Havells India Ltd has inked a deal to acquire the white goods and electronics business of Lloyd Electrical and Engineering Ltd in the biggest deal in the consumer durable industry to date.
The firm that makes electrical products such as switches and wires besides a host of consumer appliances will acquire the business for Rs 1,550 crore ($230 million), it said on Sunday. The target business is housed under Lloyd Engineering while the brand Lloyd is owned by group firm Fedders Lloyd Corporation Ltd. Both Lloyd Engineering and Fedders Lloyd are part of BR Punj Group.
This will mark Havells’ foray into the larger consumer appliances industry with a product portfolio straddling air-conditioners, washing machines, televisions and more.
The consumer durable unit of Lloyd generated revenue of Rs 1,242 crore with an operating profit, or EBITDA, of Rs 75 crore. Based on its run rate and past performance, full-year revenue is estimated at Rs 1,850 crore with EBITDA of Rs 110 crore, Havells said.
The transaction is likely to close in eight weeks. Havells plans to finance the transaction through a mix of debt and internal accruals.
Anil Rai Gupta, chairman and managing director, Havells India, said, “The proposed acquisition is in line with Havells objective of 'Deeper into Homes', driving domestic expansion and owning a brand and distribution oriented asset.”
The consumer durable industry in the country is estimated at $15 billion and growing in double digits with low penetration levels, increasing urbanisation and an expanding middle class.
Lloyd draws its strength from its air-conditioners and air-conditioning business. It is particularly strong in the air-conditioning business where it has eaten into the market share of some smaller brands in the past few years. The top end of the market continues to be dominated by Voltas, Samsung and LG, among others. It is also an original equipment manufacturer (OEM) of ACs for other brands, besides supplying air-conditioning products to Indian Railways.
The company will continue to make ACs for other labels through its OEM contracts.
Lloyd said in a separate statement that it would use the proceeds of the transaction to deleverage its balance sheet and boost its B2B business.
One person who had knowledge of the transaction before it was announced and competes with Lloyd, had told VCCircle, “The promoters have put in a lot of marketing money for Lloyd’s brand and want to encash it but the brand sales push has been built on small margins and anyone that buys it may not be able to retain it as a profitable venture.”
There are over two dozen consumer brands in ACs alone, a product category with low market penetration (3-4%) compared with other white goods (10-35%). The estimated market for ACs was pegged at 40 lakh units in 2015-16.
Volume sales in the industry have been growing in the 10-15% range and are expected to grow at the same pace in the next five years.
Lloyd also sells LED televisions, refrigerators, washing machines, air purifiers among other small home appliances. Besides the consumer durables unit, the company is also into heat exchangers and packaged cooling products.
Lloyd moved at full throttle in the durables business around 2007. It had forayed into room air conditioners in the past in collaboration with Americas Fedders but later the partnership came unstuck. The Indian group had in the distant past also sold refrigerators under the Zenith brand which was discontinued.
Standard Chartered Bank was the financial adviser and AZB & Partners was the legal adviser to Havells. EY (formerly Ernst & Young) represented Lloyd as a financial adviser.
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