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Spotlight | July 2018

Made in India: Havells Looks Beyond Electricals

More than a year after it acquired the consumer durables business of Lloyd Electric &amp; Engineering, Havells has firmed up plans to expand its horizons. POWER TODAY takes an overview of the strategy of one of the country's leading electricals players in also becoming a big boy of electronics.<br /> <br /> In 1958, a 21-year-old Qimat Rai Gupta arrived in Delhi from Punjab's Malerkotla township with a saving of Rs 10,000. Having quit his job as a school teacher, he wanted to start something of his own. He soon joined a relative's shop in Bhagirath Palace Market in the city's old quarters to trade in electricals. Owing to his dedication and keen eye for detail, he soon became well-known among the local business community for his entrepreneurial acumen.<br /> <br /> Gupta's first big moment came in 1971 when he learned that an acquaintance, Haveli Ram Gandhi, was keen to sell off his firm due to financial stress. Although Gandhi's firm, Havells, did not have an all-India presence at the time, it was well-known in and around Delhi. After some initial struggle, Gupta managed to acquire Havells for Rs 700,000 - a lavish sum in those days. However, for the first five years following the purchase, he used the brand only for trading in electricals. It was only in 1976 that he set up a facility to manufacture changeover switches in Delhi. Gradually, factories were also established to manufacture high breaking capacity (HBC) fuses and energy metres.<br /> <br /> Right from the beginning, attention was given to expanding Havells' product range and dealership network. By the time the winds of liberalisation started blowing through the Indian economy, the firm was worth Rs 250 million. It was in the following year, 1993, that Havells was listed on both the Bombay Stock Exchange (BSE) and National Stock Exchange. <br /> <br /> Today, Havells has a market capitalisation of more than Rs 340 billion and is present in more than 40 countries. Its main segments are switchgear, cables, lighting and fixtures, and consumer durables. The old manufacturing plants in Delhi have long since been shut down and replaced with 12 state-of-art facilities located at Haridwar, Baddi, Sahibabad, Faridabad, Assam, Alwar, and Neemrana. It is these plants that enable Havells to manufacture nearly 90 per cent of its products in India.<br /> <br /> 'Havells has the advantage of having its own manufacturing facilities. For instance, most other companies do not manufacture lighting fixtures themselves, because till a few years ago the field was reserved only for MSMEs. That is why we are able to deliver a strong product. The consumer not only buys our product but also invests in the brand,' explains <span style="font-weight: bold;">Anil Bhasin, Executive Vice President, Havells.</span> 'If the customer is unhappy with the performance of a product, it is bound to have a ripple effect on the sale of other products,' he added. It is for this reason that Havells often provides an extended warranty on its products and wins customer goodwill.<br /> <br /> <span style="font-weight: bold;">Appetite for risk</span><br /> Havells acquired Frankfurt-based Sylvania Lighting International (SLI) in 2007 for $300 million. It was an ambitious deal, since SLI was one-and-half times bigger than Havells. A year later, the acquisition ran into rough weather as the global financial meltdown had its impact on the sale of SLI's products. Although Havells managed to significantly stem the losses following an aggressive restructuring exercise under Gupta's stewardship, the company remained on shaky ground. After Gupta's death in November 2014, his son Anil Rai Gupta took over Havells' reins. By May last year, Havells had divested its entire stake in SLI to Shanghai Feilo Acoustics for Ç183.3 million.<br /> <br /> But despite failures, Havells management is not averse to risk-taking. Over the years, the company has also invested in financial services and advertising only to exit from them later. In the last decade, the management had reportedly also mulled entering into real estate and power generation businesses at various times.<br /> <br /> It is Havells' acquisition of Lloyd's consumer durables business for Rs 16 billion in February 2017 that put the spotlight back on the company in the electrical and electronics space. The consumer durables market in India is estimated to have reached Rs 1 trillion ($15.5 billion) in 2017, according to data from the India Brand Equity Foundation (IBEF). The market is likely to expand to Rs 3 trillion ($46.54 billion) by 2020. Therefore, the management expects acquisition to help Havells to foray into products like television, washing machine, refrigerator, and air conditioner. <br /> <br /> Havells is counting on Lloyd's 10,000-strong dealer network, 38 sales branches, and over 600 service centres to break into consumer durables. However, unlike Havells, Lloyd does only 30 per cent of its manufacturing locally. For a start, Havells is trying to change that by setting up a plant with a capacity for manufacturing half-a-million air-conditioners annually in Neemrana, Rajasthan.<br /> <br /> 'At Havells, if you look at our investment cycles, we have never moved in steps to build capacity. When we set up a project, its viability is always set at a reasonably large number to keep the cost under control from day one. <br /> <br /> We have never added capacity for the next year, but for three years down the line,' asserts AV Jagdish, a Senior Vice President, while talking about the importance given to manufacturing by Havells to POWER TODAY. He claims that the company had always worked its plants to their full capacity.