Management Discussion and Analysis HAVELLS - USHERING IN THE FUTURE Havells, a Fast Moving Electrical Goods brand, has been able to successfully capitalise on the shift in consumer brferences towards brmium products that facilitate comfort and lifestyle. Over the years, the Company has carved out a unique position for itself in the electrical space. This progress has been achieved on the wings of our commitment to serve our dealers and consumers by offering them a robust portfolio of products. By catering to various segments of consumers, especially those who aspire for advancements in lifestyle, we have set benchmarks for others to follow. Supporting evolution through innovation is central to Havells growth strategy. We are continuously a step ahead of the fast-changing consumer world by reinventing ourselves and reassessing the way we think and act. Our unrelenting pursuits in updating ourselves in anticipation of future changes in consumer dynamics have led us on a journey towards enhancing customer delight. With the same passion and zeal, we look forward to taking Havells to the next level by creating better value for all our stakeholders. INDUSTRY OVERVIEW Over the last year, we have seen a revival in the Indian economy with macroeconomic indicators now starting to trend favourably. With policy reforms and de-bottlenecking of processes initiated by the government, the global sentiment towards India has improved substantially. The World Bank, in its report – Global Economic Prospects – 2016, states that for FY 2016-17, India, the dominant economy in the South Asian region, is projected to grow at a faster rate of 7.8%. At the same time, global growth has slowed to 2.4% in 2015 and is expected to recover at a slower pace than brviously envisioned. Accordingly, India has once again entered the spotlight. With the government pushing for smart cities, there will be a greater demand for solutions to make homes, commercial complexes, industries and cities smarter. Initiatives by the government like “Make in India” and “Digital India”, amongst others, will further boost interest in India as it gives a fillip to the manufacturing sector. FUTURE READY: Laying the groundwork for long-term growth At Havells, we are excited about our mission to constantly transform ourselves into a more consumerfocussed company. Our journey until now has been challenging and characterised by major initiatives that have taken us from one phase of growth to the next as we lead the way to a vibrant future India. Connect with customers, retailers and dealers Havells continues to invest substantially in its core businesses to gain further market share, thereby bucking the frugal spending trend by corporates in the electrical space. We are continuously investing in products to anticipate the growing aspirations of consumers. We are also constantly working towards better alignment with our channel partners to address the changing environment. Continuous effort have been initiated to enhance our ‘connect’ with retailers and consumers through both people and technology. Havells’ strategies hinges on leveraging long-term growth opportunities and thus the Company is continuously investing in products and technology that fuel growth and make it ‘future ready’. As businesses have begun to operate in entirely new ways, creating greater value by leveraging technology, unbrcedented opportunities have been uncovered. Our recently launched mobile-based application for dealers and consumers has enabled us to connect better and use technology to drive sales efficacy through hand-held devices. Our mobile application for consumers - ‘m Connect’ - has a unique augmented reality feature that enables consumers to visualise products at the place of installation. Adopting a participatory approach, our connect with the retailers and electricians has been further strengthened through various initiates like Sampark Plus and Power Plus. We take pride in the fact that we are well connected with our dealers and distributors. Over the years, the bond has only become stronger through strategic initiatives for dealers. We are constantly in touch with our dealers across the country through regional meetings. We have also been conducting conferences with dealers at international locations. All this has not only resulted in stronger relationships but better co-ordination and information sharing. In a two-way exchange of information, the informal environment helps us to combrhend the real happenings on ground and at the same time provides us with an opportunity to effectively update dealers about the Company’s product programmes. We see a win-win situation in our conscious effort to increase the earnings of the dealer as it cements a long cherished partnership between them and the Company. Brand building In this financial year, we extended our brand campaign to include the theme - respect for women. Using an unconventional mode of communication, we sought to enhance the nation’s perspective of women and celebrated the spirit of modern womanhood. In addition, we highlighted energy saving. We also leveraged digitisation to enhance our brand equity through regional brand initiatives and print. Vigorous efforts have also been made to create an identity for our ‘Standard’ brand. A new logo and brand identity seeks to align products under the Standard umbrella with today’s modernday consumers’ perceptions and requirements. We also invited Bollywood celebrity, Alia Bhatt, to be the face of the brand, as she