“Lloyd Electric and Engineering to Update Investors on...

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“LloydElectricandEngineeringtoUpdateInvestorsonSaleofConsumerDurablesBusiness”

February21,2017

ANALYST: MR.SALILUTAGI‐EDELWEISSBROKINGLIMITED

Edelweiss Broking Limited February 21, 2017

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MANAGEMENT: MR.BRIJRAJPUNJ–CHAIRMANANDMANAGINGDIRECTOR‐LLOYDELECTRICANDENGINEERINGMR.NIPUNSINGHAL‐DIRECTORANDCEOOFCONSUMERDURABLEBUSINESS‐LLOYDELECTRICANDENGINEERINGMS.ANITAKAKARSHARMA–COMPANYSECRETARYANDVPFINANCE‐LLOYDELECTRICANDENGINEERING


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Moderator: Goodmorningladiesandgentlemen,welcometotheConferenceCallofLloydElectricand

Engineering to Update Investors on Sale of Consumer Durables Business hosted by

Edelweiss Broking Limited. As a reminder all participant lines will be in the listen only

mode and there will be an opportunity for you to ask questions after the presentation

concludes.Shouldyouneedassistanceduringtheconferencecall,pleasesignaltheoperator

bypressing“*”then“0”onyourtouchtonephone.Pleasenotethatthisconferenceisbeing

recorded. Iwouldnow liketohandtheconferenceovertoMr.SalilUtagi fromEdelweiss

BrokingLimited.ThankyouandovertoyouSir!

SalilUtagi: Thanks.Wewelcomeyouall to conference callwith themanagementofLloydElectric&

EngineeringtoDiscussSaleofConsumerDurablesBusinesstoHavellsIndia.Wehavewith

usseniormanagementofLloydElectricrepresentedbyMr.BrijRajPunj–Chairmanand

ManagingDirector,Mr.NipunSinghal,DirectorandCEOofConsumerDurableBusinessand

Ms.AnitaKakarSharma,CompanySecretaryandVPFinance.NowIhandover thecall to

Mr.BrijRajPunjforhisopeningremarks.OvertoyouSir!

BrijRajPunj: ThankyouSalil.Goodmorningtoallofyou.OnbehalfofLloydElectric, Iwelcomeyouto

this investor call which we have arranged exclusively for addressing the sale of our

consumerdurablebusiness(CDB)toHavellsIndia,whichwasannouncedbytheboardof

directorsattheirmeetingheldonthe19thofFebruary.

LloydhasenteredintoanagreementwithHavells IndiaLimited, forthesaleofconsumer

durablebusinesstogetherwiththerights, title, interest,assets, licensesetc., includingthe

trademark“Lloyd”onaslumpsalebasis,onanongoingbasis for theenterprisevalueof

1550Crorestothebuyer,subjecttosatisfactoryduediligenceandclosingconditions.

Postthetransaction,thecompany’sOEMbusinesswouldenterintoasupplyarrangement

for the supplyof air conditionersandotherproductsasa thirdparty supplier toHavells

Indiaforthe“Lloyd”brandedproduct

Post the saleofCDBbusiness, the companywould focuson itsB2BbusinessofHVAC&R

(HeatingVentilationAirconditioning&refrigeration)whereinthecompanyenjoysstrong

marketleadership.ThesaleoftheCDBwillnothaveanyimpactonthecompany'sexisting

business of the air‐conditioning. The company has ventured into the consumer durable

segmentin2011byacquiringthedistributionnetworkandassignmentofLloydtrademark

from its associate company,FeddersLloydCorporationLimited.Over thepast fewyears,

thesegmentrevenuehasgrownataCAGRof30‐35%.Inthelightofthechangingeconomic

scenario and due to the increasing competitive environment, the consumer durable

businessofthecompanyhasreachedastagewheresubstantialcapitalisrequiredtocreate

andsustainfuturegrowthmomentumbytakingthebrandtothenextstage.Thecompany

had engagedE&Y as advisors for advising on various strategic and financial alternatives.

