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Next acquisition will be in overseas market: Qimat Rai Gupta

Q&A with Founder Chairman, Havells India Ltd

Sudheer Pal Singh  |  New Delhi 

Having erected a mammoth Rs 6,500 crore business empire single-handedly from scratch, Qimat Rai Gupta, Founder Chairman of Havells India Ltd, is a case study in entrepreneurial economics. He began as an electrical goods trader in 1958 with a shop in Delhi with practically no capital.

Today, his company is India’s largest electrical products manufacturer with facilities across India, Europe, Latin America and Africa. More than 20,000 dealers sell Havells’ products across 50 countries. Over his lifetime, Gupta has waded through many problems, be it competition from global giants and cheaper Chinese imports or acquiring and turning around a company three times Havells’ own size or financial crisis of 2008. In an exclusive interview with Sudheer Pal Singh, he shares his mantra of success -- ability to take calculated risk and strategizing objectives. Edited excerpts..

How have you managed to expand your business?

I came from Punjab to Delhi in 1958 and started selling electrical goods from Bhagirath Place. In 1971, I acquired the brand of switchgear manufacturer Havells to rebuild a business around that brand. Over the next 20 years I set up factories and dealer channels and launched more products. By 1990, the revenue had grown to around Rs 25 crore. Beginning 1990, we went for foreign collaborations and JVs and added more products.

While we were still a small player, by the turn of the century, the business had grown to Rs 130 crore. In 1990s, as the economy opened up, Multi National (MNCs) came into the market, including Schneider, ABB and Siemens. It was said the Indian entities will be wiped owing to lack of technology to match MNCs’ products.

That was a major threat. Another threat came from Chinese in late 1990s which started selling their products at rates equal to the cost of our production. In 2000, people advised us to sell out, as MNCs were buying small Indian entities. But we decided to stay. Even while we were Rs 150 crore company, we decided to invest all of our profit every year, over the next ten years, into capital expenditure. In 2003, we decided to enter the fans market, going against conventional wisdom, as other were not making money owing to a large share of the unorganized market in fans.

Our strategy was to sell premium category fans and not to enter into the economy segment at all. Today, we are among the top three players manufacturing fans. Another important decision was to invest significantly in advertising beginning 2007, something atypical of an electrical goods company. And this has helped us tremendously in creating a brand.

A bulk of the company’s size is attributed to the business of Sylvania. What was the logic behind Sylvania for $300 million in 2007?

We realized that in order to beat the Chinese competition, not only we need economy of scale but at the same time maintain quality to beat MNCs, not only in India but to go in their market and sell products. This paid-off and our exports increased from 2004 onwards in the European market where no other player was selling premium quality.

But in order to expand into developed markets we needed to make an to possess an established distribution channel. This was the reason for acquiring Sylvania in 2007. We wanted to capitalize the brand and distribution channel of Sylvania to sell other Havells products.

We were looking for an opportunity to enter into exports since 2000. We got some success in middle-east and Africa where it was easier to create a distribution channel. In Europe, which was a difficult market, we started manufacturing for other brands. But we started talking to investment bankers for making acquisitions to sell under our own brand. Our balance sheet had also become debt-free by 2006. We tried to acquire a company in UK in 2005 but failed.

When Sylvania came to India in 1960s, it had become a big threat to existing players. But the decision was ambitious and involved taking calculated risk because Sylvania’s size ($300 million) was much more than our turnover then. Debt component was 60%. By 2007, we were Rs 1,600 crore in India. But Sylvania was Rs 2,300 crore in 50 countries. We did not have the experience of managing a large team of 4,000 people in 50 countries. So, it was a daunting task.

Sylvania ran into losses immediately after What has been the biggest lesson learnt from that episode? 

We made certain mistakes. After an acquisition, the acquired entity must be integrated into existing business well. We were overwhelmed by the size of the company. And because we had no experience of handling a large entity with a workforce of multiple cultures, we let Sylvania be on its own for some time. Our partial detachment from Sylvania continued for more than a year. To add to the problem, the global financial crisis followed in 2008. As the company started making losses, we realized that we need to change the way we are managing Sylvania. Then, we spent a year integrating the company. In hindsight, the learning is that if we had integrated Sylvania into the mainstream earlier, we could be better prepared to take on the crisis.

Is Havells looking at another acquisition?

The logic behind our acquisitions has been to acquire not a company but a brand with its distribution channels. We have already achieved this in Europe and Latin America, apart from India. Major markets are already covered. We can grow business in India by 15-20% over 3-5 years. Sylvania business can also grow at 10%. We might not want to make acquisitions in Europe as we already have our brand and channel established there. We want some acquisitions in markets where we are not present, say, Africa. But over the next two years, we want to focus on making our cash flow heavier and then look at large acquisitions. In the meantime we might be looking at small opportunistic acquisitions.

Unfortunately, In India, even when the market sentiment is down, the valuations continue to be high. We have looked at some small and medium-sized acquisition opportunities in India recently, but the valuations prove to be high. While we are not in an acquisition mood at present, but we are open to acquisitions and probably the next acquisition will come in the market outside India.

While your entrepreneur skills have helped in growth, critics argue that Havells is largely a family-run, and not a very professionally-run, company and point out how even relatively smaller decisions are taken at the promoter level. How do you respond?

I do not agree. The membership of our board is illustrious. But we believe the overall direction, objective-setting and ethics need to trickle down from the top. The day to day decision-making has to be handled by the management. Every decision is taken by executives. There is no “family-driven” tag. The only difference with other big corporates is that we have not created boxes of strict powers and duties around our executives to bind them. In fact, some of the so-called professional companies do not give the freedom our executives enjoy.

Is it not surprising that in a gloomy economic scenario, sales of Havells, a company that sells premium quality products, have gone up in the second quarter by 13.4% to Rs 964 crore?

We have grown by around 20% in India in the first half. Our consumer business has grown much faster than the industry, except in the underground cables segment. We have expanded a lot in the B and C class towns. We are selling premium products which are not necessarily expensive.

What challenges and investments you see coming over the next year?

We were a bit concerned a couple of months back as we thought that the government was losing direction in providing a long-term investment comfort. However, the situation has improved now. A major concern is the European economic situation which has not improved. Around 60% of Sylvania’s business comes from Europe. We are not able to visualize huge growth in European business over the next one year. We will invest close to Rs 400 crore over the next three years. We expect our revenue to grow to Rs 7,500 crore this financial year.

First Published: Tue, November 06 2012. 20:22 IST