1. Sell Lloyd Electric, buy Havells India, says Sandip Sabharwal post Rs 1,600 crore buyout

Sell Lloyd Electric, buy Havells India, says Sandip Sabharwal post Rs 1,600 crore buyout

Investors in the homegrown engineering, electrical equipment and appliances company Lloyd Electric and Engineering should exit their holdings in the firm, investment and stock advisor Sandip Sabharwal said on Monday after Havells India acquired Lloyd’ consumer durables business for Rs 1,600 crore.

By: | Published: February 20, 2017 10:28 AM
Shares of Lloyd Electric plunged, primarily due to the tight valuation at which the deal is concluded, implying heavy discount on the company as compared to its peers. (Image: PTI) Shares of Lloyd Electric plunged, primarily due to the tight valuation at which the deal is concluded, implying heavy discount on the company as compared to its peers. (Image: PTI)

Investors in the homegrown engineering, electrical equipment and appliances company Lloyd Electric and Engineering should exit their holdings in the firm, investment and stock advisor Sandip Sabharwal said on Monday after Havells India acquired Lloyd’ consumer durables business for Rs 1,600 crore. It is right time to exit Lloyd Electric, as there is “no story”, Sabharwal said to ET Now.

Shares of Lloyd Electric plunged, primarily due to the tight valuation at which the deal is concluded, implying heavy discount on the company as compared to its peers. Lloyd Electric was trading down 12.46% at Rs 287.

Concerns over margin drag post the acquisition weighed on the shares of Havells India too, with the shares falling as much as 2.5%, before recovering to trade at Rs 420.95, down 1.16%. Lloyd’s operating margins at 7.6% for the last financial year are just about half that of Havells India.

Sandip Sabharwal said the correction in Havells shares present a good opportunity to buy into the company, as the deal is positive for it.

Havells India also tried to allay the fears on margin drag, saying that it expects Lloyd’ margins to close the gap with its own in the next few years, as Lloyd’s margins are lower at present due to high spend on advertising and brand building.

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Havells said that the company will look for a debt of Rs 500-600 crore, in addition to its own internal resources, to fund the acquisition. Havells has a healthy balance sheet and is debt-free, it said. Havells had cash and cash equivalent reserves worth Rs 1,344 crore at end of the last financial year 2015-16, primarily helped by the sale of its overseas assets.

Lloyd consumer appliances is the is third largest player in the room AC segment after Voltas and LG.

Havells will buy the Lloyd brand and its consumer durable business, which is engaged in sourcing, assembling, marketing and distribution of consumer durables including air-conditioners, TVs, washing machines and other household appliances, it said.

The acquisition will be executed on a debt free, cash free basis subject to closing adjustments, the company said. The transaction is expected to close in the next eight weeks.

 

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