However,aftervariousdiscussionsanddeliberationsandkeepinginviewthefactthatthe


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consumer business has reached a stage where immediate growth capital needs to be

injected for sustaining at current level and for the next growth phase in view the high

competitiveenvironmentinwhichtheindustryoperateswhereinotherplayershavestrong

financialbackup,itwasdecidedtodivestthebusiness

ThenetproceedsfromthesaleoftheCDBwouldbepartiallyutilizedtowardsdownsizing

theover‐leveragedbalancesheetbyreducingtheshort termandlongtermdebtandalso

investinginorganicandinorganicgrowthmomentuminhighmarginbusinesstomaximize

shareholdervalue.ThecompanywouldcontinuetocarryitsB2Bbusinessofmanufacturing

of heat exchangers and air‐conditioners as OEM supplier to other brands in India and

exportmarketsalso.

Theclosingisexpectedsubjecttotheduediligenceandreceiptofthenecessaryregulatory

approvalsandclosingconditions.Wearenowopentoquestionandanswers.Thankyou.

Moderator: Thank you. Ladies and gentlemen we will now begin the question and answer session.

Anyonewishingtoaskaquestionmaypress"*"and"1"onyourtouchtonetelephone.Ifyou

wishtoremoveyourself fromthequestionqueueyoumaypress"*"and"2".Participants

arerequestedtousehandsetswhileaskingaquestion.Ladiesandgentlemen,wewillwait

foramomentwhilethequestionqueueassembles.Wewilltakethefirstquestionfromthe

lineofRanjeetShivramfromAntiqueStockBroking.Pleasegoahead.

RanjeetShivram: GoodmorningSir.IjustwantedtoknowrightnowLloydACsandtheLloydmanufacturing

OEMwereourselves.Wasthereanydifferenceinthemarketingmarginsthatwechargefor

currentLloydACsandforotherOEMslikeOnida,Voltas,justtogetsomeclarity,wasthere

anydifferenceinthemarketingmarginscurrentlyusedtochargeforLloydACsandforthe

otherbrandACs?

NipunSinghal: Actually the contentionofmarginbetween twodivisionsof the companydoesnotarrive

becauseit isallonelegalentity.Sowhateverwasthemanufacturingcost,atthatcostthe

materialwastransferredtothebranchesofLloydconsumerdivisionbecauseeventuallyit

isonelegalentity.Therearenomarginswhichareaddedwhenthereisasinglelegalentity

becauseeventuallyitisallinthebalancesheetofLloydElectric.Goingforward,yes,there

willbeanarms lengthpricing,sogoing forwardasMr.Punjsaidtherewillbeastrategic

agreement for supply. Yes, therewill be the samemargins added as likewe do it for all

otherOEMbrandswewillbeaddingthemarginandsellingittothebuyer,HavellsIndia.

RanjeetShivram: Okay.Roughlyhowmucharethesemarginsintermsofpercentage?

NipunSinghal: ThethingisthattheOEMmarginsarealreadywithyou.Wehavegiventhesegmentwise

breakupandtheywouldbeatsimilarlevels.


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RanjeetShivram: But themarginshave increasednowbecauseLloydconsumerdurable iswithHavells. So

going forwardwill thatmargins increase, because nowwewill not sell it at cost, but at

somemarginsaddedtoit?

NipunSinghal: Absolutelyright.

RanjeetShivram: Okay,thankyouSirthatanswersmyquestion.

Moderator: Thank you. Ladies and gentlemen, in order to ensure that the management is able to

address questions fromall participants in this conference, please limit your questions to

twoperparticipant.WewilltakethenextquestionfromthelineofHarshVijayShahfrom

CrescitaInvestment.Pleasegoahead.

HarshVijayShah: Thankyou.Goodmorningeveryone.Congratulations firstofall.YesterdayonHavellscall

wedidgetquitealotofclarityaboutwhatistransferringandwhatislost.SoIjustwanted

toclarifyonthat,manufacturingfacilityfromwherewearemanufacturingforOEMsaswell

asconsumerdurablethatremainswithusright?

NipunSinghal: Thatiscorrect.

HarshVijayShah: Frombalancesheetpointofview likeourworkingcapitalsincenowwearenotgoing to

takecareofanydebtorsoranysuchsortofthing,wearegoingtosupplyittoHavellsand

Havellsisgoingtopayus.Sofromworkingcapitalwearenotbotheredanymore.Soapart

fromthatfrombalancesheetwhatisgettingtransferredlikeadebtorsomething?