defines energy and dynamism and has youth appeal. Based on the theme “Built for young energy”, the advertisement campaign for Standard positions it as a brand for young and energetic consumers. Standard is looking to tap new markets in India by launching superior and innovative products and entering new segments to boost business. Through multiple brands, there has been a conscious effort to create a different identity for our brmium products. Augmenting Outlets Havells achieved its ambitious target of increasing the number of Havells Galaxies across India. With over 375 Havells Galaxy stores, we have not only increased our brsence across different markets but also increased the flow of revenues from this channel. In addition to the Galaxy stores, we have also promoted our ‘Shop in shop’ where a designated space within host retailer is dedicated to the Havells brand. In addition to paying attention to our existing distribution network, we developed new customer channels such as Modern Format Retail (MFR), Canteen Store department (CSD), Energy Efficiency Services Limited (EESL) and Business to Government (B2G). INTELLIGENT PRODUCTS TO SUIT GEN-X Across product lines, we have introduced intelligent product ranges which are far superior in terms of technology and user friendliness. These products have been launched to provide smarter solutions to our consumers. The product extension also allows us to cover the uncovered distribution network. As Havells expects the next stage of growth to be powered by technology driven products, we are working to synchronise the conventional product range with the ones that can be br-programmed, contribute to energy efficiency and get connected using solutions such as the Internet of Things. The smart products trend dovetails with the Central government’s Smart Cities initiative. Accordingly, we have continued to focus on diversifying our product portfolio with adjacencies to the current offering. Besides new products, we also focus on product evolution, differentiation and customer choice, which will go a long way in sustaining our market leadership position further. We have undertaken technologybased product extensions in the new category, i.e., LED lighting and product extension, in the existing category of Switches, with a focus on home automation. With the introduction of products like air fryers and air purifiers, we will be targeting health conscious consumers across the country. HAVELLS INDIA LIMITED (STAND ALONE) SEGMENT DISCUSSION SWITCHGEARS There has been a continuous focus on the traditional business segment, with a continuous focus to serve the consumer better. In this financial year, we introduced the Havells Euro-II series range of Switchgears, developed keeping in mind the safety requirements of new age customers, who use multiple appliances that often overloads the wiring system. Apart from meeting international standards, the Euro-II series offers safety terminals to eliminate human errors by electricians and new outer designs for better air circulation. We also launched a super-brmium range of distribution boards that match with modern day décor and aesthetics. These offers unique metallic, leather, wood and marble finishes combined with features such as magnetic locks, sleek curves, scratch resistant glossy surfaces with metallic paints and designer handles colours. In an attempt to connect our products through technology, home automation is an area of focus wherein fan and light sources could be controlled through the use of technology. In this financial year, Switchgear witnessed a modest growth in its revenue. Cost efficiency measures and better price management led to margin improvements in Switchgears. The Switchgear division registered net revenues at Rs. 1,286.1 crores during FY 2015-16 with contribution margins at 39.2% compared to net revenues of Rs. 1,279.0 crores with contribution margins at 34.3% during FY 2014-15. CABLE Cables account for a considerable portion of the revenue mix. During the financial year under review, this segment witnessed volume growth but as there was volatility in commodity prices, the volume growth did not translate into revenue growth. The segment registered improvements in margins as a result of the focus on cost efficiency measures and the brand strength. The Cable division registered net revenues at Rs. 2,208.1 crores during FY 2015-16 with contribution margins at 14.2% compared to net revenues of Rs. 2,190.4 crores with contribution margins at 12.1% during FY 2014-15. LIGHTING & FIXTURES Lighting products have witnessed a radical transformation. Our division catering to this segment is well positioned to capitalise on the change from conventional lighting to energy efficient, LED, lifestyle focussed lighting. In sync with the fast changing lighting industry, we have also expanded our brsence in the new areas of LED application. Today, over 51% of revenues from lighting business comes from LED lighting. Where the Consumer lighting segment is concerned, we have expanded our range and strengthened it with exhaustive surface, colour changing and ambient dual colour products to improve the aesthetics of the Home. We have not left any stone unturned in the Commercial space as well where we continue to entice the market with our new LED landscape range. The acquisition of Promptec is an ideal fit for Havells as it is expected to provide substantial impetus to Havells’ growth plans in the high potential segments of LED and Solar Solutions. To increase customer