Case Study Havells FINAL

7/30/2019 Case Study Havells FINAL

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ExEcutivE Summary:When electrical goods company Havells acquired Sylvania in

2007, all that it was looking for was growth and a strongglobal presence. Instead, it had to grapple with a major crisis at

Sylvania, triggered by the global financial turmoil. Thesituation threatened to pull Havells down,

and it had to come up with a smart turnaround strategy. Thiscase study looks at how Havells pulled it off.

By Manu KaushiK

CASE STUDY Hv

imat Rai Gpta qit

his jb teachig i a

schl i Pjab,

ad came t Delhi

i 1 9 5 8 w it h

`10,000 i had.

He started a electrical gds tradig

cmpa i the ld part f the cit,

bt the market was t small fr his

ambitis. He sptted a pprtit

i the distressed Havells brad,

amed after its fder, Haveli Ram

Gpta. He bght it fr ard `7

lakh i 1971, ad fllwed p with a

series f acqisitis, jit vetres

ad etr it ew prdct categ-

ries. Tda, Havells Idia Ltd is a

`7,248-crre cmpa. The jre

hast alwas bee smth, bt the

rghest patch was easil the 2007

acqisiti f Germa lightig ad

fixtres maker SLILightig, wer f

the Slvaia brad.

SLI was the the wrlds frth-

largest lightig cmpa ad 1.5

times bigger tha Havells. It tk

Gpta mites t make p his mid

abt big it, while his seir

maagemet icldig s Ail

Rai Gpta, ephew Ameet Gpta ad

Grp CFO Rajesh Gpta were still

weighig the prs ad cs.

I Febrar 2007, whe egtia-

tis with Slvaias wers tk

place, sme f Havellss tp bsses

flew t Ld t seal the deal. Ail,

Havellss Jit Maagig Directr,

recalls the sleepless ight befre the

siged the dtted lie. He ad

csi Ameet recked the were

paig mre tha the shld. The

ext mrig, I called m father,

sas Ail. I tld him we have paid i3

milli (`23.4 crre tda) mre. He

said that i the big pictre, the figre

was isigificat. Havells bght

Slvaia fr i200 milli, pls pe-

si liabilities fi35 milli.

Qimat Rai was bettig

Slvaias strg 100-ear-ld brad

i abt 50 ctries, ad its wrld-

wide etwrk f 10,000 distribtrs

ad dealers. M father said we

wld t be able t replicate these

tw thigs, sas Ail.

Havells had a track recrd f five

sccessfl acqisitis, ad high

grwth i its Idia peratis. I

1983, it bght the lss-makig

Delhi-based Twers ad Tras-

frmers Ltd ad tred it ard i a

ear. Betwee 1997 ad 2001,

Havells als bght ECS, Dke Arics

Electrics, Stadard Electricals ad

Crabtree Idia. The last was a 50:50

jit vetre betwee Havells ad

the UK-based Crabtree, ad Havells

later acqired Crabtrees stake i the

JV. Idia revees had a cmpd

aal grwth rate f 50.08 per cet

betwee 2002/03 ad 2007/08. I

March 2007, Havells bght

Slvaia. Ad the the glbal fia-

cial crisis strck.

As the meltdw rcked

Erpea markets, Slvaias sales

fell, leadig t et lsses fi16.3 mil-

li i 2008/09 adi26.1 milli i

2009/10. Frm i515 milli i

2007/08, revees drpped t

i438.4 milli i tw ears.

Trstig Slvaias maagemet

t deal with the sitati tred t

t be a mistake Havellss part. Pal

qdarknessto light

The Turnaround Team

1. G Ji,General Manager,Andean Region 2. rjiv Gl,President, Sylvania 3. aglicVl, General Manager,Mexico 4. ail ri Gpt, JointMD, Havells India Ltd 5. rjsGpt, Group CFO and Director -Finance, Havells 6. (Sitting)Qit ri Gpt, CMD, Havells7. at Gpt, ExecutiveDirector, Havells 8. Sjit Gpt,

Director, Havells 9. Js LisPz, General Manager, CentralAmerica & the Caribbean10. (Sitting) Tig Pi,Country Manager, Costa Rica &the Caribbean 11. Cls Sts,Country Manager, Brazil

1 2 3 46

5 7

8

9

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ShEKhar ghOSh /www. ind ia today images . com


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the begiig, sme didt agree with s, bt

with mre meetigs, mre peple tred

believers.