<br /> <br /> Consumer durables is a lucrative area for Havells on primarily two counts. One, the reach of certain consumer durables such as air-conditioners, washing machines, and refrigerators remains relatively modest in India and that, in itself, contains ample opportunity for further growth. Two, consumer electronics exports from the country reached $385.15 million up to February 2018 and that is an added incentive for a company with ambitions in the segment. But, at the same time, after enjoying a near monopoly in electricals, Havells will also have to compete with well-entrenched global giants like Samsung, LG, and Sony, and domestic players like Bajaj Electricals and Godrej.<br /> <br /> <span style="font-weight: bold;">Other notable acquisitions</span><br /> Over the years, the company has made a few other important acquisitions as well. Last month, Havells board approved the investment of up to 100 per cent in the paid-up share capital of Bengaluru-based Promptec Energy Solutions Ltd. Promptec is engaged in the marketing and manufacturing of LED and solar lighting products. Havells, which presently holds around 69 per cent stake in the entity, acquired a majority stake in the firm in April 2015 to expand its footprint in LED as well to enter the solar energy segment.<br /> <br /> Says Vivek Yadav another Senior Vice President at the company, 'We are looking at the solar market from all perspectives, be it home, office, or industry.'<br /> <br /> Similarly, switchgear-maker Standard was acquired by Havells in 2000 for Rs 1.2 billion. Since 2014, Havells has repositioned Standard as a value-for-money brand targeted at first-time home buyers in the age group 25-35 years. In addition to cables, switchgear, and switches, Standard also makes fans and water heaters on separate production lines installed at Havells' existing plants. <br /> <br /> In January 2006, Havells acquired the brand rights of Crabtree from the parent company, Crabtree UK for the Indian market. Crabtree is a brand of Electrium, the Siemens Holdings-owned British manufacturer of electrical wiring accessories, circuit protection, cable management, and control equipment. Crabtree India started out as a joint venture between Crabtree UK and Havells India in 1996.<br /> <br /> <span style="font-weight: bold;">Thrust on technology</span><br /> Havells appointed <span style="font-weight: bold;">Dr Mukul Saxena as Executive Vice President &amp; Chief Technology Officer (CTO)</span>. Saxena will head Havells' Centre for Research and Innovation (CRI). He brings with him over 30 years of global experience in energy, industrial automation, digitalisation, and healthcare sectors. He has been mandated to oversee progressive increase in the company's R&amp;D spending from the present 1 per cent of the total revenue.<br /> <br /> Havells' emphasis on technology is a part of the larger global trend towards digitalisation. 'There are mainly two aspects to it. One, it is about energy saving that the customer is aware of, and, two, it is about technology usage and how the customer can maximise it. For that we are not only making use of IoT but also the ease of using our products,' avers Bhasin. For instance, several Havells electrical products can be controlled with the smartphone.<br /> <br /> Elaborates Yadav, 'In that sense, there is an endeavour to make every product from the Havells basket totally smart or, at least, smart ready so that whenever the customer wants, he can make the switch to a smart device.' Mentioning how the company has been offering 'intelligent' lighting, breakers, and control gears to its industrial customers, he adds, 'We are giving the opportunity to the facility manager and maintenance heads in factories to manage their premises and monitor the performance of their equipment from control centres.'<br /> <br /> The government's emphasis on especially improving transmission and distribution as well as increased spending on infrastructure are big positives for electrical and electronics firms like Havells. Havells expansion plans are, therefore, driven by its belief in the impending turnaround in the industry. 'The industrial pickup seems to be finally happening. The growth is happening in systemic ways and in small steps, though it is too early to measure it in quantitative terms. But it is surely happening,' states Jagdish.<br /> <br /> Moreover, two years after the death of its founder, in 2016, the company made important changes to its organisational structure to align its core strengths with the changing consumption patterns. It was strengthened to bring about sharper focus and greater accountability. <br /> <br /> Five strategic business units (SBUs) helmed by a separate CEO and CFO was identified with the complete responsibility of profit and loss (P&amp;L). Havells has also hired several new executives to deepen and diversify the management pool with candidates from the fast-moving consumer goods (FMCG) industry. Moreover, following the Sylvania divestment, focus on the Indian market has once again been renewed.<br /> <br /> <span style="font-weight: bold;">Havells Milestones</span><br /> 1971 - Electricals trader Qimat Rai Gupta buys Havells brand<br /> 1976 - Gupta sets up a manufacturing plant for rewirable switches and changeovers in Delhi<br /> 1993 - Company lists on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE)<br /> 2000 - Havells acquires a controlling stake in industry major Standard Electricals Ltd<br /> 2001 - Acquisition of Havells Industries Ltd and moulded case circuit breaker (MCCB) of Crabtree India Ltd<br /> 2002 - Standard Electrical Co. becomes 100 per cent subsidiary of Havells<br /> 2006 - Crabtree India merged into Havells <br /> 2007 - Havells turnover crosses $1 billion with the acquisition of the lighting business of Sylvania<br /> 2011 - Standard Electricals merged into Havells<br /> 2016 - Entry into solar business with streetlight, consumer products and rooftop generation solutions<br /> 2017 - Acquisition of the consumer durables business of Lloyd Electric &amp; Engineering Ltd<br /> 2018 - Havells board approves 100 per cent investment in paid-up share capital of Promptec Energy Solutions<br /> <br /> <span style="font-weight: bold;">- Manish Pant </span><br />
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