AnitaKakkar: Thetransactionisdebtfree.Theshorttermdebtisnotgettingtransferred

HarshVijayShah: Thatisfine,basicallyonlyworkingcapitalnolong‐term…

HarshVijayShah: Butnolong‐termborrowingisgettingtransferredright?

AnitaKakkar: thelong‐termborrowingswouldremaininthecompanyandwouldnotbetransferred

HarshVijayShah: Thatisgreat.Mysecondquestionisnowgoingforwardisthatrightthatthereisnolocking

periodintheagreementwhereasHavellsiftheywanttomanufactureontheirownfroma

yearortwodownthelinetheycanverymuchdoso,isthatcorrect?

NipunSinghal: Yesthatiscorrect,theycandoso.

HarshVijayShah: SofromLloydperspective,onlyfromLloydperspectivewhatisourbusinessstancegoing

forward?IamassumingthefactismaybethreeyearsdownthelineHavellswillstarttheir

ownmanufacturing.Thisisahugepartofbusinessthatmayormaynotstaywithusdown

theline,butfortheLloydperspectivewhatisthegrowthopportunitythatwearelookingat

andfromwherewearelookingintothat?


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NipunSinghal: IthinkifyoulookatalltheOEMbusiness,thenatureofOEMbusinessisthatitisdependent

onquality,cost,anddelivery.Nowthisisatypicalquestionofwhethertomakeorbuy.Now

ifthereisameritformakingthenofcoursewewillgoandmake,butifthereisnomeritin

makingandifbuyingispreferablethenobviouslythecustomerwillgoforbuy.Ifitwasnot

attractiveforpeopletobuythentherewouldbenoOEMbusiness.Todaytherearesomany

brands,Idonotwanttonamethem,butyouknowtheleadingcompaniesinIndiawhyare

theybuyingfromLloydtodaybecausetheyaregettingquality,cost,anddelivery.Ifwecan

maintain quality, cost, delivery then I think even Havells as a customer or Lloyd with

Havellsinthefuturewillcontinuetobuy.Ifyoudonotdeliverquality,cost,deliverynobody

isgoingtobuy.Soitdependsonwhatisyourquality,whatisyourcost,andwhatisyour

deliverywithtermsandthatisthenatureofOEMbusinessacrossindustries.

HarshVijayShah: And just last question in extension to this is the fact that now are we the biggest OEM

manufacturersinIndia?

NipunSinghal: Yes.

HarshVijayShah: Fromcompetitionperspectivearethereanybecausewearebyfarleadingwhenitcomesto

qualitythathasbeenseenbymanyplayersandourownbrandisdoingthesamebecause

we had a consumer durable growth of 40% plus that cannot be achieved so easily. Mr.

Nipunyouhavebeenfacingthatfacingthatsincealmostlastthreefourquarterconference

callsandyouhaveverynicelyshownthatalso innumbersas tohowLloydasabrand is

gettingincreases.SoregardingOEMmanufacturingarethereanybodyelseasgoodasus?

NipunSinghal: IamsayingtherearecompetitorsintheOEMspacealso.Letusfirstpullbackalittlebitand

seewhatMr. Punj has just outlined in opening remarks is the reason and the rationale

behindthistransaction.Youareabsolutelyright,thebusinesshasbeengrowingwell.That

iswhathesaidintheopeningremarkswehavebeengrowing30%CAGR.Thepointthathe

madeisthatwehavereachedapointnowthatifwehavetosustainandgrowtheconsumer

businessfromhere,thereissubstantialgrowthcapital,whichhavetobeinjected.Nowwith

this substantial growth capital and already leveraged balance sheet will be further

leveragedandthatwouldimpactthegrowthinconsumerbusinessgoingforward,sowhat

hasbeencreatednowisawin‐winsituation.TheconsumerbusinessgoestoHavellsata

fair price so they can take this business forwardmultifold andwewill support them by

givingthemtheproduct,thetechnology,thequalityouthere,andstillretainourbusiness.

We will not lose that business so it is a win‐win situation. Both the parties here are

immenselytogain.Theyhavegotafairvaluation,theyhavegotafantasticbrandwhichall

ofyouare talkingabout that this issogood.Theygota financial resources theycan take

thisbrand3x,4xinthecomingyears.Wealsohavethebusinessparalleltosupplytothem.