The ext challege was t persade baks,

which were relctat t fd the restrctrig

pla. It didt help that the Idia electricals

market had crashed. We tld the baks we had

gfed p, ad asked them t give s six

mths, sas Ameet, wh is Exective Directr

at Havells. The baks agreed l t a tw-

mth deferral f repamet f las, helpig

Havells with a i24-milli cshi fr that

perid. S Havells pred sme i12 milli it

the restrctrig pla.

T begi with, a factr each i Brazil ad

Csta Rica were clsed. operatis at a UK factr

were sspeded ad shifted t Idia, where labr

accts fr fr t five per cet f the ttal cst

(i Erpe, it accts fr 22 per cet). n-

critical staff accts, IT, factr persel i

Erpea ad Lati America peratis was

als laid ff. Sme back-ffice jbs were shifted t

Idia. The ttal headct f 3,800 (at the start

f 2009) was redced b 41 per cet t 2,233.

Remarkabl, the laffs did t reslt i a

sigle das strike. The cmpa strictl fllwed

labr laws i each ctr, ad esred that

fial settlemets wet ff smthl. We wld

give t pamets befre the de date, sas CFO

Gpta. Bth phases tgether led t aal savigs

fi34.4 milli. The cmpa als spet ard

CASE STUDY Hv

Griswld, theCEOf Havells Slvaia, was hired

b the cmpas previs wers, a grp f

private eqit ivestrs that iclded DDJCapital,

Cerbers Capital Maagemet adJPMrga. He

had tred Slvaia ard after it slipped it

bakrptc i 2002 ad made it prfitable befre

Havells bght it, bt the magic tch elded him

w. The Havells maagemet sacked him.

I September 2008, Slvaias bakers, led

b Barclas Capital, hit the paic btt as the

cmpa breached its cveats. Pt i place b

leders, cveats are a set f fiacial ratis

that the brrwer mst maitai. Slvaias

acqisiti was fded b debt a i120-milli

la based peratig cash flws ad a i80-

milli la take t b a Havells sbsidiar.

Havells repaidi

80 milli b raisig me frmthe sale f a stake t Warbrg Pics. Cveat

breach was as gd as repamet defalt,

sas CFO Rajesh Gpta. The bakers asked

s t repa the la r had ver the

cmpa t them.

Slvaias pr perfrmace bega t affect

cslidated mbers, bt Havellss grwth i

dmestic peratis made p fr Slvaias lsses

fr a while, at least. Fr the Gptas, it wast jst

their me bt als their reptati at stake.

Havellss tp maagemet drew p a

18-mth restrctrig pla. I the first phase,

called Pheix (Jaar t September 2009), the

aim was t imprve prfitabilit b cttig

mapwer csts ad clsig factries. The secd

phase, called Prakram (September 2009 t Je

2010), fcsed frther redcig the

headct, ad icreasig the srcig f

prdcts frm lw-cst lcatis sch as Idia

ad Chia.

Laffs were a challege, as severace

packages cst me ad ca hrt sales. The

first three mths were difficlt, sas Ail. We

had meetigs with the tp peple at Slvaia. I

Aseqetial prcess ivlvig strateg, plas, idetifi-cati f pssible targets, egtiati, evalati,reamliig f the fial deal, vale creati, cltre fit

d grwth aids a sccessfl acqisiti. Valati tech-

qes which take it csiderati sergies accrig

ber ad seller, digressis, deal strctre, perfrm-

ce measres, cst, market, maagemet f talet, ac-

tabilit ad s are ther critical isses i evalat-

g a marriage betwee tw cmpaies. The fial critical

it is that the agreed vale f a M&A deal eeds t be

stified b sales trver, prfitabilit, cash flws ad s

, which the acqisiti is sppsed t ield. Witht es-

blishig the wrth f these variables, it is impssible t

etif the vale f the cmpa beig take ver. This

id, the i3 milli excess paid fr Slvaia is margial,

siderig the vale f the deal was i200 milli.

