Note:Home appliance launched by havells comes under the segment of Electrical Consumer Durables

Why Havells has added this new product line:

The electrical equipment maker is betting big on consumer appliances. A month before Diwali 2011, Havells India, best known for electrical equipment like switches, cables, fans and bulbs, launched its range of home appliances irons, mixer and grinders, juicers, toasters, electric kettles, and blenders et cetera under the Havells brand. The price tags were premium above rivals like Philips and Bajaj and in the same bracket as Morphy Richards and Oster. The products are yet to roll out nationally. Still, home appliances are fetching Havells India around Rs 15 crore a month. Till some years ago, the home appliances market was extremely fragmented. There were a few national players like Philips and Bajaj, but there were powerful regional and local brands. Production was in the small-scale sector and tax evasion by factories was rampant. Local players sold at rock-bottom prices. In the last few years, production has moved to the hill states of Uttarakhand and Himachal Pradesh, where huge tax concessions are on offer. This has almost killed the small and local price warriors. The market, according to Havells India Joint Managing Director Anil Gupta, is about Rs 5,000 crore and is growing at 10-12 per cent annually. The premium end of the market is worth almost Rs 500 crore. What perhaps gave Havells the confidence to launch home appliances was the companys performance in other consumer categories. In switches, it has cornered almost 20 per cent of the market, 15 per cent in fans, 20 per cent in cables and 12-13 per cent in lights and fixtures. Internal research has shown that people now consider Havells a household brand and not an industrial or backend brand. Havells strategy has been to leverage its distribution network to launch new products. Thus, it used the channel for switches to launch fans, lights and cables. Most companies that sell electrical equipment also stock home appliances. Last year, Havells had launched geysers which 70 per cent of its retailers sell. And now, almost 70 per cent of the retailers will stock the home appliances also. Qimat Rai Gupta is also hopeful of getting into modern trade and is eyeing good volumes from the 190 Havells Galaxy stores.

Qimat Rai Gupta knows that the home appliances market is tough. Apart from national players like Philips and Bajaj Electricals, there is Inalsa in the east, Maharaja in the north and Preeti in the south. Havells premium price tags may be fine, but the products need to be properly differentiated. He lets in that work started on the range almost two years back. Havells had

acquired Sylvania in April 2007 for 227 million Euros from a clutch of financial investors. The acquisition came with a design centre at Guangzhou in China. Havells have since expanded it to about 100 engineers, says he. The entire home appliances range has been designed here, keeping in mind the demands and needs of an Indian housewife. Since Indians do a lot of wet grinding, the Havells grinders have been fitted with a 900-watt motor. The toaster comes with a lid so that cockroaches dont get inside when it is not in use.

Almost 60 per cent of the range is being manufactured under contract by five companies in Uttarakhand and Himachal Pradesh. The rest, says Qimat Rai Gupta, is being imported from China. The company plans to set up a factory at Hardwar to make some of the appliances. Legend has it that the name Havells derives from the founder of the company, Haveli Ram Gandhi (fashion designer Rohit Gandhis grandfather). The company, as well as the brand, was bought over by Qimat Rai Gupta, a cable dealer in 1971. Anil Rai Gupta, Qimat Rai Guptas son, says the company had a German association, and thus the Havells brand could have come from there. Whatever be the origins, the brand has expanded in the last few years. Of its annual turnover of Rs 3,000 crore or so, the company sells almost 90 per cent, or close to Rs 2,700 crore, under the Havells brand. The other brands in its portfolio are Crabtree (Rs 200 crore per annum) and Standard (Rs 100 crore). The company also owns the Sylvania brand. Qimat Rai Gupta says it wasnt chosen for the foray into home appliances because of its strong association with lighting. Thus, when the company launched switchgear in the UK recently, it did so under the Havells brand. The Havells prefix, of course, has been added to Sylvania. That association also led to a change in the brand. Earlier it was Havells. So, Havells Sylvania gave the impression that Sylvania had become a sub-brand. To remove that perception, the apostrophe was dropped and Havells became Havells. The campaign for the home appliances range has been created by Lowe Lintas. Some like the Shock laga campaign worked, some like the one that showed a flood of sweat (because Havells fan hadnt been switched on) didnt. This time, its a simple campaign that shows the entire range. Almost 30 per cent of the companys ad budget has been set aside for home appliances. From home appliances, consumer electronics sounds like the next logical step. Qimat Rai Gupta says that could happen in the future, but in collaboration with a partner. Unlike what the company has sold till now, consumer electronics is a technology-intensive market. The collaboration will perhaps plug that gap. Mr. Gupta says that last year Havells had seriously looked at airconditioners. But the hitch was that only 25 per cent of its retailers could have stocked airconditioners. The proposal was thus given up.

