COMPANY ANALYSIS

HAVELLS INDIA LTD.

Submitted by: Leena Kalani Date: 22/07/2012

INDEX
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SR. NO. INDUSTRY ANALYSIS 1. 2.

TOPIC

PAGE NO.

Industry trends: Indian and Global perspectives, recent happenings PEST Analysis: Political, economic, social and technical aspects related to the industry

3.

Competitor Analysis: Analyze pricing, quality, distribution and partnerships of the nearest competitor of the company

4.

SWOT Analysis: Strengths, weakness, opportunities and threats faced by the industry

COMPANY ANALYSIS 1. 2.
Company description 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

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4.

SWOT Analysis: Strengths, weakness, opportunities and threats faced by the company

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5.

Various strategies employed by the company References

INDUSTRY ANALYSIS: INDIA ELECTRICAL EQUIPMENT INDUSTRY

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 FY12, 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 FY12 despite a negative growth of 4.1% witnessed in Q1 FY12. In the Transformer sector, Power Transformers have maintained growth momentum by having a growth of 14.8% in H1 FY12, 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 FY12 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 FY12. 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 FY12. 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 FY12. 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 governments 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:

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:

 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. Havellscurrent 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 companys 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 Sector heterogeneous manufactures variety of products. Huge WEAKNESSES OPPORTUNITIES THREATS 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 %.

is High import costs of and raw material. High inflation. domestic

India can enter into free agreements other countries. Use of technology and innovation can help growth sector. driving in the this trade with country

demand Huge taxes levied by the government. of proper and

caused the domestic

industry to double Lack or triple in some cases. It is

subsidies incentives.

now Lack of research and technological

diversified, mature with robust supply

Proper formulation

policy and
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chain.

advances.

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. Havells 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:

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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 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 Qimat Rai Gupta Surjit Gupta S B Mathur A P Gandhi V K Chopra Name Designation Chairman & Managing Director Director Director Director Director Designation
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Anil Gupta Rajesh Gupta S K Tuteja Niten Malhan Adarsh Kishore

Joint Managing Director Director (Finance) Director Director Director

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 THREATS its presence in other Intense competition Keeping technology Environmental threat posed by use of mercury in CFLs Significant warranty returns in CFL business Fragmented business Increasing copper prices, which can exert pressure on margins nature of luminaire pace with changing 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 countries.

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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 Sylvanias 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 Sylanias operations and distribution network in Europe and leverage Sylvanias 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 the electric 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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