Eve after dig all this, the decisi t execte a

ss-brder takever f a cmpa that is 1.5 times

gger tha the acqirer, with wrldwide sales ad

dcti, is t eas. It appears that mch f Havellss

st-merger prblems was de t evirmetal factrs

ecmic dwtr ad Slvaias peratial

efficiecies. I fact, this ca be see as a blessig i

sgise ma tgh decisis sch as restrctrig

d laffs fid greater acceptabilit amg staff whe

e evirmet is bad. Havellss decisis t clse three

ctries, icrease srcig frm cheaper markets, mve

eir fcs t Lati America ad Asia, ad redce

pedece Erpea markets, cmpetitive pricig,

d s were all steps i the right directi. Likewise,

xed cst redcti was a imprtat first step i the

rard. Havells als ivlved the lcal maagemet

decisi-makig ad let g f their ieffective CEo.

e, the cld have de this earlier, bt it is imprtat

time ad seqece es mves s the dt backfire.

takes time fr the reslts f brad-based chages t

w, ad HaveIls has recrded icreasig prfits ear-

-ear sice 2011.

It appears that mchf Havellss pst-mergerprblems was thereslt f evirmetalfactrsBala V. BalacHandran,J.L. Kellogg Distinguished Professor ofAccounting and Information Management,Northwestern University

ClASSiC TUrnAroUnD CASE

Idia cmpaies verseas fras have had mixed re-slts. Fr ever JLR, there is a Crs, ad fr ever Tarthere is a Zai r a Imperial. If e lks at Idia Ics

20 largest verseas deals s far, the majrit appear t

have hrt fiacial health. The isse cld be the price

paid, fiacig, the glbal ecmic sceari, r hw the

cmpa wet abt maagig its ivestees after the ac-

qisiti. The last is pssibl the mst imprtat.

Frm the large mber f verseas prchases b

emergig Idia majrs, Havellss acqisiti f Slvaia

is amgst thse that have gt the mst atteti. It is

eas t see wh. It is a trard str smethig

larger Idia cmpaies have strggled t achieve. Tw

thigs ctribted t Havellss sccess i trig

Slvaia ard: acceptace f the challeges facigSlvaia a ear after the acqisiti, ad the cllabra-

tive wa i which restrctrig was carried t.

I the ear fllwig the acqisiti, Havells let the

bsiess r as is. As it bega t strggle, it was qick t

lear that Slvaias bsiess had bee recstrcted

few ears earlier b private eqit ivestrs. What was

missig, hwever, was the passi t create a sstaiable

bsiess, smethig that Havells itself has de ver the

ears. It redepled its thi maagemet resrces t

Slvaia ad lached a restrctrig prgramme.

Sme seir exectives left. Havells wrked with the sec-

d lie f Slvaias maagemet t tr ard the

bsiess tgether. Havells was able t cve that it was

t takig ver, bt sght t wrk jitl with the l-

cal maagemet t salvage the Slvaia brad (where

Havells saw great vale). Havells sght t ease sppl-

side bttleecks ad restrctre peratig csts, icld-

ig headct redcti. The strategies were largel exe-

cted b the lcal maagemet, s the restrctrig

seemed t be abt s, rather tha we ad the. I

attribte the sccess f Slvaia's restrctrig t the

Havells leadership. It is a example fr Idia Ic.

The views expressed here are personal.

Havells was able tcve that it was

t takig ver, adthat it sght t wrkjitl with the lcal

maagemetsanjeeV krisHan,

Executive Director and Leader - Private Equity, PwC

AboUT US, noT wE AnD ThEYT he ad back

sou: Hv i au rpot

439.9

448.2

449.4

438.4

508.6

515

30.5

10.2

7

-26.1

-16.3

3.06

FY2

013

FY

2012

FY2

011

FY2

010

FY2

009

FY2

008

rvu nt Pot Fgu m

I Ii,ivsts ihvlls wgly bt tpspcts f Sylvisvivl, w wiit wl g hvlls w

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i4 milli less the restrctrig

tha the i36 milli aticipated.

Besides redcig the headct,

several areas were targeted icldig

lgistics, ivetr maagemet,ad prdct pricig. Havells wrked

clsel with lgistics cmpaies ad

sht dw sme warehses, redc-

ig lgistics csts frm 14 t six per

cet f ttal cst.

