Havells-Lloyd deal: what should a retail investor do now

Havells' shareholders:

Positive as growing business front

Starts yielding returns from FY18

May increase debt level though

Lloyd's shareholders:

Positive for shareholders as per valuations which are attractive

Could get debt-free company status

No impact on existing B2B business

In a significant development on the very first day of the week, Lloyd Electric & Engineering sold its consumer durable business to Havells India at Rs 1550 crore. The company’s consumer durable business contributed 59 per cent of its total turnover in FY16. Under the new arrangement, Havells India will be able to do business of importing, marketing, exporting, distribution, sale of air conditioners, televisions, washing machines and other household appliances and assembling of televisions under the brand ‘LLYOD’.

Lloyd Electric & Engineering will utilise proceedings of carving out of consumer durable business for reducing its huge debt. The company will also invest in high potential and high margin businesses in the B2B segment among others. Lloyd Electric & Engineering’s total debt stood at Rs 938 crore in FY16. Meanwhile, the company has cash on its books at Rs 74.72 crore in FY16. Its debt to equity ratio stood at 1.24x in FY16.

Havells India’s top line to get boost of almost Rs 1400 crore with operating profit of Rs 100 crore from FY18. The company’s consumer durables vertical EBITDA margin stood at 25.21 per cent in FY16 against Lloyd Electric & Engineering operated consumer durables EBITDA margin at 7.22 per cent in FY16. The company is expecting to manage acquired business at its par.

Havells India will gather funds of Rs 500 crore to Rs 600 crore through raising debt and remaining from internal accruals. It is hoping to complete acquisition by end of FY17.