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
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.