COMPANY ANALYSIS

HAVELLS INDIA LTD.

Submitted by:

Leena Kalani

Date: 22/07/2012

INDEX

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SR. NO. TOPIC PAGE NO.

1.

INDUSTRY ANALYSIS

Industry trends: Indian and Global perspectives, recent happenings 3

2. PEST Analysis: Political, economic, social and technical aspects related

to the industry 6

3. Competitor Analysis: Analyze pricing, quality, distribution and

partnerships of the nearest competitor of the company 7

4. SWOT Analysis: Strengths, weakness, opportunities and threats faced

by the industry 9

1.

COMPANY ANALYSIS

Company description 10

2. General information about the company: location of the

headquarters, year of founding,shareholding pattern, number of

employees, top management,

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3. Financial performance of the company: Sales, net profit, segment

wise performance of the past 1 year 12

4. SWOT Analysis: Strengths, weakness, opportunities and threats faced

by the company 15

5. Various strategies employed by the company 17

References 18

INDUSTRY ANALYSIS: INDIA ELECTRICAL EQUIPMENT INDUSTRY

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1. INDUSTRY TRENDS:

Indian Perspective:

The electrical equipment industry has diversified verticals catering a large audience with variety

of products ranging from electric fans to circuit protection devices, from modular switches to

home appliances, geysers, CFL lamps, motors, power capacitors, cables, conductors and power

generation systems.

The unfavorable economic conditions prevalent in India contributed by high inflation, credit

squeeze, high interest costs have been adversely impacting the Indian electrical equipment

industry. The industry is facing tough times due to the global economic turmoil thereby

registering a lower growth rate of 6.6 % in 2011- 2012 compared to 11.3 % in 2009-2010 and

13.7 % in 2010- 2011.(According to the Indian Electrical and Electronic Manufacturers’

Association).

IEEMA, has posted this deceleration in growth after rigorously analyzing the production and

sales data of its member companies that constitute 95 % of the sector.

The key inputs and raw material are especially imported in large quantities from China, Korea,

Germany and other European Union countries. The domestic inflation coupled with global

economic mayhem is causing the surge in the prices of electrical goods.

All the three power sectors: generation, transmission and distribution are facing several

challenges which need to be addressed by the government. There is an utter need to improve the

performance in power distribution sector utilities, and reducing the commercial and technical

losses.

Despite of the moderate growth of 9 % in the first half of FY’12, there was a decline in the

transmission line towers which have clocked a negative growth of 9.4 %. This indicates delays

in completion of orders due to various difficulties faced by the industry. Conductors have seen

revival and witnessed a growth of 2.9% in H1 FY’12 despite a negative growth of 4.1%

witnessed in Q1 FY’12. In the Transformer sector, Power Transformers have maintained growth

momentum by having a growth of 14.8% in H1 FY’12, well supported by exports. Order book

position of Power Transformers also looks healthy with major order growth visible for ‘above

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200 MVA’ category. However, growth of Distribution Transformers segment has slipped to (-)

2.8% in H1 FY’12 with almost three times rise in imports; mainly sourced from Hungary,

Germany and Croatia. Switchgear and Controlgear segment has witnessed a low growth of 2.5%

in H1 FY’12. There has been a good growth only in Miniature Circuit Breakers (MCBs) and Air

Circuit Breakers (ACBs) in the low voltage segment. While, there is stagnancy in growth in the

medium voltage segment, high and extra high voltage segment has witnessed a surge in demand

of about 20% due to increased supply to power transmission projects. Imports of high voltage

Switchgear products like fuses, breakers, isolators, surge arresters, etc. have seen a jump of more

than 50% in value terms during H1 FY’12.

Although, a huge growth of 96% in Control Cables, due to sustained demand from IPPs and

infrastructure sectors, have helped overall Cable sector to grow by 29%; demand for Power

Cables has been stagnant in terms of KM despite a moderate 8% growth in the HV Cable

segment. Industry believes that the tonnage usage of major raw materials like Copper,

Aluminium, etc. in overall Cable sector has been declining and has affected top line of the sector.

Data received from the industry suggests that the slowdown is getting intensified and would

register below 4 % growth in the third quarter of FY’12. Overall economic parameters are

showing a decline and the situation worsens in the global scenario thereby posing imminent

challenges ought to be resolved with the combined efforts of the government and the

manufacturers.

