havells india ltd oct 09
TRANSCRIPT
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Havells India LtdOctober 2009
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• Founded in 1971 with the acquisition of ‘HAVELLS’ brand;
headquartered in Noida
• Leading domestic player in consumer and industrial electrical
products
• Expanded global reach through Sylvania acquisition in 2007
• Largest Indian electrical products company with revenues in
excess of USD 1 billion
• Presence across 5 continents, 50 countries with 94 branches and
over 5000 professionals
• Manufacturing facilities spread across India, Europe and Latin
America
• An Indian Multinational – capitalising on its domestic leadership to
generate superior global cash flows
GLOBAL FOOTPRINTS DOMESTIC LEADERSHIP
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EuropeMajor Presence through Sylvania 42% of Consolidated Revenue (70% of Sylvania)4 Manufacturing UnitsStrong Distribution Channel
India Major Presence through Havells India42% of Consolidated Revenue8 Manufacturing UnitsStrong Distribution Channel
AN INDIAN MULTINATIONAL
New Targeted Markets: China, Asean region and Latin America
Latin AmericaPresence through Sylvania16% of Consolidated Revenue (27% of Sylvania)2 Manufacturing UnitsStrong Distribution Channel
HISTORICAL GROWTH
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10,000
20,000
30,000
40,000
50,000
60,000
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09
Acquistion: Sylvania
Merger: Crabtree EWA and Bath Fitting
New Products: CFL, Luminaries, Fans and Motors
Traditional: Switchgears and Cable & Wire
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History Rationalization Product Additions/ Merger/ Acquisition Growth
• 80-90s expanded distribution reach, foreign
collaborations, technology absorption, product
addition through acquisitions
• Early 2000 setting up World Class
manufacturing facilities with large scale,
- focusing on global competitiveness on cost
and technology
- setting up R&D centre
- Target export market – slow and tardy
operation
• Mid 2000 shift to branding, consumer products
• 2007 global acquisition
• 2009 consolidate and grow
in billions of Rupees
KEY GROWTH DRIVERS
• Construction and infrastructure segment
• Increased branding of hitherto ‘commoditised’ products – wires and cables
• Consolidation from unorganised to organised segment
• Strong focus on dealer relationship – deep, passionate, sustainable- a key differentiator in
distribution led Indian businesses
• Greater distribution penetration – reach out to towns upto 1 lac population by 2010
• Increased brand awareness creating consumer induced demand pull
• Globally benchmarked manufacturing plants for lowest cost, international quality products
• Cost rationalisation in Sylvania to generate superior, stable cash flows
• Sylvania to be global platform to launch higher value add products like switchgears
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6Management estimates, market data
Domestic Switchgears –Market Size ~INR 12,000 mn
Competitors Position - Mkt Share• HAVELLS ~ 20% • MDS/ Legrand• Schneider
Industrial Switchgears –Market Size ~INR 20,000 mn
Competitors Position - Mkt Share • L & T• Siemens• Schneider• HAVELLS ~8%
Electrical Wire AccessoriesMarket Size ~INR 10,000 mn
Competitors Position- Mkt Share • Anchor – Roma• CRABTREE – HAVELLS ~11%
Power Cables –Market Size ~INR 80,000 mn
Competitors Position - Mkt Share • Polycab• HAVELLS ~ 8%• KEI
Wire –Market Size ~INR 40,000 mn
Competitors Position -Mkt Share • Finolex• HAVELLS ~ 9%• Polycab
Energy Savings Lamp-Market Size ~ INR 10,000 mn
Competitors Position - Mkt Share • Phillips• HAVELLS ~ 9%• Osram
LuminariesMarket size ~ INR 20,000 mn
Competitors Position - Mkt Share • Phillips• Bajaj• Crompton Greaves• HAVELLS ~ 10%
FansMarket Size ~ INR 20,000 mn
Competitors Position - Mkt Share • Crompton Greaves• Orient• HAVELLS ~ 14%
Switchgears Cable & Wire Lighting & Fixture Electrical Consumer Durable
DOMESTIC LEADERSHIP – TOP 3 IN ITS PRODUCT CATEGORIES
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• Patronize cricket – strong brand connect, visibility and recall
• Sponsored Cricket T-20 World cup, IPL, ICC Champions Trophy, IPL Champions League
• Increasing media spends
• Consistent brand messaging and positioning through Havells Galaxy- one stop Havells products shop
SIGNIFICANT BRAND FOCUS
Unique initiative to promote electrical products on FMCG model and create lasting differentiator
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WELL SPREAD GEOGRAPHICAL MIX Revenues
North – 33%REVENUES
• Western markets traditionally weak – a challenge and an opportunity
• Strong growth in Eastern markets
• Significant leadership in Northern and Southern region
PRODUCTION FACILITIES
• Large investments in the recent past to create global benchmarked production facilities
• Largest facilities in India for MCBs, CFLs and Fans
• Low cost, global quality products to effectively compete against any international product in India and overseas
• Sylvania to source CFLs from Havells and possibility of launching switchgears
East – 20%
West – 16%
South – 31%
• 5-year EBDITA and PAT CAGR in excess
of 40%
• Stable margins holding competitive
pressure and high revenue growth (37% 5
yr CAGR)
• ROCE in mid 40s initially- declining in
recent years owing to lag effect in Sylvania
investment and new business of electric
motors
• Capex in existing products continue to
provide short pay-back periods [3 years]
• RONW decline steeper due to funding of
recent investment through issue of shares
0
50
100
150
200
250
2005 2006 2007 2008 2009
EBDITA
PAT
0%
10%
20%
30%
40%
50%
60%
2005 2006 2007 2008 2009
ROCE
RONW
SUSTAINED FINANCIAL GROWTH in millions of Rupees
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IMPROVING MARGINS
• Net Revenue growth in each segment except cable
& wire, which has also grown in volume terms.