 How this new addition has affected the revenue or sales and total standing of the firm in the market (Change in stock prices or or image or more market coverage or)?
Havells, already a leading player in the Electrical and Power Equipment Sector, Lighting & Fixtures Segment and Consumer durables like fans in India has expanded its portfolio into the business of Home Appliances. The business is synergetic to consumer durables and will get benefit of Havells brand which has huge acceptance in fans and geyser market. It has been decided to invest Rs. 70 Rs. 80 Crores (approx.) in marketing, research and development in this segment range over the next two to three years. The products were initially sold in top 40 cities through some 4,000 outlets retailing electrical goods and also through Havells exclusive Galaxy stores.

Havells India, entered the home appliances business in August 2011, is targeting better revenues from this segment going forward. The company best known for electrical equipment like switches, cables, fans and bulbs, has launched its range of home appliances - irons, mixer and grinders, juicers, toasters, electric kettles, and blenders under the Havells brand. So far, it has received tremendous response from customers to the appliance products. The company targets to achieve around Rs 300 crore turnover in the next three years from this category. The home appliances market in India is currently pegged at Rs 5,200 crore, where the premium segment has 30 % share, and major players are Phillips, Panasonic and Morphy Richards. The overall market is growing at 20-25% year-on year. Havells plans to invest Rs 70-80 crore in branding, product development and marketing. It also plans to launch room coolers and water dispensers in the next six months besides launching 5 more models under its mixer grinder category. It has tied up with some international players to bring their technology in product development. Launching its home appliances products in the Andhra Pradesh market, it is targeting 10% market share in the home appliances market in AP. Havells at present retails its home appliance products in metros and Tier I cities. It plans to enter Tier II, Tier III and rural markets in three years

A.1.1

Stock Performance since entry into Home Appliances business

Havells has made a mark in the fan industry in India over short span of time and had reached millions of homes in India as consumer preference for premium quality. The success in the fan segment gave us an initiative to launch small appliances. Specifically designed for the changing preferences of quality conscious customers, the Havells Pro-Hygiene range of appliances, tries to enhance the overall consumer experience in the modern kitchens and homes. All the appliances are truly international in technology, design with the highest level of cleanliness and hygiene with ease. Although currently small, the business is progressing well, and has the potential for scale up by leveraging the existing supply chain and product development. Your Company is investing behind these categories and building consumer relevance and brand differentiation through new products, new consumption moments as well as through new communication. The electrical consumer durables division registered net revenue of Rs 572.08 crores during financial year 2011-12 as compared to Rs 469.15 crores during financial year 2010-11, a growth of 22% .The contribution margins had shown an improving trend with the similar growth.

Growth in domestic operations driven by lighting division and launch of new home appliances Havells standalone revenues increased by 26% in Q3FY12 to Rs. 896 crore from Rs. 713 crore in the corresponding previous. The growth in top-line was largely

driven by the contribution from new home appliances, robust growth in the lighting & fixtures division that reported 28% growth over the previous fiscal, and an increase in prices to pass on the higher raw material cost especially in cables and wires division. The sale of home appliances and water heaters contributed Rs 36 crore to the revenues in Q3FY12, as against Rs 15 crore in the corresponding previous, while sale of fans also picked up to 16% as against lacklustre performance of most competitors in the fan industry.

Havells standalone growth to be driven by new launches in ECD segment; lighting business continues its stellar performance Havells standalone revenues, including Standard Electricals, increased by 26% in Q3FY12 compared to Q3FY11, primarily driven by strong revenue growth in the lighting and ECD divisions. The contribution margins continue to show encouraging improvement, especially for the lighting segment that benefited from a favourable product mix and reduction in warranty