Global perspective:

The completion in this sector from the global players is extremely high and India is just a

marginal player in this sector. India constitutes only 1 % of electrical exports. The loophole lies

in not formulating a long term export driven strategy by the manufacturers in India. The capacity

has increased due to the government’s plan for adding additional capacities in power generation,

transmission and distribution sectors arising out of huge domestic demand of 7.8 % CAGR (As

per CEA).

Now, the industry has diversified with robust supply chain, technology and capacity to fulfill the

domestic needs. But India now needs to divert its attention towards exports. It loses out in the

global market only on the price front which is dominated by the Chinese market. Chinese players

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enjoy a significant position in exports because of the government subsidies extended to their

manufacturers.

Along with subsidies, the government in China offers soft term loans to the manufacturers.

Additionally, China has also entered into a free trade agreement with many countries thereby

enjoying duty free access in these countries. On the contrary, huge import costs of raw materials,

high inflation, and high interest costs are obstructing the growth of this sector in India.

RECENT HAPPENINGS:

The Arun Maira committee has suggested 14% import duty on power generation

equipment to strike a balance between protecting local manufacturers and the need to

import equipment to boost power production.

India now has adequate domestic capacity to fulfill the anticipated annual demand for power

generation capacity augmentation, which was not the case earlier. Therefore, the

recommendation of the Maira Committee to impose import duty on foreign power generation

equipment is a step in the right direction.

Significantly cheaper Chinese equipments and huge import costs of equipments in India is

already taking its toll on the industry. Therefore, it is imperative for the government not to

reduce the import duty further.

IEEMA has been promoting the ‘Made in India’ brand overseas.

Indian electrical industry is growing and becoming competitive given the diversification,

maturity and the technological edge it has gained so far. At the same time, India cannot

withstand the global competition from China and Korea that enjoy huge purchasing power and

subsidies from the government.

2. PEST ANALYSIS:

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POLITICAL:

The government needs to ensure availability of funds in the sector.

The industry also suffers the burden of cost disadvantage of 14 % due to many local taxes such

as VAT, entry tax / octroi; higher financing cost; nil or low customs duty project imports; lack

of quality infrastructure; dependence on foreign sources for critical raw material and

components, etc

Cold Rolled Grain Oriented (CRGO) electrical steel is a critical raw material for manufacturing

of transformers, which is fully imported as it is not manufactured in India. Currently, India

consumes about 2.5 lakh MT per annum of CRGO electrical steel and with the growth in

demand of transformation capacity the consumption is estimated to be 11.5 Lakh MT and 13.5

Lacs MT respectively during the 12th and the 13th plan period. Although SAD has been

removed on CRGO, its imports should be allowed at nil duty, till indigenous production is made

available. (Source: www.ieema.org)

The 12th plan envisages investment of $ 300bn and to sustain growth of 8-9 % the generation

capacity needs to be increased from 180 GW (currently) to 800 GW.

ECONOMICAL:

Imports of 765 kV transformers & reactors in 2011-12 were Rs. 1,229 crores; in the last quarter

(Q4) 2011-12, imports sharply increased by 125% (Rs. 687 crores) over the combined total of

the first three quarters (Rs. 542 crores).

amounting for an annual turnover of about Rs 1,10,000 crores. It amounts for about Rs. 20,000

crores of annual exports and about Rs. 32,000 crores of annual imports; it has a negative trade

balance which has been increasing in recent times.

The Rs 52,000-crore industry, which sells cables, switchgears, transformers and other large

electrical products, saw a major part of its growth come in the second half of 2011-2012, after

liquidity improved and companies resumed expansion plans.

SOCIAL:

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The industry, currently provides direct and indirect employment to 5 lakh and 10 lakh people

respectively and is expected to reach 35 lakh (15 lakh direct and 20 lakh indirect employment).

TECHNOLOGICAL:

There have been constant R&D efforts in this sector. For example:

Introduction of capacitors suited for renewable energy generation.

Development of high voltage (12000kv) power transmission system.

3. COMPETITOR ANALYSIS:

Havells Competition Matrix:

(Source: ICRA)

Increased urbanization has proven to be growth drivers for Havells tries to make it brand

presence felt in Tier II and III towns. Its established brand quotient and distribution network

gives it a competitive edge over other smaller companies.

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Havells has established a pan-India distribution network over the years, using which it has been

able to gain market share rapidly even for its relatively new products like modular switches,

CFLs, and electric fans. Its network compares well with thatof the largest electric appliance

company in India, Bajaj Electricals, which reaches out through 50,000 retail outlets.