T redce the wrkig capital

reqiremet, the amt f

ivetr at the cmpa level was

ct frm i70-75 milli t i40

milli witht affectig the abilit

t serve cstmers time. Sice

2007, tsrcig frm Idia adChia has jmped frm 38 t 60

per cet.

Slvaias prdcts were priced

15 per cet lwer tha thse f rivals

Philips, osram ad gE. This was f

little help t Slvaia, which makes

high-ed prdcts, ad als dilted

the brad. We raised prices i

Erpe ad Lati America b five t

eight per cet, sas Slvaias glbal

peratis head Rajiv Gel. He adds:

Fr sme 20-dd ears, Slvaia

was wed b fiacial istittis

lkig fr shrt-term gais. We tld

emplees that we are here fr the

lg term.

Agelica Valderrama, head f

Mexica peratis, wh jiedSlvaia 15 ears ag, sas: ulike

the earlier maagemet, we were

give flexibilit t thik abt ew

was t ear prfits.

The reslts s bega t shw.

I 2010/11, Slvaia made a et

prfit fi7 milli revees f

i449.4 milli. Sice the, prfits

have grw steadil: i10.2 milli i

2011/12 ad i30.5 milli i

2012/13, althgh revees staed

smewhat flat (i

449.4 milli i2011/12 ad i439.9 milli i

2012/13). The cmpa has seve

factries (it clsed e mre i the UK

i 2009) ad a wrkfrce f 2,200 i

50 ctries.

The persistet slwdw i

Erpe remais a ccer fr

Slvaia. Erpe ctribtes 55 per

cet t its tp lie, dw frm 70 per

cet sme ears ag. The macrec-

mic sitati i Erpe is t

hk-dr, sas Rahl Gajare,

aalst at Edelweiss Secrities. The

cstrcti sectr i Erpe, which

is expected t drive Slvaias

grwth, is sbded.

Jit Maagig Directr Ail sas

Slvaia will grw thrgh acqisi-tis i areas sch as lightig,

switches ad mii circit breakers.

We have the fiacial capabilit ad

maagerial badwidth t make a

i50-200 milli acqisiti.

S after the restrctrig,

Slvaia shifted its glbal headqar-

ters frm Frakfrt t Ld with

the aim f mltiplig its grwth

prspects. The brad has literall

ge places amg the thigs it

lights p are the natial Msem inew Delhi, Madame Tssads i

Ld, the Chael Tel ad

IdiG aircraft.~

What do you think was key to Havellss

success in turning Sylvania around?

Post your comments at businesstoday.

in/casestudy-havells. Thebest response

will be published in the magazine

and will also win a copy of a

Harvard Business School Press pocket

mentor. Previous case studies are at

www.businesstoday.in/casestudy.

CASE STUDY Hv

BTv o of po to t tu. Bow th bt o o th eh-Vovo t-up (ju 23, 2013).Best of the lot

Roy D. Rozro

TThe Eicher-Volvo joint venture (VECV) is high on the initial mandate of the4Cs of partner fit. Both Eicher and Volvo converge in their interest inscaling up their volume in the commercial vehicles industry. The comple-

menting strengths are so perfectly aligned that they weed out each partnersweakness. And as evinced from the revenue growth, both partners seemcompatible. Volvo's global distribution network, technology and financialmuscle were just what Eicher needed to leverage its mass-market productswith frugal engineering that is important in an emerging market like India. Thesynergistic strengths of this joint venture have the potential to overpower ri-vals such as Tata Motors, Ashok Leyland and Daimler. Volvo could use Eichersbrand name in developing markets, and could enter South

East Asian markets with the joint venture model. This joint venture model is an excellent example of match-ing complementing strengths. This model could be adopted across other verticals. However, as with any jointventure company, long-term prospects are still hazy consider the erstwhile Hero Honda and TVS Suzuki.And because there is an asymmetry in investment in VECV, this could pose problems in decision-making,division of profits, and so on. Thus, on paper, the VECV is an ideal amalgamation of strengths. The mainconcern would be long-term mutual viability for its members. Thus, it would be better for both partners to

plan exhaustive agreements that are mutually beneficial.

Roy D. Rozario wins a Harvard Business School Press pocket mentor

10 BuSInESS ToDAy August 18 2013

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Case Study Havells FINAL