Dhirendra Tripathi Moneycontrol News
It didn’t take too long for Havells India Ltd to be back on the inorganic route. So what if the 2007 acquisition of Sylvania didn’t work exactly as planned? A year after it divested majority stake in its last major acquisition, Havells announced on February 19 it would buy consumer durables business of Lloyd group at an enterprise value of Rs. 1600 crores.
For a company that has done a remarkable job of transforming itself into a top-of-the-mind company behind LEDs and fans, it would seem like a natural extension – around Rs. 1400 crores in cash and no debt on the balance sheet lubricating the aspiration to walk once more into the inorganic garden.
Riding on the Indian Premier League platform over the last decade, Havells carved a place for itself in most of the products it makes -- cables, fans, switches and LEDs. It slowly got into appliances – mixers, juicers grinders, coffee makers and air fryers to name a few. Leveraging the brand to tap more consumer segments – read consumer durables – was natural. So it also got into grooming products with a clear plan to get into baby products and RO water systems.
Along the way, it wrote a new philosophy for itself – ‘deeper into homes’. Acquiring Lloyd would seem to go with that philosophy. But the fate of ‘deeper’ adventures is as much uncertain, if not more, as it was in the case of Sylvania. Few questions and initial signs point to that. Analysts who attended Havells’ conference call on February 20 weren’t exactly happy with the detail provided by the company.
While Havells should be shelling out anywhere between Rs. 1400 crores and Rs. 1600 crores for the Lloyd business, analysts and other stakeholders note it is not acquiring any manufacturing facility.
Havells management went for the Lloyd brand, now the third biggest in the air conditioner market, but it carries little premium in a market dominated by Korean and Japanese giants like LG, Samsung, Hitachi and OGeneral. In TVs again, it will be competing with LG, Samsung and Sony while it will have to contend with Whirlpool, Samsung, LG, Electrolux and Godrej in the refrigerator market.
Havells can’t hope to compete for the numero uno spot by riding on Lloyd in markets dominated by multinational companies. So far, Havells competed in products categories that were driven by distribution where dealer margins resulting in ‘dealer-push’ carry a lot of weight. It is now getting into brand-driven categories where the consumer is more eclectic, more informed and educated and more brand conscious and dealer-push carries limited weight.
The products that Havells will sell under Lloyd brand are also more expensive than what it has made and marketed so far and hence carry higher customer involvement which again leads to a more demanding customer.
Lloyd’s consumer business has an operating margin of 6%. Havells Chairman and Managing Director Anil Rai Gupta told Moneycontrol the company would aim to move that up but surely one is looking at a margin that is distinctly lower than Havells’ current 14%.
One must also remember that most of the products that Havells so far dealt with carry a warranty of 1 year. How many customers go to exchange an Led that has run out in less than a year? The business that it is now getting into with Lloyd has a warranty of 3 years for many of the products. Imagine the liability that would come with servicing those products.
One would hope the maker of ‘wires that don’t catch fire’ comes out unscathed.
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