Submitted by – Group -4

Apurba Mondal 21PGPEX- 07

Gauraw Kumar 21PGPEX-13

HAVELLS ACQUISITION OF LLYOD
ELECTRIC Samar Kant Mathur 21PGPEX-35

Somvir Singh 21PGPEX-42

 EVENT DETAIL

On 20 February 2017, Havells India (HIL) has proposed acquisiti on of the consumer
durables business of Lloyd Electric for an enterprise value of Rs1600 Cr on a cash-free
and debt-free basis. The acquisiti on includes:
 Consumer business infrastructure (sourcing, Assembling and marketi ng, but not
Manufacturing Facility),
 People, Research and Development, Product Development
 Distributi on network
 Brand and trademark ‘Lloyd’

On 8th May 2017 India’s leading FMEG company, Havells India Ltd. announced
successful completi on of its acquisiti on of Lloyd Consumer Durable Business Division
(Lloyd Consumer).
 ABOUT HAVELLS
• Havells India Limited is a leading Fast Moving Electrical Goods (FMEG) Company
with a strong global presence.
• Havells has a wide range of products, including Industrial & Domestic Circuit
Protection Devices, Cables & Wires, Motors, Pumps, Fans, Modular Switches, Home
Appliances, Electric Water Heaters, Power Capacitors, CFL Lamps, Luminaires for
Domestic, Commercial and industrial Applications.
• Havells has a 20,000 strong global distribution network that strives to provide prompt
delivery and service to customers.
• Havells pioneered the concept of exclusive brand showrooms in the electrical industry
with 'Havells Galaxy,' which now has over 300 outlets across India.
• Havells became the first FMEG Company to offer doorstep service through 'Havells
Connect.'
• Havells is a preferred choice for discerning individuals and industrial consumers in
India and abroad.
• Havells products and processes have acquired several International quality
certifications, complying with stringent quality norms worldwide.
• Havells is committed to providing energy-efficient solutions and state-of-the-art
innovations to power the world.
 Havells India Ltd : Journey

Acquired Lighting
Acquired
Havells Consumer
Acquired Acquired Acquired Business of Frankfurt
A switchgear Acquired by
Towers and Electric MCCB based company Business of
Trading Qimat Rai
Company as
Transformers Control and business of “Sylvania”. Crossed 1 Llyod
Gupta From
Ltd Switch Board Crabtree Billion $ Turnover Electric
Importer Founders

1956 1960 1971 1980 1983 1993 1997 2000 2001 2003 2007 2015 2017

Acquired Sold Sylvania

First Plant Start Launch of
Listed On Duke Arnic Business to
at Manufacturing NSE and Fan
electronics Shanghai
Faridabad Energy meter BSE Lighting
And Feilo
&
Standard Acoustics for
CFL
Electricals 1350Cr
ABOUT LLOYD ELECTRIC

• Lloyd began as a manufacturer of industrial goods and was acquired

by the Punj family in 1956.
• Later, Lloyd separated into an engineering and construction company
and a consumer electrical goods manufacturing brand, with 80% of
revenue coming from air-conditioners.
• To combat seasonality, Lloyd started selling other products such as
televisions and washing machines through the same distribution
channels, which accounted for 20% of its business.
• Lloyd's success in the Indian consumer appliances market was largely
due to their low prices, tight grip on operating costs and sourcing,
and flat organizational structure.
• By importing air conditioners from China and performing functions
like supply chain, marketing, and branding with shoestring budgets,
Lloyd was able to provide quality products at a lower price to
consumers while maintaining similar or even higher margins for its
dealers.
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BUSINESS
ECONOMICS REASON
FOR THE
TRANSACTION • Havells completed its disinvestment of 80% stake in Sylvania in
January 2016 to focus more on domestic Indian operations and
reduce earnings volatility.
• The acquirer had excess capital and wanted to increase its share
of socket in the consumer home by entering other appliance
categories.
• The acquisition marked Havells' foray into the consumer durables
industry, estimated at $15 billion and growing in double digits, with
low penetration levels, increasing urbanization, aspirational and
expanding middle class. Lloyd had built a brand, distribution, and
service network over the last decade to provide a comprehensive
experience to its consumers.
• Lloyd is among the top 3 brands in the air-conditioners' category
with a well-entrenched national network in Tier I and II cities. The
brand has also expanded into TVs and washing machines.

