THE SYLVANIA ACQUISITION DECISION HAVELLS INDIA: THE SYLVANIA ACQUISITION DECISION By: Group 11 25. Aditya Kothawale 23. Ashish Khandalgoankar 41. Dhawal Prajapati 55. 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 Dhawal Prajapati 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 Presence Extension 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

Diversification continued… 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 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

References http://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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