Havells‘current valuations are at a discount to its closest peer - Crompton Greaves. Havells‘

valuations have been impacted by the significant loss reported by Sylvania till 2009-10. The

premium that Crompton Greaves enjoys can be explained by the company‘s large size, well-

known brand and presence in the high-growth power systems business.

Table 1.

Distribution Network of Havells versus peer companies:

(Source: ICRA Research Online)

Table 2.

Havells’ regional share and distribution network:

(Source: ICRA Research Online)

Currently, havells has a network of 4,300 dealers along with 35,000 retail outlets. The company

has a strong presence in the northern and eastern regions in India contributing 56% of sales.

To further leverage its presence across product segments, Havells has opened exclusive outlets

named ―"Havells Galaxy" in several cities across India. These stores, owned by Havells'

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dealers, display and undertake retail sales for the entire product range of the company. At

present, there are 80 Havells Galaxy stores across India and the company plans to raise the

number to 200 by March 2012.

Havells has maintained aggressive advertising campaign as its advertising expense to sales ratio

is higher than its competitors.

Table 3.

Advertising Spend of havells versus peers:

(Source: ICRA Research Online)

4. SWOT ANALYSIS OF THE INDIAN ELECTRICAL EQUIPMENT INDUSTRY:

STRENGTHS WEAKNESSES OPPORTUNITIES THREATS

Sector is

heterogeneous and

manufactures

variety of products.

Huge demand

caused the domestic

industry to double

or triple in some

cases.

It is now

diversified, mature

with robust supply

High import costs of

raw material.

High domestic

inflation.

Huge taxes levied by

the government.

Lack of proper

subsidies and

incentives.

Lack of research and

technological

advances.

India can enter into

free trade

agreements with

other country

countries.

Use of technology

and innovation can

help driving the

growth in this

sector.

Proper policy

formulation and

The major threat to

the Indian industry

is from the Chinese

and Korean markets

that provide cheaper

similar products.

The exports from

India constitute only

1 %.

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chain. reduction in taxes

will boost exports.

COMPANY ANALYSIS: HAVELLS INDIA LIMITED

1. COMPANY DESCRIPTION:

Havells India Limited is a $1.3 Billion leading Fast Moving Electrical Goods (FMEG) Company

and a major power distribution equipment manufacturer with a strong global footprint. It is one

of the largest electrical and power distribution equipment manufacturers engaged in selling entire

gamut of household, commercial and industrial electrical devices. Its products include industrial

and domestic circuit protection devices, cables and wires, motors, fans, power capacitors,

compact fluorescent lamps (CFLs), luminaries for domestic, commercial and industrial

applications and modular switches. Its brands include Havells, Crabtree, Sylvania, Concord,

Luminance, Linolite and SLI Lighting.

Havells is an attractive play on construction and consumer spending owning leading brands

across the consumer electrical space in India. After gaining leadership positions (among Top 4)

in all its 4 product segments (Switchgears, Cables & Wires, Consumer durables and Lighting

equipment), Havell has gained a strong foothold in Europe and Latin America as well, after the

acquisition of the lighting business of Sylvania, the No. 4 lighting brand in the world. A strong

distribution and marketing network in addition to aggressive brand building and portfolio

addition initiatives has transformed Havell into an electrical FMCG company, showing

consistent q/q growth over the last 36 quarters. Havell’s industry-leading growth, demonstrated

ability to continuously gain market share in addition to margin expansion, a strong turnaround in

Sylvania operations and a strong pipeline of new product launches makes one bullish on the

company prospects.

2. GENERAL INFORMATION:

Founded in 1958, The Company was originally incorporatd as Havell's India in 1971.

Qimat Rai Gupta is the founder, Chairman and Managing Director of Havells India Ltd. In the

summer of 1958, Qimat Rai left his education midway and entered into the electric wholesale

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market in Old Delhi. He set up a small trading company selling fixtures and electric cable to

businesses in and around Delhi. With an investment of Rs. 10000, he started Guptajee. He also

created QRG Enterprises as one of the players in the power distribution equipment industry.

Headquarters: Noida, India

Number of Employees: 5000

Vision

"To be a globally recognized corporation that provides best electrical & lighting solutions, delivered by best-in-class people."

Mission

To achieve our vision through fairness, business ethics, global reach, technological expertise, building long term relationships with all our associates, customers, partners, and employees

Values

Customer Delight : A commitment to surpassing our customer expectations.Leadership by example. A commitment to set standards in our business and transactions based on mutual trust.Integrity and Transparency : A commitment to be ethical, sincere and open in our dealings.Pursuit of Excellence : A commitment to strive relentlessly, to constantly improve ourselves, our teams, our services and products so as to become the best in class.