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 1 Havells planned to diversify into large appliances and increase its share in the
homes of consumers.

The acquisition of Lloyd Consumer will bring long-term

2 scalability to Havells' consumer business, which
accounts for 21% of its standalone revenues.

Havells' current electrical products focused distribution

3 channel is not ideal for the consumer durables market,
and the acquisition of Lloyd Consumer provides a
mature and ready distribution channel.

4 The acquisition gives Havells access to around 10,000

sales points and 510 service centers. Havells is expected
to maintain both the Lloyd and Havells brands and
benefits from the strong consumer brand.
STRATEGY FOR ACQUISITION
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 TERMS OF THE TRANSACTION
• Havells India (HIL) plans to acquire Lloyd Electric's consumer durables business for
Rs. 1600 Cr on a cash-free and debt-free basis.

• The acquisition includes infrastructure, people, distribution network, brand, and

trademark 'Lloyd' but not the manufacturing facility.

• The valuation of 21x FY17E P/E and 14.5x FY17E EV/EBITDA is considered fair as
it provides HIL with an entry into the fast-growing consumer durables segment.

• The Ebit margin of Lloyd's consumer durables business for the nine months ended
December 2016 is only 7% compared to Havells's electrical consumer durables
business that enjoyed a 25% margin for the same period.

• However, the turnaround of the business could prove challenging for HIL due to
relaxed trade terms offered by Lloyd and competition from brands with stronger
financial muscle like LG, Samsung, Voltas, and Daikin, which could also dilute HIL's
consolidated financials in the near term.
 TERMS OF THE TRANSACTION

Details about different assets, tangibles and Intangibles and

also considered the Goodwill cost in the Valuation for the
Brand.
REACTION IN STOCK MARKET TO DEAL
• On 20 Feb, Market shows negative response to the
announcement
• Llyod Stock Fell by 16.75% intraday as its biggest intraday
fall.
• For Llyod Side: The enterprise value (EV) of Rs1,600 crores
for Lloyd’s consumer durables business translates into a
valuation of 14.5 times estimated EBITDA for fiscal year
2016-17. This compares favorably with peers such as Voltas
Ltd and Blue Star Ltd, which trade at an EV/EBITDA ratio of
22.9 and 23.
• The Street clearly expected Lloyd to fetch better valuations
from the sale.
• Its market capitalization on Monday was less than Rs1,100
crore. What this means is that the deal values Lloyd’s
retained non-consumer durables business at about 2.4
times FY17 annualized earnings before interest and tax
(Ebit)
 CHALLENGES FOR HAVEL’S POST ACQUISITION:

Key Challenges -
• how to tighten the relaxed terms of trade offered by Lloyd to its dealers
and still maintain market share and improve margins.
• The brand perception of Lloyd is that of a low-priced product offering
value for money while HIL has an identity of a premium brand.
• Changing the perception of Lloyd brand along with tightening the
terms of trade (higher credit period and higher commission to dealers)
will be a challenging task as HIL will have to compete with financially
stronger companies such as LG, Samsung, Voltas and Daikin, not just
in terms of consumers’ preference but also in terms of multi-brand
dealers’ preference too

