14 Dec 2012

Update |Sector: Capital Goods

Havells India

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On the Road from Baddi, Himachal Pradesh

We visited Havells India’s switchgear manufacturing plant in Baddi, Himachal

Pradesh, India. Baddi is the most automated switchgear manufacturing plant in

India, with a capacity to manufacture 50m domestic switchgear poles per

annum and 70m Electrical Wiring Accessories per annum.

Key differentiators for Havells are: complete control on quality through in‐house

production and detailed focus on manufacturing processes, culture of

innovation and premium positioning. These factors will drive a strong growth in

switchgear business over the next 3 years, without compromising on margins.

On Friday (Dec 14), we will be interacting with the senior management team

including business heads at the Corporate office in Noida. On Saturday (Dec 15),

we will be visiting the Neemrana plant in Rajasthan, which manufactures motors

(largest manufacturing facility in India), CFL (amongst the largest plants in Asia)

and Consumer & Industrial Lighting (first ever large scale lighting fixture plant in

India).

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Day 1: On the road from Baddi, Himachal Pradesh

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Strategy of focusing on in‐house production (vs outsourcing, just 5‐7% of

revenues) is the key differentiator for Havells and enables a total control on

quality, and thus premium positioning in the market. The management

explained that bringing mechanical accuracy was a key challenge in terms of

achieving Electrical accuracy. Hence, the production process is almost fully

integrated and automatic, with robotics systems also being planned for future

expansions. The management claimed that in terms of manufacturing processes,

Baddi is amongst the Top 4‐5 plants globally for manufacturing switches and

MCBs, and is amongst the best in Asia. Increased automation has led to lower

rejection rates (0.1% at shop floor) and improved quality, leading to premium

positioning. The global R&D network is also being integrated.

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Targeted FY13 revenue at Baddi stands at INR4.8b per annum (~50‐55% of the

switchgear business revenues). Existing capacity can be easily expanded by 50%

in single shift, and thus capacity is not a constraint. Various initiatives like Total

Quality Management (for high efficiency of tools), Six Sigma (for increased

accuracy) and lean manufacturing (given mass production) have been

aggressively followed. These processes have provided enough confidence to

respond to changes in demand environment in a short period.

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Switches contribute ~INR2.3b of the switchgear business revenues of INR9b.

Sylvania has launched new products over the past 2‐3 months: Reo

(conventional switches), XPRO (intelligent switchgear) and Murano (premium

switches). Of this, Reo operates in INR20b sized market and the target is to

capture 25% of the market over the longer term. Reo switches were introduced

in the market in October 2012, and the sales have picked up to INR35m in Nov

2012 and targets in Jan 2013 are ~INR200‐250m. Also, the margins, post the

volume increase is expected to be comparable at ~30‐35%. Thus, Reo switches

can possibly lead to doubling of the switch business revenues in the next 12‐18

months and will be an important growth driver. The cost of Reo switch is

~INR20/switch vs INR50/ modular switches, and will also enable the company to

penetrate the rural distribution network. Going forward, this network can be

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Havells India

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leveraged to launch more consumer products under the Havells brand. Of the

INR20b market, Anchor is the key player with revenues of ~INR5b and the rest is

controlled by unorganized segment.

In MCBs, Havells is ranked amongst the Top 5 players globally and is the Number

1 player in India. The business contributes ~50% of the switchgear business and

the intention going forward is to establish a strong base in industrial MCBs as

well. The initial step was to set up an integrated manufacturing facility at

Sahibabad in Uttar Pradesh, and was commissioned in FY12.

14 Dec 2012

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Havells India

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Havells India

No

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14 Dec 2012

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