segmentation, we have started focussing on EESL and CSD. As a stand-alone company, our Lighting business is well positioned to capture the value that is shifting from individual products to connected LED lighting systems and services, more than offsetting the decline of conventional lighting. The Lighting & Fixtures division registered net revenues at Rs. 801.6 crores during the FY 2015-16 with contribution margins at 24.1% compared to net revenues of Rs. 741.0 crores with contribution margins at 26.6% during the FY 2014-15. ELECTRICAL CONSUMER DURABLES In line with a continuous focus on innovation and energy efficiency, we have launched the country’s first most energy efficient fan - ES 40, which is a blend of energy conservation and elegant design. The key USP of the ES 40 is the energy efficiency quotient as the fan consumes only 40 watts of electricity, while a normal fan consumes between 75-80 watts of electricity. In continuation with our strong focus on investments in world class manufacturing facilities, our state-of-the-art unit for water heaters at Neemrana, Rajasthan has become operational. This plant has the unique ability to manufacture most of the critical components in-house, adhering to stringent quality norms. It is the only plant in the country to use the world’s latest FeroGlas dry powder technology wherein the powder becomes a uniform glass line coating once baked at the high temperature of 850 degrees Celsius. This brvents the tank from corrosion and extends its life even in hard water conditions. The plant is a zero discharge manufacturing facility, in line with our environment-friendly policy, and will go a long way in promoting sustainable growth. In the appliances segment, newer ranges of air coolers were introduced. We have also introduced lifestyle based products like Air Fryers and Air Purifier, which have a niche market as of now. The Electrical Consumer Durables division registered net revenues of Rs. 1,141.1 crores during FY 2015-16 with contribution margins at 25.2% compared to net revenues of Rs. 1,028.3 crores with contribution margins at 25.1% during FY 2014-15. FINANCIAL PERFORMANCE REVIEW The key highlights of financial performance of stand-alone business are as under: • Total Revenue for the FY 2015-16 was Rs. 5,436.9 crores compared to Rs. 5,238.7 crores in the brvious year, a growth of 4%. • Earnings before interest, debrciation, tax and amortisation (EBIDTA) for the FY 2015-16 rose to Rs. 749.3 crores from Rs. 699.1 crores in the brvious year, a growth of 7%. • Profit before tax (before exceptional items) for the FY 2015-16 increased to Rs. 711.8 crores from Rs. 646.2 crores in the brvious year, a growth of 10%. During the year, Company has paid an interim (special) dividend of Rs. 3/- per equity share of Rs. 1/- each. The Company has also recommended a final dividend of Rs. 3/- per equity share of Rs. 1/- each, subject to approval of the shareholders. The second half of the financial year witnessed early signs of a recovery. The substantial decrease in commodity prices impacted revenue growth in the cable segment, which contributes considerably to the total revenue mix. Thus despite volume growth, revenue growth remained modest during this financial year. Despite this unbrcedented situation, we were able to mobilise internal resources effectively to mitigate the impact on profitability. Our focus on cost efficiency throughout the product portfolio enabled us to improve margins across product segments. Domestic trade has witnessed sequential improvements aided by our continued focus on innovations and brand building, supported by competitive marketing investments and enhancements in our go-to market infrastructure. The year witnessed a drop in exports as earlier the export strategy was aligned to the international business. It is now a focus area way forward. SYLVANIA Havells divested from its international operations during this financial year. Havells India Limited’s wholly owned subsidiary i.e. Havells Holdings Limited, Isle Of Man has entered into a definitive agreement with Shanghai Feilo Acoustics Co Ltd (“Feilo”) for stake divestment of 80% in its wholly owned subsidiary Havells Malta Limited (excluding its subsidiaries based in United States, Chile, Thailand and Brazil). Further, Havells India Limited also divested its 80% stake in wholly owned subsidiary, Havells Exim Limited, Hong Kong. The combined equity value for 100% stake for both companies was Euro 186 million. OPPORTUNITIES 1. Growth in the Housing Segment India is a rapidly transforming society. The country’s demographic advantage and enhanced investments in infrastructure, manufacturing, education and socio-economic well-being are expected to create new opportunities for growth. Side by side, the Government has been focussed on its mission of ‘Housing for All by 2020’. Towards this end, it has created a more robust delivery mechanism for subsidies and facilitated developers with policy changes too. All these measures will have a positive impact on growth in the housing sector and as a result, boost housing products. 2. LED Lighting Segment Growing awareness about the environmental benefits of LED lights and the cost saving that they deliver during their life has spurred demand for these products. Further, the government’s drive to replace existing street lights with their LED counterpart will also increase the overall demand. Havells has been able to capitalise the change in technology in the lighting segment. 