Havells Essay

338 Words2 Pages
HAVELLS INDIA : The SYLVANIA ACQUISITION DECISION Growth rate of Sylvania – 2.5% in 2005, 3.5% in 2006 Growth rate of Sylvania – CAGR 40% but still its loss making firm. Assumption that SYL will continue to grow profits by the same rate, we find that Total profit in 5 years will be approx.. INR 813 Cr Using a opportunity cost of capital 10% - Present value = INR 573 Cr Valuation of SYL is 200 Mn USD, which is around INR 894 Cr. So NPV is – INR 373 Cr or around USD 70 Mn. So the correct valuation would have been USD 130 Mn. Hence if they go ahead, they will be paying around USD 70 Mn extra. Growth rate of Havells – CAGR 60% approx.. Profit growth rate – CAGR 90% In our opinion Havells should go ahead with this acquisition even though going by NPV and financial calculations, the decision should have been otherwise. We say this because – 1 Addition of product lines as Sylvania has a very large lighting and lighting fixture portfolio whereas Havells strength so far was electrical control gears with a very small presence in the lighting market. The product lines being different, cannibalization would be very limited and hence together they can both do better. 2 Havells gets access to new territories through the wide distribution network of Sylvania – 11 manufacturing facilities in 5 countries and 22 sales and distribution centers located across Europe, South America and Middle East. Through this channel, Havells can promote its own brand goods on which it has low cost competitive advantages. 3 Benefits to the Havells brand which so far was recognized only in India with very little visibility in developed market. Havells was not able to command premium pricing because of this lacking. In addition to Sylvania, SLI markets many other secondary brands such as Zenith, Linolite, Claude, Concorde and Marlin. 4 Access to

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