M&As grow in consumer durables sector

Debt-hit companies are under pressure from lenders to sell assets

The Indian consumer durables sector is witnessing a consolidation with companies such as Havells, Voltas and private equity firms bidding for Videocon Industries’ Kenstar brand.

In February this year, Havells took over the consumer electronics business of Lloyds Electric at an enterprise value of Rs 1,600 crore.

Similarly, debt-hit Crompton Greaves sold its consumer electronics business for Rs 2,000 crore to private equity firms Advent and Temasek in April 2015.

“The unmanageable debt of traditional companies is leading to a consolidation in the consumer electronics sector,” said a banker close to the transaction.

“We can expect such sales from the old companies that are under pressure from lenders to sell assets,” said a banker. 

Private equity funds are rolling the dice as the Crompton Greaves deal turned out to be attractive for them.

Take, for example, the current market valuation of Crompton Greaves Consumer Electricals Ltd, which is Rs 13,484 crore as compared to Rs 5,800 crore at the time of the sale by the debt-hit Avantha group in April 2015. 

The markets are giving a better valuation to new-age companies. On Friday, Videocon’s market cap was Rs 3,466 crore while Havells India’s market value was Rs 29,465 crore. 
 

Tata group firm Voltas is valued at Rs 13,561 crore while Blue Star Ltd at Rs 6,300 crore. 

India’s top two players, LG and Samsung, are not listed on the local stock exchanges and have preferred to increase their market share without any M&As.

A banker said Kenstar was a valuable brand, considering its high market share in various segments and a vast dealer network in the country. 

Videocon is selling the brand because it has been hit by the spectrum licence cancellation in 2012, which led to the closure of its operations in 22 circles. This hit the group’s finances hard and its debt shot up.

Videocon Industries, which did a series of mergers and acquisitions during the 1990s, is selling the Kenstar brand to reduce its debt, which has gone up to Rs 43,000 crore as of March this year.

The Videocon group has sold an oil block in Mozambique at Rs 16,000 crore, and also sold its direct-to-home TV business to Dish TV in an all-stock merger. 

The group is also looking to sell its stake in its general insurance business and is in talks with several players.