Havells’ electrifying rise :: Business Line

�� -->

Havells has shown that with the right set of ingredients, one can shake up even a seemingly saturated business with strong incumbents.

Havells is now a household name in electrical products. But, not long ago, the company was a fledgling trading shop set up in Delhi by Qimat Rai Gupta, the founder patriarch. Over the last few decades, the company has recorded sales growth in excess of 25 per cent a year. For its investors, it has been a blockbuster stock, each stock bought at Rs 7 (adjusted price) in 2002, now worth a heart-stopping Rs 600. During this time, the company moved from trading to manufacturing, acquired the Havells trademark, expanded the product portfolio and built a brand that today straddles the fast moving consumer and industrial electricals space.

In 2007, with the stroke of a single acquisition of Sylvania, it got access to a global brand, R&D capability and distribution platform spread across 50 countries. Bad luck followed immediately in the form of the 2008 global meltdown, which almost destroyed the company.

Nevertheless, the practical no-nonsense approach of the promoter family helped turnaround the company. Today, the company is global behemoth, firing on multiple cylinders with a market cap of Rs 8,000 crore, generating lucrative returns on capital employed (ROCE) and creating many a happy investor.

How could a company which started much later than some of its peers achieve so much success and even surpass them? Here’s my take on the subject:

GAPS IN THE MARKET

Havells’ competition included the likes of Finolex (in cables), Orient, Khaitan (in fans), Crompton, Bajaj (in home electricals), Philips, Osram, Wipro (in lighting). Havells’ success is mainly due to its ability to spot gaps in each segment and quietly exploit them as an underdog.

For example, Finolex although a major player in wires, never really tried to change the commoditised perception of the category.

Orient and Khaitan became too complacent with their dominant position in fans and started treating their business as cash cows. Crompton and Bajaj became seduced by the infrastructure story and diversified into engineering projects, expecting higher margins.

What they missed was that project execution delays, cost over-runs and capital-intensive nature of the business could potentially cripple the capital turns and eat into the margins — leading to poor returns on capital. In lighting, Philips and Osram were constrained by their MNC policies, while for Wipro the business was dwarfed by software, and lacked focus or ambition.

So despite the presence of such established brands, there was enough space for a dynamic player to carve out a sizeable share of the consumer electricals business in the country. And this Havells did successfully, one step at a time, before it became too big a force to quash by its competitors — some of which were caught napping. Havells has shown that with the right set of ingredients one can shake up even a seemingly saturated business with strong incumbents.

THE KEY FOR SUCCESS

The key ingredients for the secret sauce behind Havells seem fairly straightforward in hindsight, as it is often the case. They are:

Courage

Refreshing brand appeal, created by clutter breaking marketing that helped catch mass attention

Campaigns that delivered maximum bang(reach) for the buck by latching onto cricket

Stylish and aspirational products with moderately premium pricing

Taking good care of the dealers/ distributors understanding their ability to nudge and swing customer decisions

Wide product portfolio, frequent new launches/upgrades

Global distribution platform with strong emerging market presence

Focus in fast moving (high turns) and consumer-oriented electrical goods

Strong differentiation and value proposition through R&D, for example, energy efficiency, fire safety, and so on.

Agility and rapid execution capability.

Havells has come a long way since its inception and is no longer the underdog of electrical goods business. The company has proven to be of Secretariat material and the best may be yet to come.

For the unaware, the Secretariat was a popular American thoroughbred racehorse that went on to win the American Triple crown for the first time in 25 years despite being a low profile late starter.