AnotherpointIwilltellyouincoupleofmeetingswithMr.Roy,healwayssaidasourbrand

hasbecomesobig,alotofourOEMcustomerswerewearythatyouhaveyourownbrand.

Nowwhenthebrandisouttheothercustomersalsowill increasetheirbusinesswithus.

Lookatthesubstantialdeleveragingonthebalancesheet.


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HarshVijayShah: Definitelythatisawin‐win.Thatwaswonderfultoknowingalltheseexplanations.Iwillget

backinthequeue,Ihavefurtherquestions,thankyouverymuchNipun.

Moderator: Thank you. Thenextquestion is from the lineof Chintan Sheth fromSameekshaCapital.

Pleasegoahead.

ChintanSheth: Congratulations on the closure of the deal. One question I had on the working capital,

alreadyithasbeenmentionedthatworkingcapitaldebtwillbetransferred.Doesitmean

theinventoryreceivableandthepayableassetwillalsogettransferred,whichisincludedin

thedealof1550Crorestransactionvalue?

AnitaKakkar: Thetransactionisbasedontheenterprisevalueof1550croresoncashfreeanddebtfree

basisandincludesinventory,receivableandpayables.

ChintanSheth: Sotheexistinginventoryandthedebtorsandpayablesrelatedtothetradingbusinesswill

gettransferredwhichisincludedin1550Croresofthetransactionvalue?

NipunSinghal: The business is being sold as an ongoing concern. So, all the current assets and current

liabilitiespertainingtoconsumerbusinesswillobviouslybetransferredtothenewentity.

Thedivisionisbeingsoldonanongoingbasis.

ChintanSheth: CanwehavethatnumberasofDecemberatleast?

NipunSinghal: JustnowAnitaconfirmedthat looktheDDprocess ison.Atthetimeofclosure,theexact

numberswillbearrivedatandthenofcoursewewillbegivingtheexactnumbers.

ChintanSheth: Okay. Secondquestion,with thedeal being the trading business or the retail business is

being transferred to theHavells, Ineed tounderstandhowtheworkingcapital cyclewill

changeforusfromB2CbusinessmodeltonowB2Bbusinessmodel,whatkindofexisting

customersreceivabledaysweareactuallyhavingcurrently?

NipunSinghal: Right now the picture is a blended number, which you are seeing. The basic thing to

understandisthatletuslookatthesegmentsinwhichLloydElectricperformsrightnow.

We have talked about the OEM segment where we will definitely benefit, (1) With the

sourcingagreementwithHavells.(2)Withthe increase inbusinessfromothercustomers

whowereearliershyingivingusmorebusinessbecausewearecompetingwiththemasa

brand.Thenextisourheatexchangerbusiness,whereweareundisputedlythenumberone

manufacturer in India.We have also the radiator business,wherewe supply radiator to

railways,etc.Thenwehavetherailbusinessaswell.So,allthosebusinesses,whichroughly

areatabout1000,CroresremaininLloydElectric.Thisistheexistingbusinesspluswewill

addontothisthesale,whichwilldotoHavellsfortheirsourcing,becauserightnowthat


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sale is not captured because it is an intersegment sale. You cannot take it in both the

segments, you cannot take it in OEM and in consumers. Let me complete that, you are

askingaboutworkingcapital,sowhatIamsayingtoyouisthattheworkingcapital,which

is required for the B2B business, will remain unchanged. There will be no difference

becauseofthistransaction.Ithasgotnorelevancetothistransaction.

ChintanSheth: CorrectSir,Ijustwantedtoknowthatnumber,ontheOEMside,ontheACsidewhatkind

ofdebtordayswehavecurrently?

NipunSinghal: TheresidualbusinesslikeOEMandlikerailways,liketheradiatorandcoils,theyallhave

differentdebtortermswiththecustomers,soitisverydifficultformetorightnowgiveyou

an exact picture of what will be when we break the blend and this additional business

comesin.Itwillnotbedramaticallydifferenttowhathasbeencurrentlythere.Wehavea

profitable residualbusiness.Evenninemonthswehave reportedverygoodnumbers for

the residual business. That business is still there. The factory is all there. This is the

additionalbusiness,whichwearegoingtoget,plusapartfromtheadditionalbusinesswe

are getting thismoney,whichwill help deleverage, reduce our interest burden, and also

providesparecapitaltoinvestinhigh‐marginareasthatiswhatMr.Punjwassayinginthe

openingremarks.

