Havells to Buy Lloyd’s Con­sumer Durables Busi­ness for ₹ 1,600 cr

Deal to help co gain foothold in home ap­pli­ances mkt; Lloyd to use funds to cut debt

The Economic Times - - Companies: Pursuit Of Profit - Our Bureau

Mum­bai: Havells In­dia agreed to ac­quire the con­sumer durables busi­ness of Lloyd Elec­tric & En­gi­neer­ing for .₹ 1,600 crore, giv­ing the elec­tri­cal prod­ucts maker a foothold in the $15-bil­lion mar­ket for home ap­pli­ances such as room ACs, wash­ing ma­chines and LED tele­vi­sions.

Havells signed an agree­ment with Lloyd Elec­tric and its pro­mot­ers to buy the Lloyd brand and the busi­ness that is en­gaged in sourc­ing, as­sem­bling, mar­ket­ing and dis­tri­bu­tion of con­sumer durables. The val­u­a­tion is on an en­ter­prise ba­sis, which typ­i­cally in­cludes the as­sump­tion of debt.

The deal is ex­pected to close in eight weeks. ET re­ported about the trans­ac­tion in its Fe­bru­ary 17 edi­tion.

Lloyd is the third-largest player in the room AC seg­ment after Voltas and LG. Over the past few years, it ex­panded its branded product port­fo­lio to in­clude air pu­ri­fiers, in­verter ACs, dry cool­ers, LED TVs, wash­ing ma­chines, chest freez­ers, re­frig­er­a­tors, room heaters and other small ap­pli­ances.

The pro forma rev­enue of the con­sumer durable arms, Lloyd Con­sumer, for the nine months through De­cem­ber 2016 was .₹ 1,242 crore and its op­er­at­ing earn­ings was .₹ 75 crore. Based on its run rate and past per­for­mance, it is es­ti­mated to make op­er­at­ing earn­ings of .₹ 110 crore on rev­enue of .₹ 1,850 crore for the fis­cal year through March 2017.

“Five years ago, we tried to en­ter into the AC seg­ment or- gan­i­cally but couldn't as the chan­nels are very dif­fer­ent from our ex­ist­ing chan­nels. But now, through ACs, we think we can grow the port­fo­lio,” Havells chair­man Anil Rai Gupta told ET.

Ever since Havells sold its 80% stake in in­ter­na­tional arm Havells Syl­va­nia Malta BV — one of the top four light­ing brands in Europe and Latin Amer­ica — for .₹ 1,070 crore to Shang­hai Feilo Acous­tics of China in De­cem­ber 2015, it has been scout­ing for brands that have strong busi­ness ad­ja­cen­cies with its ex­ist­ing prod­ucts in emerg­ing mar­kets, in­clud­ing In­dia.

Havells had cash and cash equiv­a­lents of .₹ 1,344 crore at the end of fis­cal 2016, mainly from the deal to sell its over­seas as­sets. It has an op­tion to sell the bal­ance stake in those busi­nesses. It had pre­vi­ously eval­u­ated buy­ing the con­sumer busi­ness of Cromp­ton Greaves as well as the Ken­star brand from Video­con.

was the first to re­port, on that Havells is in ad­vanced talks with Lloyd Elec­tric to ac­quire its con­sumer durables busi­ness for

1,200 -1,500 cr

The com­pany plans to fund the ac­qui­si­tion through a com­bi­na­tion of in­ter­nal ac­cru­als and debt. It is look­ing to raise .₹ 500-700 crore in debt fi­nanc­ing, mo­dal­i­ties of which will be de­cided over the next 45 days. Stan­dard Char­tered Bank and EY were the fi­nan­cial ad­vis­ers for the deal. AZB & Part­ners was the le­gal ad­viser. Buy­ing of the con­sumer busi­ness will bring long-term scal­a­bil­ity to Havells’ con­sumer busi­ness, which cur­rently ac­counts for about 21% of the to­tal stand­alone rev­enue. The deal will give it ac­cess to 10,000-plus di­rect and in­di­rect dealer net­works spread across In­dia, 485 au­tho­rised ser­vice cen­tres and 31 com­pany-owned ser­vice cen­tres, highly com­ple­men­tary for its ex­ist­ing con­sumer durables busi­ness.

For Lloyd, the con­sumer busi­ness has been its main­stay and ac­counted for 59% of to­tal rev­enue and 44% of op­er­at­ing profit in fis­cal 2016. Its other busi­ness di­vi­sions, heat ex­chang­ers and con­tract man­u­fac­tur­ing of air con­di­tion­ers, con­trib­ute 24% and 17% to to­tal sales, re­spec­tively.

“We will keep the Lloyd brand alive as it has a strong con­sumer con­nect. I think it is on the cusp of an ex­cit­ing jour­ney. We will ini­tially source from them and other ven­dors but plan to also de­velop our in­house man­u­fac­tur­ing ca­pa­bil­i­ties,” said Gupta.

Lloyd’s con­sumer busi­ness has been one of the fast grow­ing seg­ments for the com­pany. Its con­tri­bu­tion to to­tal rev­enue has in­creased from a mea­gre 20% in fis­cal 2012 to 59% in fis­cal 2016. Lloyd’s rev­enue grew at an an­nu­alised rate of 27.3% to .₹ 2,382 crore be­tween fis­cal 2017 and fis­cal 2016, driven mainly by the con­sumer seg­ment. It had to­tal debt of .₹ 816 crore at the end of fis­cal 2016, re­lated largely to the work­ing cap­i­tal re­quire­ment of the busi­ness. The con­sumer busi­ness had .₹ 300-400 crore of debt.

Lloyd plans to use the net pro­ceeds from the sale to bring down debt and in­vest in the re­main­ing busi­nesses.

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