3. Focus on Lifestyle products Over the past two decades, liberalisation and globalisation has brsented people of all ages with more choices in the market place. At the same time, faster economic growth has augmented disposable incomes. The combination of these two trends has given rise to demand for more aspirational and lifestyle products. Anticipating this, the Company has been delivering lifestyle products to consumers and benefiting from this trend. THREATS 1. Macroeconomic Scenario Due to the strong linkage between the manufacturing sector and the economy, macroeconomic conditions impact the Company’s growth in the short term. Ensuring a diverse brsence across all segments of consumers with a bias towards those who have less elastic demand has insulated Havells in times of economic down-cycles. 2. Competition Competition, whether domestic or international, is always a challenge and transforming challenges into opportunities has been a practice at Havells. RISK MANAGEMENT AND GOVERNANCE Havells is committed for global benchmarking in good corporate governance, which promotes the long-term interests of all stakeholders, strengthens Board, create self-accountability across its management and helps built public trust in the Company. A robust internal financial control system forms the backbone for our risk management and governance. In line with our commitment to provide sustainable returns to all our stakeholders, Havells has formalised clearly defined systems and policies for timely addressing key business challenges and opportunities. Enterprise Risk Management (ERM) is a key strategic focus which encompasses: Aligning risk appetite and strategy: Management considers the risk appetite in evaluating strategic alternatives, setting related objectives, and developing mechanisms to manage related risks. Enhancing risk response decisions: It provides the rigour to identify and select among alternative risk responses - risk avoidance, reduction, sharing, and acceptance. Reducing operational surprises and losses: It helps to enhance capability to identify potential events and establish responses, reducing surprises and associated costs or losses. Identifying and managing multiple and cross-enterprise risks: Enterprise risk management facilitates effective response to the interrelated impacts, and integrated responses to multiple risks. Seizing opportunities: By considering a full range of potential events, management is positioned to identify and proactively realise opportunities. Improving deployment of capital: Obtaining robust risk information allows us to effectively assess overall capital needs and enhance capital allocation. The twin purpose of Enterprise Risk Management at Havells is to minimise adverse impacts and to leverage market opportunities effectively. The objective is to sustain and enhance short-term and long-term competitive advantage to the Company. A structured risk management system permits the management to take calibrated risks. This system provides a holistic view of the business, wherein risks are identified in a structured manner at two levels. The bottom-up approach is conducted through workshops with respective team at branch, factory and corporate functions. At another level, the topdown approach enables discussion of all risks and opportunities at the management level, to be included thereafter in the subsequent reporting process. In line with Companies Act 2013 and as per guidelines of the Institute of Chartered Accountants of India (ICAI), management has taken appropriate measures for orderly and efficient conduct of its business, including adherence to Company’s policies, the safeguarding of its assets, the brvention and detection of frauds and error, the accuracy and completeness of the accounting records, and the timely brparation of reliable financial information. Key ERM Practice at a Glance Brainstorming session is carried out at periodic intervals by cross functional team for identification and treatment of emerging business challenges and to overview the progress on agreed milestone. Most recent status is brsented before the Steering Committee and ERM Committee of the Board for their perusal. Self-monitoring mechanism has been put in place for performance of key business activities and timely compliance of applicable statutory provisions. Monthly performance rating is done for all plants and branch locations for healthy competition and self-bench marking. Risk Control Matrix (RCM) has been brpared for financial and operational functions and their mapping done with ERP or Compliance management system Fraud brvention and control assessment is done periodically. To further enhance the system control implementation of SAP, GRC (Governance, Risk & Compliance) is in process. The formation of various groups like Business Management Group (BMG), Channel Management Group (CMG), Strategic Business Unit (SBUs) ensures smooth operational and financial management. These teams engage in selfbenchmarking and enable optimum utilisation of available resources. Risk-based internal audit is performed and root cause analysis along with action taken status is brsented before the Sub Audit Committee and Audit Committee on a periodical interval. DISCLAIMER CLAUSE Statements in the Management Discussion and Analysis Report describing the Company’s objectives, projections, estimates, expectations may be “forward-looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the Company’s operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors. |