HAVELLS INDIA: THE SYLVANIA ACQUISITION

DECISION

By: Group 11

25. Aditya Kothawale23. Ashish Khandalgoankar41. Dhawal Prajapati55. Amol Thorat

AGENDA

INTRODUCTION• Industry• Havells• Sylvania

CASE SYNOPSIS

PORTER’S 3 TESTS

STRATEGY FOR ACQUISITION

CURRENT FINANCIAL SCENARIO

CONCLUSION

Aditya Kothawale

INTRODUCTION - INDUSTRY

Electrical & lighting Industry

Electrical Components Lighting

Safety & Distribution

Aditya Kothawale

INTRODUCTION – HAVELLS INDIA

Leading manufacturer in India in electrical

industry

Sales in the excess of Rs 10 Billion (2006)

Overall market share of 35% in India for

MCB

Largest manufacturer of MCBs

An entire range of electronic and

electro-magnetic switchgear products

People & channel management key strengths for the

company

Foray into Exports market to ease

challenges in the Indian market

Exporting to 45 countries in Europe,

Middle East, Far East and Africa

Aditya Kothawale

INTRODUCTION – SYLVANIA

Started as a small entrepreneurial firm

Went through several ownership changes

3rd Largest market share compared to GE & Philips

Generated Annual Sales of US $600 Million across 30

countries

30 Manufacturing Plants, Sales Offices, Distribution facilities in more than 28

countries

The revenue by 2006 was €473 Million

Aditya Kothawale

CASE SYNOPSIS Havells, an electrical company, seeking to diversify

into new products and geographies through the acquisition route

Leveraging the synergy in electricals and lighting products businesses of common distribution channels

Growth in emerging markets and improvement in standards of living was expected to give a boost to lighting industry

Manufacturing shifting to Asia due to availability of automation and low-skilled labor

R&D intensive industry with many firms focused on new technologies viz. LED lamps

Dhawal Prajapati

CASE SYNOPSIS… Havells was unsuccessful in acquiring Electrium in

2005 pipped to the post by Siemens by less than £10M

However, Havells learnt valuable lessons in M&A Evaluating near bankrupt Sylvania for diversifying

in lighting industry Sylvania had the third largest market share in the

US Annual sales of €473 M in 2006 The deal was expected to cost more than $200MM SLI’s turnover more than twice that of Havells Challenge of integrating two diverse teams

PORTER’S 3 TEST

Test of attractiveness

Industry chosen must be structurally attractive or capable of being made attractive

Improvement in living standard

Growth in emerging market

The Cost of Entry Test Cost of entry must not capitalize all future profits

Distribution Channel Quality standard

The Better Off Test

Either the acquired company must gain competitive advantage from parent or vice versa

Global PresenceExtension of Product line

Dhawal Prajapati

STRATEGY FOR ACQUISITION 

Europe, though sluggish, continues to be a large market with attractive margins for a low cost manufacturer

It is a tough market to access without an established brand and distribution network

The low cost product cannot be a sole penetration criterion as reflected in absence of any Chinese or Indian products in these markets

The Sylvania acquisition provides Havells a platform to introduce more products in particular, switchgears

Sylvania R & D practices can transform Havells Havells can use Sylvania multi brand strategy for

different markets

Ashish Khandalgaonkar

CURRENT FINANCIAL SCENARIO

Havells decided to retain the current management & to continue with day-to-day operations

In FY08, Sylvania clocked revenues of Rs 2,948 crore and profit after tax of Rs 17 crore. .By the end of 2008 due to global recession Sylvania had notched up accumulated losses of €47 million

Havells decided to go with turnaround strategies: Project Phoenix & Project Prakram

Ashish Khandalgaonkar

CONTD.

How different are these Industries, how different are these geographies (understand industry – country differences)

• Lighting and Electrical components are two distinct Industries with different market dynamics.

• In European and US market, Lighting products are sold through large format retailers while, electrical components are sold through different channel. In a country like India, the similarity lies in Sales channel. Sales and distribution channel for Electrical and Lighting Industry is same.

• This has helped Havells to a large extent as they could leverage on existing Sales and distribution capabilities for promoting Lighting products along with their electrical components.

• Another major difference in India and western market was in the penetration of CFL’s and LED lights. While European markets were near saturated, Indian market had a very low base and potential to grow.

• This has made proposition of entry into Lighting more attractive for Havells.

• In European and US market, the end consumer is decision maker for Electrical components, Products etc. In India “Electricians” or skilled labors play a role of Influencer in process of decision making.

Amol Thorat

Diversification• Havells is not shy of investing in unrelated field. In November 2007, the

company acquired 70% stake in a 140-bed super specialty hospital - Central Hospital and Research Centre, Faridabad.

• With Sylvania Havells diversified into Lighting segment.

Amol Thorat

UPSIDE:• Havells can keep existing manufacturing facilities in Europe , but will create

additional capacities in low cast India 

• Havells substitute Chinese export to Sylvania

• Havells will leverage Sylvania distribution in Europe , USA and Latin America for margin rich switch gear products

• Sylvania R & D practices can transform Havells

• Havells can use Sylvania multi brand strategy for different markets

DOWNSIDE:Sylvania was a loss making company

Diversification continued…

Amol Thorat

Risk Management framework at Havells

Amol Thorat

Amol Thorat

CONCLUSION

Finally it can be said that Havells is one of the finest examples of entrepreneurship and turnaround business.

Havells has simply followed the four golden principles of family business management: • Form a firm foundation• Continuous communication among members• Follow a proper process in dealing with business and family• Go by merit in introducing next generation.

It is not a case with Havells; its real growth came after the introduction of the generation next.

Other can also follow Havells and be like them, otherwise Bhagirath place, from where Guptas started, still see traders opening and closing the same shops for the last fifty years or more.

Amol Thorat

Referenceshttp://www.havells.com/overview.htm

http://www.efytimes.com/efytimes/fullnews.asp?edid=7092&magid=

http://www.electrium.co.uk/about_us.htm 

http://www.havells-sylvania.com/

http://www.ibef.org/download/havell_23oct06.pdf

http://content.icicidirect.com/PickofWeek.asp?id=313

http://www.financialexpress.com/news/Warburg-to-buy-11-in-Havells/230955

http://www.businessstandard.com/bsonline/storypage.php?leftnm=11&bKeyFlag=IN&autono=29974

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