he said.
The company has acquired the consumer business infrastructure, people, distribution network including and not limited to absolute, exclusive ownership and right to all intellectual property of Brand Lloyd, logo, trademark, goodwill and attendant rights, said the company.
Talking about synergies, he said Lloyd’s is strong in consumer electronics and air conditioning segment/channels, which was not a strong area for Havells. So, while Lloyd’s will continue to focus on the consumer electronic space, Havells will continue to leverage that segment by adding more products categories. However, they will continue to remain as separate segments, said Gupta.
Investing in Lloyd’s brand was because there is an expectation of a good traction in the consumer durable space, which has a potential to grow, said Gupta, adding that the company’s ad spends as a percentage of sales would outspend the competition. Ad spends would continue to be at 3-3.5 percent, he said.
He said the acquisition of Lloyd’s consumer business will reflect in the consolidated results of the first quarter of FY18.
According to him, Lloyd’s acquisition will be earnings per share (EPS) accretive from the first year itself. Going forward, Havells would continue to look at enhancing the margins in consumer durable business through investments into manufacturing as well as distribution channels deepen further.
He also said the demonetisation impact has almost completely waned off.
Below is the verbatim transcript of the interview.
Latha: With this acquisition being completed, how does the debt stand in terms of debt equity ratio, also actually debt numbers, what would be the current cash as well on your books?
A: We bought the transaction as debt free and cash free. So, we do not acquire any debt. It has been a complete transfer of the business and there are no debt associated with the business.
Latha: Did you raise any debt for the acquisition or was it completely through internal cash accruals?
A: We have not raised any debt for completing the acquisition.
Sonia: One of the reasons that Lloyd was taken over was the strong distribution channel. Now that this acquisition has been completed, have you worked out how the synergies would work because there were concerns earlier about the overlap that we could see in distribution?
A: Lloyd’s strength has been in the consumer electronics channel and air conditioning channel which had not been a strength with the Havells channel. So, it will continue to increase its channel in the consumer electronic space and we will continue to leverage that channel by adding more product category. So, there will be limited synergies on the channel side, in fact they will continue to remain as separate channels.
Anuj: The other issue is on ad spends because post demonetisation we have seen a lot of consumer companies actually cut ad spends. Havells recently signed up with Amitabh Bachchan which I assume can’t be a step towards cutting ad spend. What is the next move here?
A: It will continue to remain at around 3-3.5 percent which was been in the past and actually the idea is that we are quite bullish about the future trends in the overall economy and the market is under penetrated. So, we believe that there is still quite a good growth potential available to grow and hence this investment in brand. I think we will continue to as a percentage of sales outspend the competition.
Latha: You say you are bullish about the dynamics of the sector, could you give us some numbers as to what kind of growth you are looking at with the two forces now combined?
A: I think we will continue to look at it separately. We will be announcing our results in a couple of days. We have grown well in the last year, we will continue to look at double digit growth this year as well. Post Lloyd, given the lower base as well as the under penetration in the air conditioning industry, we definitely expect a decent growth in the coming years.
Sonia: I have one accounting question though. Would this acquisition reflect in Q4 of FY17 or will we have to wait till Q1 of FY18?
A: It will start reflecting in Q1FY18. As we said, we have completed the acquisition today. So, from tomorrow it will start affecting the results and it will be shown in the consolidated results of the first quarter.
Anuj: A word on the overall margin picture and would you still say that the acquisition will be EPS accretive from year one itself?
A: Yes it would be and we will continue to look at opportunities to enhance the margins in the consumer durable business also -- the Lloyd part of the business. As we continue to invest in manufacturing as well as looking at in deepening the distribution channel, we will continue to look at possibilities of expanding the margins as well.
Anuj: Expanding the margins by 1-2 percent or substantially more?
A: It is difficult to say at this present moment. Growth will not be compromised, we will be looking at on both sides how to achieve decent growth for the business as well as how to expand the margins.
Latha: You recently entered the personal grooming space. Any new product categories or acquisition that Havells is looking at, is there anything on the cards in the near term?
A: We have already entered into personal grooming. We have already entered into solar. So, I think we have quite a bit at hand and I think we will be deepening our involvement in these categories for next few quarters and achieve growth from these categories.
Sonia: Has the demonetisation impact waned off completely as far as demand from real estate is concerned?
A: I think frankly demonetisation, the effects were there for a couple of months and things have started coming back in a decent way. It is almost forgotten frankly.
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