• Increasing EBIDTA margins due to reduction in
fixed cost base, decline in material cost with better
price realisation and increased contribution from
cable & wire
• Branding, cost focus and dealer management would
sustain increased margins
• Growth to accrue from greater distribution network,
better product and distribution management and
aggressive marketing strategies
• Whilst new products are under consideration, the
existing product range could generate significant
growth in the next 2 years
Net Revenue
5,534 5,8534,860
5,736 5,862
-1,000
2,0003,0004,0005,000
6,0007,000
Q1 Q2 Q3 Q4 Q1
19.4%
12.3%
21.2%
10.3%
4.1%
12.4%
17.4%20.4%
11.5%
10.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Q1 Q2 Q3 Q4 Q1
Contribution % EBIDTA %
----------------------- FY 09 ---------------------
----------------------- FY 09 ---------------------
FY 10
FY 10
in millions of Rupees
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STRONG FINANCIALS in millions of Rupees FY07 FY08 FY09
Net Worth 2,624 6,490 9,319
Total Debt 560 358 703
Net Fixed Assets 2,422 3,852 4,655
Investment 35 1,648 3,879
Net Current Assets 844 1,662 1,659
ROCE 47% 39% 23%
RONW 47% 31% 18%
EV/ EBIDTA (times) 13 10 10
EV/ Sales (times) 1.25 0.9 0.9
• Private placement of shares to Warburg Pincus
for USD 110 mn at average price of Rs
650/share
• In addition to current investments in Sylvania,
there are debt and equity commitments of Euro
32 million
• Sylvania has a non-recourse loan of Euro 116
million which is neither guaranteed nor obligated
to Havells India Limited
• Sylvania has recently renegotiated its loans
facilities with banks providing for a deferment of
its amortisation for 2009 and 2010
• Sylvania provides a strategic long term value
platform in the high margins, vast European and
growth oriented Latin American & Asian markets
Ownership Structure
in millions of Rupees
FY09 Actual
FY10 Budget
Switchgears 370 350
Cable & Wire 170 1000
Fans 20 200
Lighting 450 400
Others – IT etc. 180 150
Total 1200 2100
• Capex to be substantially funded through
internal accruals and balance by loans
• Largely focused on meeting increased demand
in existing product categories
• There was some planned slowdown on capex
in FY 2009 resulting in ‘bunching’ in 2010
• The current capex would be sufficient for
doubling of revenues except for some
balancing capex
• It would also cater to increase supply of
products to Sylvania- CFLs/Switchgears
• Expected payback of 3 years
12 12
PLANNED CAPEX
HAVELLS SYLVANIA
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• Acquired in April 2007 with Enterprise Value of Euro 227.5 mn
• World’s No. 4 Lighting Source and Fixture Brand
• 100 years old Strong Band with Global presence
• Revenue of more than Euro 500 Million
• Presence over 50 countries, 6 state-of-the-art plants spread
across Europe and Latin America
• Above 10,000 strong distributors across the Globe
• ~70% Revenue from Europe
• ~27% Revenue from Latin America, rest 3% from Asia
• Increasing presence in Developing Markets
Lighting Source & Fixtures
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• March 2007: Havells India Limited acquires Sylvania, funded through a non-recourse loan of
Euro 120 mn and recourse funding of Euro 80 mn (current outstanding Euro 20 mn)
• October 2008: Recession in Europe hits Sylvania; decline in revenues and profitability;
maiden covenant breach with lenders group
• January 2009: Havells assumes effective management control; Anil Gupta leads as COO with
senior Havells personnel deployed in key European departments. Phoenix-I initiated to
streamline fixed cost base, reduce working capital and procurement costs
• 28 August 2009: The restructuring agreement with new covenants based on revised
projections signed with lenders including deferment of amortisation till 2010 and fresh equity
injection of Euro 12 million by Havells India Ltd.
• September 2009: Prakram, a restructuring exercise to streamline fixed cost base and optimise
operational footprints, initiated
CHRONOLOGY
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Philips29%
Osram19%GE
9%
Sylvania5%
Others38%
Global Lamp Competitors Position
Others79%
Sylvania2%
Z umt o b el11%
Philips7%
GE2%
Global Fixtures Competitors Position
• Lamps Market Size: € 5 billion
Phillips being the Market Leader in each market
• Fixture Market Size: € 12 billion
Fragmented market with dominating local players in
each market
• Market included Europe, Latin America and Asia where Sylvania has presence.