20XX PRESENTATION TITLE 11

 VALUE CREATION
 HIL intends to continue with the ‘Lloyd’ brand. The management believes that Lloyd’s consumer connect
and brand advertising and positioning strategy is good.
 HIL went for the inorganic route to enter the consumer durables segment as it would have taken many
years for it to build the distribution network and a new white goods brand.
 The distribution channels of HIL and Lloyd are completely different and there are no direct synergies
between them as the former is geared towards electrical products while the latter is towards white
goods.
 However, in future, some portion of the distribution network may converge owing to cross-sales in
select product categories.
 The current size of consumer durables industry is estimated to be US$15bn and is likely to grow in
double digits. Lloyd is also expected to grow in line or higher than the industry’s growth.
 HIL’s management doesnot expect near-term disruption in revenues because of the change in
promoters. It expects to continue to leverage the existing distribution network of Lloyd to enhance
growth.
 HIL’s management believes that currently Lloyd’s margins are low as it is in the investment phase. The
management expects to improve Lloyd’s margins over the long run on reaching certain scale and wants
to bring them to industry level.
 The provisions for higher warranty terms given out by Lloyd previously have been fully provided for by
Lloyd.
 HIL’s management does not intend to tweak the dividend distribution policy as it believes cash flow will
20XX
remain strong going forward. PRESENTATION TITLE 12
 IMPACT OF ANNOUNCED ACQUISITION ON HAVELLS FINANCIAL
STATEMENTS
Y/E March Havells current Lloyd’s forecast Combined entity Comments
estimates

(Rsmn) FY18E FY19E FY18E FY19E FY18E FY19E

Revenues 72,258 83,919 21,275 24,466 93,533 108,385 Assuming 15% YoY sales growth in FY18 and FY19 for Lloyd

EBITDA 9,527 11,623 1,383 1,835 10,910 13,458 Lloyd’s margins - Assuming YoY rise of 50bps in FY18 and 100bps
in FY19
EBITDA margin 13.2 13.9 6.5 7.5 11.7 12.4

Other income 1,463 1,719 - - 789 1,031 Assuming Rs10bn cash outflow from HIL to fund the acquisition.
Hence, other income will decline.

Interest - - - - 540 450 Assuming HIL raises Rs6bn debt and repays Rs1bn in FY19 from
Lloyd's FY18 profit. Cost of debt is considered at 9%.

Depreciation 1,204 1,268 - - 1,204 1,268 Not assuming any major capex towards manufacturing/assembly of
Lloyd’s products in FY18/FY19.

PBT 9,786 12,074 1,383 1,835 9,955 12,771 -

Tax 2,593 3,200 415 550 3,008 3,750 Assuming tax rate of 30% for Lloyd.
PAT 7,193 8,875 968 1,284 6,947 9,021 -
No. of shares 624.9 624.9 - - 624.9 624.9 -
EPS (Rs) 11.5 14.2 - - 11.1 14.4 -
20XX PRESENTATION TITLE 13
SUBSEQUENT PERFORMANCE AND APPRAISAL
 TRAJECTORY POST ACQUISITION

As on Mar 23, the Past 5 year data shows that the ROE for last 15 Years is 20%, followed by
10 Years as 21%. Havells have shown consistent growth on YOY basis.

20XX PRESENTATION TITLE 15

CONCLUSION
• Havells has a strong brand image, high operating margin, and a successful track record of inorganic
acquisitions across product portfolios.

• Lloyd's acquisition was a challenge as Havells had to position the brand in line with its core values
and expand its distribution footprint.

• In this case, the acquisition was friendly, as both companies agreed to the terms of the acquisition
and worked together to ensure a smooth transition.

• Lloyd had a stronger presence in Tier 2 and Tier 3 towns, which Havells saw as an opportunity to
expand its overall distribution network.

• Havells aims to achieve growth targets by expanding Lloyd's market footprints in larger cities
through modern retail chains and multi brand distribution outlets.

• The acquisition allowed Havells to diversify its product offerings, expand its presence in the
consumer durables segment, and use Lloyd's distribution network to distribute its entire product
portfolio.

• In the case of Havells India Limited, the acquisition of Lloyd Electric & Engineering Limited
allowed the company to diversify its product offerings and expand its presence in the consumer
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durables segment.
THANK YOU

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