Qimat Rai Gupta acquired a company much bigger than his and then fought hard to not lose everything he had built. His battle plan is now showing results
In his 73 years, Qimat Rai Gupta has survived many a crisis. But this was different. It was October 2008 and bankers in London were breathing down his neck. Barely a year ago the Havells India chairman had taken loans from them to acquire the European firm, Sylvania — a company one and a half times the size of his own company. Now Sylvania was making operational losses to the tune of 30 million euros annually and the worried lenders wanted their money back or wanted the takeover keys to Sylvania.
“Lenders were thinking of appointing a professional team to take over,” recalls Ameet Gupta, director, Havells.
Back in India, PE investors, bankers, well wishers, all had one advice — write off that investment and move on. Havells India had seen a meteoric rise, growing from Rs. 100 crore in 2000 to Rs. 1,600 crore in 2006, but they feared a sinking Sylvania would drag Havells down with it.
The mood at the company headquarters in Noida was sombre. Anil Gupta, the joint MD and son of Qimat Rai Gupta, was dispirited. Ameet, his cousin, was shaken. This was their first venture overseas and the decision seemed to be boomeranging. “We feared that we might lose the company,” Anil says.
But Gupta senior wasn’t ready to call it quits. At 73, he may be frail, but he decided to prepare Havells for a battle. Fixing Sylvania was their best bet, he reckoned, and the only opportunity to become an international player. For 15 consecutive days, he sat for five hours a day with his son and nephew and at times key executives, pushing them, motivating them. “This is a do or die situation. If you fail, the blot is on you. You will never be able to do any acquisition in your life or expand overseas. If you succeed, nothing will be difficult,” he told them.
So, the Guptas put Sylvania through massive restructuring in January 2009. The CEO and some key executives were replaced. Anil and Ameet took charge. They laid off staff, shut plants and warehouses and restructured operations.
Today, Sylvania has stopped making operational losses, though sales are flat. By next year it expects to post profit. “We have been pleasantly surprised in the manner in which Havells has re-structured Sylvania. It is not easy to do it, more so in Europe. What has happened is impressive,” says Niten Malhan, MD, Warburg Pincus India Pvt Ltd.
Why the Crisis?
Beyond the economic crisis, there are good reasons why Sylvania went on the bleeding path. Havells had acquired an MNC bigger than itself, but “did not have the management bandwidth to manage such a big company”, says Ameet.
Havells is a first-generation company that Qimat Rai Gupta founded in the 1970s. He started out as an electrical goods trader in Delhi’s Bhagirath Place (a wholesale market for electrical goods). In 2005, with around Rs. 1,000-crore revenues, Havells India was itching for more. It bid for UK-based Electrium but lost it to Siemens. In 2006, when N. M. Rothschild, an investment banking organisation, called to ask if they would be interested in Sylvania, it took the board just about an hour to give its nod.
The challenge was that Havells was looking for a $60-70 million target, but at a $300-million bid price, the Sylvania deal was far bigger. It was almost 1.5 times that of Havells in size. The Guptas stretched themselves, aided by a debt-free balance sheet and good track record, to debt finance the acquisition.
Through the fast-paced bidding process, they had little time to think ahead. It was on January 31, 2007, when they finally got the exclusive bid rights that it began to sink in. “I couldn’t sleep the whole night,” recalls Ameet. Their was Havells’ first overseas acquisition. The Guptas thought keeping the old Sylvania management onboard was their safest bet. The bankers and investors preferred this stability.
But Sylvania wasn’t a normal company. Over the last 15 years, it was managed and controlled largely by the PEs, not strategic investors. From the leaders at the top to the way business was managed, “everything was geared to window dress the company,” says Anil. Between 2007 and end 2008, Havells managed Sylvania like a financial investor, motivating and inspiring the team from a distance. Once in a few weeks the Guptas would travel to hold meetings and get updates. “Sylvania was a large organisation. You get overwhelmed. So you won’t change the sail but make small changes,” says Rajiv Goel, senior VP, Sylvania secretariat.
The manufacturing strategy too will change in tandem. Outsourcing from low-cost centres like India will increase as “production cost is 25-40 percent lower”. Between 2007 and now, outsourcing for Sylvania has already gone up from 35 percent to 50 percent with special thrust on India. Backend functions like IT network management, finance etc., are now being done out of India. Competing with MNCs and R&D will remain a priority. Havells India has a 200-member team while Sylvania has 100 people in lighting — 40 in Europe and 60 in India. The India staff will double in the next two years.
Havells India is also adding new revenue sources with products like geysers, rice cookers, and mixers. It launched fans in 2003 in the premium Rs. 1,000 plus category with energy efficiency as their USP. They claim they have already become the No. 3 in value terms, ahead of Bajaj. The new products don’t require significant investments and Havells is looking to ride on its strong branding to lure customers. The Challenges
Will the Guptas be able to pull this off?
“The Havells Sylvania merger is complex. It involves too many transitions at the same time,” says Smith. A first-generation 73-year-old entrepreneur passing on the baton to his son; a company gobbling another that is far bigger than itself; and all this even as it tries to globalise. “Typically a company does one-two of those things at a time. So many things at the same time — at least I haven’t seen it,” he says.
Besides, Sylvania and Havells are like chalk and cheese. The former is steeped in a slow, stable, structured world of processes and hierarchies. The latter is an entrepreneurial powerhouse that is flexible, ambitious and aggressive, leaning heavily on gut feel. But Havells lacks the managerial bandwidth to handle Sylvania.
(This story appears in the 27 August, 2010 issue of Forbes India. To visit our Archives, click here.)