ChintanSheth: Thatiswellunderstood.AsofMarch2016,wehad184daysofnetworkingcapitalcycleso

thatwillsubstantiallyimproveoritwillnotmateriallychangefromhereonwards?

AnitaKakkar: No.Iwouldliketoaddouthere.Thatwasatthecompanylevel.Atthetimeoftheclosingof

thedeal,theworkingcapital,whichispertainingtotheconsumerbusiness,willmoveout

and the residual working capital, whichwould be left, would be the B2B business. So, I

thinkyoujustwaitandwatchforthatnumbers.Wewillbeworkingoutallthosenumbers

forthecarvedoutentity.

ChintanSheth: Okay,thankyou.

Moderator: Thankyou.ThenextquestionisfromthelineofChiragSetalvadfromHDFCMutualFund.

Pleasegoahead.

ChiragSetalvad: Whatwillbethetaxratepayableonthistransaction?

AnitaKakkar: Weareevaluatingthemosttaxefficientstructure.

ChiragSetalvad: Somadamwhateverworkingcapitaldebtgetstransferred,letusassumeworkingcapitalof

200Croresgettransferredthenthis1550youwillreduceitbythat200Croresright?

AnitaKakkar: Yes,

ChiragSetalvad: AndmadamcanyoubreakupFY2016yourcapitalemployedtotal?


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AnitaKakkar: As we mentioned even last time as well, it is not feasible for us to breakup of capital

employed segment wise since assets deployed are interchangeably used across various

segments.

ChiragSetalvad: Okay.ForboththeOEMandtheheatexchangerbusinesslastyearyouhadamarginof6%

and14%respectively.Doyoufeelthatthesemarginlevelsarebroadlysustainable?

AnitaKakkar: Yes,ofcourse,themarginsoftheB2Baresustainablemargins,becausewearepresentin

somenichecategorieswhereinweenjoyhighmarginsandthatisthereasonyoualwayssee

thatgoodmarginscomingintheB2BbusinessascomparedwiththeB2Cbusiness.

ChiragSetalvad: Andlastthingisofthebalanceamountwhichyougetafterworkingcapitaladjustmentis

there any game plan in terms of howmuch youwill use to reduce leverage, howmuch

wouldyoupossiblypayouttoshareholders?

BrijRajPunj: Wewillworkthisoneoutaswegoalong.

Moderator: Thankyou.Wewill takethenextquestionfromthe lineofRiteshGandhi fromDiscovery

Capital.Pleasegoahead.

RiteshGandhi: Theexisting run rateEBITDAofyourexistingand remainingbusinessesanyestimateon

that?Theapproximatenetcashthatyouwouldbeleftwithaftertransactionexpensesand

taxes?

AnitaKakkar: Wearestillworkingonthenumbers.

RiteshGandhi: And theEBITDA run rate on anLTMbasis given youwould alsohave some incremental

business from the Lloyd business aswell?Do you have any estimates on howmuch the

existingrunrateonEBITDAwouldbe?

AnitaKakkar: Notmuchdifferencefromtheprevailingmargins.

RiteshGandhi: But it would also then include incremental of the Lloyd business as well, the Lloyd

outsourcingtoyouaftertheHavells?

AnitaKakkar: Yes,exactlyandevenwewouldbeexploringfurtherneworganicbusinessandallsoIthink

theexistingEBITDAratewillbemoreorlessnearthesameitselfaround10%.

RiteshGandhi: Okay.Youhadalsomentioned that thedealwas subject toduediligence, but typicallyat

thisstagetheduediligenceaspectshouldhavealreadybeenoverrightoraretherespecific

openpointswitharethere?

BrijRajPunj: OncetheMOUissignedonlythentheduediligencewillcommence.Itisalreadyunderway

now.


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RiteshGandhi: Sotheaccounting,tax,legaldiligence,andallisnotyetcompleted?

BrijRajPunj: Itisallunderwaynow.