Lamps– Market Matrix*
Segments Market Size SYLVANIAPosition
Market Share
Other Competitors
Europe ~€ 2,600 # 4 8% Philips - 38% Osram - 29%GE - 12%
LATAM ~€ 277 # 4 14% Philips - 27% Osram - 20%GE - 15%
Asia ~€ 2,200 - - Philips - 18% Osram - 8%GE - 5%
* The Market Matrix is as per the Best Estimate of Management
Euro In millions
MARKET SIZE
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• Sylvania amongst the leading lighting brand and
distribution companies in Europe
• Adversely impacted with recession in Europe coupled
with a high cost fixed base
• Market performer despite confusion, uncertainty,
communication breakdown and de-motivation in the
last 6 months owing to significant senior management
changes and lack of decisive leadership from Havells
• It underpins the relevance and resilience of Sylvania
brand in its operative markets
• Significant restructuring plans to reduce fixed cost,
drive efficiency and generate EBDITA
• Total restructuring costs of Euro 38 million- Phoenix
and Prakram
• Substantial growth in EBDITA expected post
restructuring with a 5% revenue growth
PERFORMANCE SNAPSHOTYear ending December
in millions of Euro 2007 2008 2009(P)
Net Sales 505 495 406
Gross Profit 116 116 85
Gross Profit % 23.0% 23.4% 20.9%
EBITDA 19 12 ‐35
Restructured EBDITA 19 16 3
Restructured EBDITA % 3.8% 3.2% 0.7%
Million Euros
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2009 Projection vs Actual (till July)
Euros in ‘000
Particulars Jan Feb Mar Apr May June July
Net Sales (projected) 36,283 37,057 36,858 34,243 31,546 34,280 33,813
Net Sales (actual) 36,283 37,057 36,858 34,243 31,822 33,782 35,345
Gross Profit (projected) 7,591 7,694 6,566 6,484 6,126 7,803 7,262
Gross Profit (actual) 7,591 7,694 6,566 6,484 6,137 7,979 8,154
Restructured EBITDA (projected) 588 ‐306 185 ‐419 ‐1179 711 300
Restructured EBITDA (actual) 588 ‐306 185 ‐419 (238) 933 728
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PHOENIX – 1
• Sylvania initiated Phoenix-1 in January 2009 aimed at reduction in
– manpower
– working capital
– material costs
• The plan was funded through reduction in working capital and internal accruals
• Phoenix-1 has been largely successfully implemented with benefits on track
RESTRUCTURING PLANS
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• Sylvania needs to align its manufacturing base and be more lean and efficient- hence Prakram
• Prakram driven by-– Rationalise fixed cost base– Increase outsourcing from LCCs including China/India– Increase savings in material costs, value engineering, process optimization– Enhanced managerial participation by Havells
• Funding Plan -– The lenders would defer payment of amortisations falling due in 2009 and 2010
aggregating Euro 24 mn– Havells India would invest Euro 12 million as fresh equity to part finance Prakram
restructuring
RESTRUCTURING PLANS- PRAKRAM
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in millions of Euro
March 2009 June 2009
1. Equity invested by Havells in Sylvania at the time of investment (2007-08) € 50 € 50
2. Sylvania debt with recourse to Havells
- recourse debt repaid € 7 € 10
- recourse debt to be repaid over 2009-2012 € 23 € 20
- additional working capital debt guaranteed by Havells* € 14 € 8.5
Total current exposure (1+2) € 94 € 88.5
3. Additional equity proposed in FY10 -- € 12
HAVELLS FINANCIAL EXPOSURE TO SYLVANIA
Strategic• 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• We believe that rationale for acquiring Sylvania has not eroded but would require leadership and
directional support from Havells, hitherto being exercised on sidelines
SYLYVANIA – STRATEGIC AND FINANCIAL RATIONALE
Financial• Sylvania revenues for 2009 are estimated at euro 400 million (INR 2,680 crores)• Havells has initiated restructuring plan to reduce the fixed cost base, rationalise manpower, increase
margins through select outsourcing whilst retaining European identity• Havells has limited further exposure of Euro 28 million with no recourse to existing loans of Euro 116
million• Sylvania could provide sustainable ROCE of 14% and RoE of 16% with superior, stable cash flows
and marginal capex requirements• We believe Sylvania would contribute significant shareholder value in the medium terms to Havells
Shareholders
• Havells is well positioned for growth in domestic markets through a stronger brand, distribution
network and vast product range
• Sylvania would be cost competitive through current restructuring and presents a good platform for
electrical products having a strong brand lineage and distribution network across Europe and
Americas
• Havells has robust cash flows and comfortable leverage to meet its planned capital expenditure for
medium term
• The Company is open to inorganic growth in domestic markets in its related areas
• The economic environment including the thrust on infrastructure and upturn in real estate markets
augur well for Havells end user markets
• We believe that Havells is uniquely positioned to aggressively target growth through organic and
inorganic means in the medium term
EPILOGUE
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