TOP MANAGEMENT:

Name DesignationQimat Rai Gupta Chairman & Managing DirectorSurjit Gupta DirectorS B Mathur DirectorA P Gandhi DirectorV K Chopra DirectorName DesignationAnil Gupta Joint Managing DirectorRajesh Gupta Director (Finance)S K Tuteja DirectorNiten Malhan DirectorAdarsh Kishore Director

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Shareholders •Promoters hold 61.6%, single business focus.

•Key institutional investors includes: Warburg Pincus Sequoia capital

3. FINANCIAL PERFORMANCE:

The net revenue grew consistently during the current quarter, led by growth in each segment.

The operating profit margin (EBIDTA) in Q4FY12 improved on y-o-y basis and is line with

margins of Q3FY12, without the higher cost of product warranties and after sales services and

provisions for dealer schemes, made during the current quarter. Yearly margins are better

reflection of operating performance.

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Improving margins through higher sales realization and better cost management.

Low Debt, high assets turnover ratio.

In million ruppees

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SEGMENT WISE PERFORMANCE:

Havells drive better margins during the current fiscal. Noticeable improvement can be seen in

cable and lighting & fixture division.

Segment wise Performance

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SWOT ANALYSIS:

STRENGTHS

High regard and strong relationship with dealers/distributors, nurturing over 4 decades.

Leading brand in the electrical consumer products industry.

Aggressive brand building via media, premium positioned

Sets up India`s First New Generation CMH Lamp Plant at Neemrana in the year 2010

First Company to get the ISI Certification for complete range of CFLs in the year 2006

Introduction of additional attributes like low power consumption and electric shock prevention

WEAKNESSES

high operating leverage

higher import costs of raw materials.

Slowdown in global markets will

affect more adversely now after

Sylvaniaacquisition.

OPPORTUNITIES

Increased penetration of electricity in

rural areas

New product launches

Changing lifestyles and disposable

incomes

Marking its presence in other

countries.

THREATS

Intense competition

Keeping pace with changing

technology

Environmental threat posed by use of

mercury in CFLs

Significant warranty returns in CFL

business

Fragmented nature of luminaire

business

Increasing copper prices, which can

exert pressure on margins

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5. STRATEGIES:

a) Hierarchical:

Apart from the new manufacturing setups, Havells made several acquisitions in its areas of

operations to expand its capacities as well as to augment its distribution network and brand

portfolio.

The Sylvania acquisition is the largest by Havells so far. With the acquisition of Sylvania, the

share of the lighting division in the total revenues of Havells on a consolidated basis is much

higher at around 60% as compared with the 14% on a standalone basis.

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Havells had acquired Sylvania’s global business (except for brand rights in North Amercia,

Mexico, Australia and New Zealand) in 2007 from various private equity players for an EV of

227m Euros. The key rationale behind the acquisition was to acquire Sylania’s operations and

distribution network in Europe and leverage Sylvania’s brand to enter other emerging markets.

After Havells paid an implied valuation for Sylvania, its operations deteriorated owing to the

global economic slowdown, and Havells had to carry out a two-stage restructuring program to

turn Sylvania around.

Acquisition of Standard Electricals to add further to bottomline

Incorporated in the year 1958, Standard Electricals is a well established brand and amongst the

top five brands in domestic switchgear market in India. The rationale for acquisition is to cater

all the price segments in the domestic switchgear market with multi brand approach.

b) Business Division:

Addition of new domestic appliances to drive consumer durable segment growth

Havells’ strong historical growth has been on the back of successful introduction and quick scale-up of new product lines across its product categories. With the cables & wires and switchgear segment stabilising, Havells aims to maintain steady growth in these segments near to the market growth rate. It has recently entered the electric water heater segment, an estimated Rs8bn market where it believes it can generate a turnover of Rs600mn in FY12. It also has plans to enter theelectric iron and the AC segments, but has not finalised plans for the same.

c) Regional:

Launch of Sylvania products in India to drive lighting segment growth

Havells India has plans to launch Sylvania lighting products in India to capitalise on its

marketing capabilities and the premium image of Sylvania products in India. These products are

expected to be placed in the premium category of the lighting segment and should fetch higher

margins and also aid in accelerating revenues.

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REFERENCES:

www.havells.com

www.ieema.org

ICRA online Journals

Havells India limited Analysis: J.P Morgan

Quant Havells Initiating Coverage Report- Quant, Mumbai.

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