"Growth via acquisitions and also organic growth is what we at Havell's group are aiming at," declares Anand Bagalwadi, the Delhi-based Rs 230 crore group's president - sales & marketing. The beginning of April saw the group's only listed company, Havell's India Ltd, signing an agreement to acquire a 60 per cent stake in another Delhi-based electrical products manufacturer, Standard Electricals Ltd. Only sometime back, the Havell's group acquired the Rs 15 crore ECL Ltd, a switchboard manufacturer.
What is interesting about the Standard Electricals deal, structured and advised by Pricewater House-Coopers, are the numbers. The Rs 4.9 crore equity-based Havell's India, with a turnover of Rs 105 crore (1999-2000), will be paying Rs 20 crore to acquire the 60 per cent stake in Rs 25 crore equity of Standard Electricals that has clocked a turnover of Rs 40 crore.
Responding to this issue, Bagalwadi says, "Standard Electricals' sales may be small compared to its equity, but the brand equity of its miniature circuit boards (MCBs), earth leakage circuit breakers (ELCBs), fuse switches, rewirable switches et al is very good in the market place."
For Standard Electricals, the 41-year-old company promoted by J.K. Gupta, marketing has been its weak spot in recent times. The company was not able to grow in the Rs 2,000 crore low voltage electrical products segment. This, despite its handsome market shares of 44 per cent and 28 per cent in the northern and southern markets respectively. The company also underwent a major split a couple of years back, resulting in the emergence of another major competitor.
Adding to the problem is the severe competition from giants like L&T, Siemens, Crompton Greaves and, of course, Havell's India.
Gupta approached the Havell's group for a sellout and thus emerged the acquisition deal, narrates Bagalwadi. The acquisition will enable Havell's India to consolidate its hold on the domestic MCB market and also enter the overseas markets for specially designed products. Interestingly, 10 per cent of Standard Electricals' turnover comes from exports to Middle East.
"Now the group becomes the largest player in the domestic switchgear market and the second largest in the industrial switchgear market after L&T," claims Bagalwadi. According to him, Havell's India is currently the number one in the MCB market, clocking an average annual growth of 20 per cent. And with the volumes of Standard Electricals, the group will have a total MCB manufacturing capacity of 7.5 million units and will be amongst the world's top 10, production capacitywise.
"Of course, the advantages of bulk sourcing and other economies of scale will be there," adds Bagalwadi. Ruling out the merger of Standard Electricals with Havell's India, he says that the Havell's group will now have three nominees on Standard's board. While Gupta will continue to be the company's chairman, Anil Gupta, director - corporate planning, Havell's group, will now take over as Standard Electricals' managing director.
One of the reasons for the non-merger is the technical tie-ups that Standard Electricals has entered into with several foreign companies that the Havell's group doesn't want to disturb. "The technological advancement in this segment comes thick and fast and we will be needing the existing technical tie-ups to stay ahead in the market," Bagalwadi reasons.
Financing the acquisition will be done by Havell's India, placing privately with domestic and foreign financial institutions around 25 lakh shares to raise Rs 25 crore.
Speaking of technical tie-ups and joint ventures with global majors, the Havell's group has them in plenty. For instance, the group's flagship company, Havell's India, is a joint venture with Geyer, Germany, for manufacture of MCBs. Geyer holds a 14 per cent stake in the company, while the promoters control 51 per cent. The balance is held by the public.
Havell's group has two more 50:50 joint venture companies with Dorman Smith, UK and DZG, Germany. While Havell's Dorman Smith Ltd manufactures switch boards, load banks, moulded case circuit breakers and Crabtree brand modular premium switches, the other company, TTL Ltd, makes energy meters. The Indian group also has technical tie-ups with Schiele, Germany (for contactors, overload relay, ELCB), and Peterreins, Germany (offload changeover switches).
The Havell's group's business can broadly be classified into five strategic business units comprising of 21 products. The SBUs are :
- domestic switch gear/building installation products (MCB, ELCB, distribution boards and modular switches)
- industrial swtichgear (moulded case circuitbreaker, cubicle switches, onload changeovers, contactors)
- energy meters(domestic)
- wires & cables
- switch boards - LT panels.
Amongst the above, it is the energy meters which appear very lucrative with their growth prospects. "Currently, a sizeable percentage of energy meters don't work due to tampering. This results in huge losses to State Electricity Boards (SEB). We have introduced tamper-proof energy meters and have found good response from the Karnataka Electricity Board and Tamil Nadu Electricity Board," Bagalwadi says. As a matter of fact, the group recently bagged a Rs 75 crore order from TNEB to supply tamper-proof meters.
In order to expand its market in the energy meters segment, TTL Ltd is doubling its capacity to eight lakh units, for an outlay of Rs 15 crore.