claims. The higher realisations in most of the segments helped Havells report a much stronger EBITDA margin in this quarter. The switchgears segment, that earns the highest contribution margins, continued to be a laggard in terms of revenue growth because of modest exports in 9MFY12. However, the company has recently launched switchgears in Europe, and expects revenues of 10-12 million in CY12, which should support growth in FY13 (the revenues from Europe would be negligible in FY12). The ECD division posted a revenue growth of 35% benefiting from the launch of home appliances, with fans growing at a modest pace of around 16%. The sale of home appliances and water heaters contributed Rs. 36 crore to the revenues in Q3FY12, as against Rs 15 crore in the corresponding previous (and Rs 18 crore in Q2FY12). Although volume growth in fans was subdued in H1FY12 because of a moderate North Indian summer, the growth revived as per our expectations, with the company witnessing 9% volume growth in Q3FY12. Given the seasonal nature of fan sales, the growth is expected to continue in Q4FY12 as well. In Q3FY12, sale of water heaters and launch of home appliance s was the major revenue driver for the segment, but the water heater component is likely to be lower in Q4FY12 which would be partly compensated by a higher growth in fans and home appliances. We maintain our estimates for Havells ECD division.

Overall, the ECD and lighting divisions would drive the standalone profit growth of Havells over FY12(E) and FY13(E), the key driver being launch of electrical appliances. As per companys estimates, the total market for electrical irons, juicers and mixers is around Rs 4,000 crore, with the top 2-3 players accounting for more than 40% of the total market. Havells premium product image and existing distribution channel, which accounts for about 60% of the sales of home appliances, are expected to help it in pushing the products in the market. Hence we expect it to capture a modest market share (2-3%) by FY13(E). The company expects revenues of about Rs. 70-80 crore from water heaters and Rs 100 crore from home appliances in FY13(E), which would support revenue growth in the segment.

G. MARKET NEWS

Does this new line add value or benefit to the consumer?Why and How?

Havells, India's fastest growing electrical consumer durable and power distribution brand, launches its premium Domestic Appliances range. This range is designed to enhance the overall consumer experience in the modern kitchens and homes. All the appliances are truly international in technology and design and the range offers different product categories like Garment Care (Steam Iron, Dry Iron), Cooking (Pop-up Toaster, Sandwich Toaster, Induction Cooker, Electric Cooker), Brewing (Kettles), Food Preparation (Juicer, Mixer Grinder, Blender), Home Comfort (Room Heater).

Fascinated with the consumer preference for Havells world class products, Havells had launched the complete range of small appliances in the premium category. The idea is not to just provide another product to the consumer but to provide an experience of comfort, life style and ultimate satisfaction of the changing needs.

In the past few years, home appliances have seen tremendous advancement in their features and aesthetics. They have become more powerful, more automated, better looking and even more efficient. However one aspect that has not received as much attention is the maintenance of high standard of hygiene in appliances. For instance, toasters may offer many innovative features but don't offer the ease of dealing with dust or bread crumbs. While steam irons may have progressed to provide multiple temperature settings but have no means to clear sediments and corrosion particles that get accumulated. In fact, the list can be endless and this is an area of extreme relevance, given the fact that these appliances handle pretty much all that we eat, drink or wear on a daily basis. When Havells created its appliances, it not only strived for the best performance, features, efficiency and aesthetics but also had a special focus towards hygiene. This focus started right from the designing and materials to ensure the appliances are able to maintain the highest level of cleanliness and hygiene with ease. Ensuring that users only get the best out of these appliances, while still being easy-to-clean. All this happens as a consequence of sophisticated designing, additional hygiene-focused

features and the use of the best food grade coatings and materials. Simply put, Havells extensive range of appliances would add ease and quality in fabric care, food processing and preparation. They come with multiple best-in-class features which are not exclusive only to the top range but are offered across most models. Havells brand endeavor is to offer unique features across all appliances like the Digital Steam Iron, Perfect Point Steam Iron, Vetro Glass Kettle, Dual -voltage Travel-mate Kettle, Max cookers with three dimensional heating, Indianised cooking panel in the induction cooker, unique Pizza Pan Tray in OTGs, LED lit pop up toasters and many more. All products are designed and manufactured with world class quality & performance and come with a 2 year warranty. Our pan-India service setup is committed to offer the best service, if and when, there may be a need.

