Exports will grow at 35-40 per cent

SMART TALK: Anil Gupta

After its acquisition of European lighting major Sylvania in April 2007, Havell's expects a large chunk of its revenues to come from international operations. The company has also started consolidating revenue from Q2 FY08 and is looking for more opportunities in the export market while leveraging the brand and use Sylvania's network across 40 countries.

Havell's is planning to enter new territories with immediate task of improving Sylvania's margins, acquire domestic and international companies and expand domestic capacities. Anil Gupta, joint managing director, Havell's India, shares his views on the lighting industry and the company's growth strategy with Jitendra Kumar Gupta.

Can you tell us about your business and various products and their end usage?

Havell's India is one the largest and the fastest growing electrical and power distribution equipment companies. We command a leading position in domestic switchgears, and we are at second largest in cables, wires and compact fluorescent lamps (CFL) and is among the top players in other product categories.

We manufacture products ranging from building circuit protection, Industrial and domestic switchgear, cables, energy meters, fans, CFLs, luminaires for domestic, commercial and Industrial application, and modular switches. Havell's also owns global brands such as Crabtree, Sylvania, Concord Marlin, Lumiance, Claude, Sylvania:Linolite, SLI Lighting and Zenith.

Will you tell us about your acquisition of Sylvania and its advantage to the company?

Havell's brought Sylvania, a leading global designer and provider of lighting systems for lamps and fixtures in its fold in April 2007. Sylvania has presence in more than 40 countries and is considered to be fifth largest lighting company in the world. The company had a sales turnover of 470 million euro in FY07, which we expect to cross 500 million euro this year.

We will use this acquisition to further strengthen our presence in the international market and leverage Sylvania's existing distribution and manufacturing set-up.

Together the two companies - Havell's and Sylvania, which is now named Havell's Sylvania "� possess a global manufacturing and distribution platform, which will support a rapidly expanding international position, especially in high-growth developing markets.

After this acquisition how do you expect your export revenues to grow?

Our exports have increased significantly over the years. We had an export turnover of Rs 150 crore in FY07 compared with Rs 70 crore in FY06. However we do not see to maintain same growth rate as the base is high, but we expect exports to grow in the range of 35-40 per cent over the next few years.

How far you have been able to achieve these objectives and what is the strategy going forward?

Sylvania generates about 80 per cent of its revenues from the European market while 20 per cent comes from the Latin American market. We are currently integrating both these companies, after which Havell's will distribute its products through Sylvania.

Together the two companies - Havell's and Havell's Sylvania "�will have revenues in excess of a billion dollars and the manufacturing power and distribution will grow exponentially.

Are you also looking for the acquisition in the domestic market? If at all what kind of business you will be looking at?

We are open for all kind of opportunities in the lighting space both in India and globally. We may acquire companies which will enhance our product line or product offering in the domestic and international market. It could also be an established brand, distribution or technology.

How big do you think is the India's CFL market and what are the opportunities and threat?

We started CFLs in 2003-04 and have been growing fast. Today, CFLs contribute about 10 per cent to total revenues. Havell's is the second largest CFL company having capacity of 24 million CFL bulbs per year.

There is increasing demand for CFLs in the country. People are becoming aware of its benefits and realise that it not only helps in energy conservation but also lasts much longer than the normal bulb. The government is giving thrust to the industry and as a result of this we have seen the excise duty being reduced from 15 per cent to 8 per cent.

Besides, we also see a huge outsourcing opportunity coming from Sylvania as a result of mandatory application of CFL bulbs in the European countries by April 2009. Considering this, Havell's will double its domestic CFL manufacturing capacities to 54 million pieces by FY08. We expect revenues from the CFL segment to grow at about 40 per cent a year.

What is your comment on reports that the government is in talks with CFL manufacturers to reduce the prices of CFL bulbs from the average selling price of about Rs 100 a bulb to Rs 30?

We do not see this as a threat. The manufacturing cost is much higher than what is proposed to be the price for the retail consumer. We believe that the government may allow power distributors some incentives or carbon credit for the compensation.

Also, if you can tell us more on the cables and wire segment in terms of capacity, revenue growth and future plans of the company?

At present, our manufacturing capacity is 700 million metres per annum. We manufacture power cables "� low-tension and high-tension underground cable "� and wires used in the housing sector.

The wire and cable division contributed about Rs 750 crore of revenues in FY07, which we believe should be about Rs 1050 crore this year. Compared to different segments and products we are into, this is the fastest growing segment. We are investing another Rs 45 crore in FY08 which should help this business to grow at about 40-45 per cent in the years to come.

What is your capex plan?

We plan to invest nearly Rs 260 crore this year across categories, Over a period of time, Havell's is going to more than double its existing capacity and increase its productivity by many folds.

What is your estimate for FY08 and FY09 consolidated revenues and earnings?

Havell's has been growing consistently over decades. Last year Sylvania's revenues were at 473 million euros. This is expected to grow at the rate of 10-12 per cent in this year. We also expect the operating profit margin to improve from 6.3 per cent to about 8.5-9 per cent in the next few years. Overall we expect Havell's will grow at about 30-35 per cent for FY08 and FY09.