Until a decade ago, we would have to go to several shops and stores, to do our household shopping. Then came the supermarket, and in todays scenario, with Food Bazaars, we have the option of shopping for everything related to the home, under one roof. Similarly, before the advent of the departmental store, one would have to go to as many as 10 stores to buy different items of clothing, accessories and so on. Now, with Pantaloons, Shopper Stop and other such departmental stores, we can be in the cool confines of a well appointed multi-level store that stocks everything from socks, to suits, to shoes. This has meant a transforming change in our buying habits and patterns. Gone are the days of store-hopping, and in are the times of the all-under-one-roof convenience. So why must it be any differentwhen it comes to our home electrical needs? After all, this too is a widespread product category that includes several things that we have to hunt for at different shops. Well, those days of hunting for wires at one hardware store, and switches at another, are also thankfully behind us. Say hello to the electrical mega-store! Geysers, Motors, CFL, Wires & Cables, all the way to Circuit Protection, Capacitors, and Fans; even Lighting and the extremely popular Modular Switches; all this and more is now made by the same brand, and the choice of brands here is world class and endless. And the best part, these brands have stand alone flagship stores. Think of them like supermarkets for all your electrical needs, where under one giant space, you have all the convenience and luxury of experiencing all these products in real world situations first, and then, buying whatever you need, all at the same place! Companies such as Havells, with their dedicated super stores like Havells Galaxy, have taken the game to a whole new level. As the name suggests, Havells Galaxy is an initiative taken by the company for the customers to provide them with the complete range of electrical products manufactured by Havells and facilitate them with personalized services and support; all under a single roof! With an already robust network of 190 Galaxies in various cities across the country,

Havells is quickly adding Galaxy outlets sooner than one can imagine; providing perhaps for the first time in India, a one-stop-shop for all your electrical component needs, at a single point of purchase, with world class products The super store of the 21st century has made strides that are revolutionary, and continues to innovate and accelerate, and challenge convention. A one stop shop, unlike any other!

Is this new addition is consistent with the existing Portfolio of the company?

The launch of Home appliances is consistent with the existing Portfolio of the company as it falls under the segment of Electrical Consumer durables.Thriving for the leadership position in electrical markets, Havells has diversified into various verticals of electrical consumer products. Using the same distribution network and brand, we had launched over a period of time, cable, electrical wiring accessories, motors, capacitors, lighting and fixtures, electrical consumer durables including fans and small domestic appliances in addition to traditional switchgear range of domestic and industrial. Having a product portfolio unrivalled in the Indian electrical industry, Havells caters to the electrical needs of a household, small industry, institution and commercial establishment. We have become prominent in consumer and dealer space by expanding the product portfolio and selling through the same distribution channel. In an attempt to promote product portfolio and facilitate the consumer experience while taking initiatives for our dealers, Havells brought forward the concept of Havells galaxies one stop shop showcasing entire product range. This is an attempt to reach the consumers directly and enhance our brand visibility. Owned by our dealers and acting as an alternative business which synchronizes with the existing business; these help to attract premium customers and provide a unique shopping experience. Thus through Havells Galaxies we repositioned the same network channel to cater to the changing demands of the consumers for balancing price with quality, convenience, consistency, innovation and above all to give the consumer a unique shopping experience.

 Does this line addition provide competitive advantage in the market?

The segments in which Havells operates (except cables) are characterised by limited capital expenditure (capex) requirements and availability of outsourcing or imports to meet demand. Consequently, Havells faces intense competition in most of its business segments. Although there is only one large company - Crompton Greaves - that is into similar areas of operation as Havells, low investment requirements have resulted in significant competition from single-product/segment companies (refer Figure ) and unorganised players. In this scenario, an established brand name and distribution network become critical, as the same cannot be easily replicated. Havells ability to differentiate products (for instance, introducing additional attributes like low power consumption and electric shock prevention), and its effective brand building initiatives, thus, restricts competition from the unorganised sector to some extent.

Until 2QFY11, Havells only had fans in its consumer durables portfolio. It enjoys 13% market share in fans, with competition mainly coming from Crompton Greaves, Orient Fans, Bajaj Electricals, Usha, etc. Havells has positioned its fans in the premium category. Its fan business EBIT margin was 28% in FY10. The lower end of the market remains intensely competitive, especially for table top and portable fans, and is dominated by unorganized players or Chinese imports. Low penetration of ceiling fans in rural areas and the construction boom in the urban areas will drive demand for the product. Havells intends to expand its consumer durables portfolio by including geysers and irons. It has already launched geysers in 2QFY11 and has been generating decent revenue. We expect geysers to contribute revenue of Rs400m in FY11, and grow at 35-40% over the next few years.