RiteshGandhi: So there would be a reasonable amount of slippage for this transaction given the due

diligenceisnotcomplete?

BrijRajPunj: Itwilltakesixtoeightweekstofinishit.

RiteshGandhi: Typicallypeopleannouncetransactionsaftertheduediligence iscompleteright?At least

thathasbeeninalmostalloftheMNAs.

BrijRajPunj: No,thisisnotinourcase.

RiteshGandhi: Okay,alright,thanks.

Moderator: Thankyou.ThenextquestionisfromthelineofAtulMehrafromMotilalOswalAMC.Please

goahead.

AtulMehra: Goodmorningandthanksfortheopportunity.Sir justonequestionagainontheworking

capital,ifweweretojustdothisconsumerbusinessonastandalonebasiswhatwillbethe

intensityofworkingcapitalinthebusiness?

NipunSinghal: Areyoutalkingaboutthecurrentlevelofdebtorsandinventoryinconsumerbusiness?

AtulMehra: Iamnottalkingaboutcurrentlevelbecausethatyouhavenotbeensharing,butgenerallyif

weweretolookatitasabusinessonanongoingbasiswhatwillbetheintensityofworking

capital,alsointhelightthatyouspokeabouttherewillbesubstantialcapitalrequirements

ifyouwere togrowthisbusinessyourself, so in that lightaswellhowdowe lookat the

workingcapitalintensityinthebusiness?

NipunSinghal: Yes, see the thing is there are two parts of your questions. First is the working capital

intensity,whichisobviouslyrequiredinabusinesswhichisgrowingatsuchafastpaceof

35%,40%whichmeansthattheworkingcapitalwillcomeintheformofdebt.

AtulMehra: No,whatImeanisintermsof,ofnumberofdaysisit60daysor100days?

NipunSinghal: Wewere operating earlier at 90daysnet.Thiswas about a year‐and‐a‐half back andon

repeatedcallsIsaidmyendeavoristobringthisdown.Wehavebeenworkingandasthe

brand is getting stronger we have been bringing that down consistently, but what will

happen is it now after this transaction that business will move on, so what will be left

behindposttheclosureofthetransactionwillbetheB2Bbusinesswhichwillhavesimilar

workingcapitalaswhathasbeenthereinthepast.


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AtulMehra: Justtounderstandthisbettersothisyearweshouldconcludesayatabout1800Croresof

salesifweweretotake100daysofworkingcapitalasyoutalkabout…

NipunSinghal: Ididnotsay100days.Isaidwaybackwewere90days,nowitissubstantiallyless.Isaid

aboutayear‐and‐a‐halfbackwewereatnet90days.RightnowIdonothave this figure

withmebecauseIwasnotpreparedforacallwhichisgoingtogointothesefinancials.Itis

moreabouttheannouncementofthedeal

AtulMehra: Sosubstantiallylesswouldmean50or60days.

NipunSinghal: Again,youaretryingtotakeanumberoutofme,butIdonothavetheexactnumber

AtulMehra: No,Iamsayingveryballpark.

NipunSinghal: Itwillbebetweenlessthan90days.

AtulMehra: And secondly Sir you spokeabout,obviously evenHavellshave clarified this that for the

nexttwotothreeyearsthebusinesswillcontinueintermsofsourcingfromtheprevious

entitywhichisyourentity.Whenwelookatsayanarmslengthkindofdeal,likeyouhave

said earlier in the call that while other customers of yours there was arms length

transaction,but inthiscasetherewasperhapsnotanarmslengthtransactionbutmaybe

perhaps costkindof structure, so ifwewere todo this asaarms length transaction, the

currentconsumerbusinesswhichhas6%marginsowouldanyof thatmarginsustainor

willitgoawaybecauseifitweretobepricedonarmslengthbasis?

NipunSinghal: ThethingisthisissomethingwhichevenappearedintheETtodaythatwehavedeclared

oursegmentwiseEBITDAat87.5Crores,whereasHavellshasreported75Crores,sowhat

isthedifference?Thedifferenceisthisamount.Whatwearedoingiswecannotbooksale

twice, we cannot book profits twice in both the segments. Because it is the same

company/legalentity,materialfromthefactorygoestoourbranchesandthereforeweare

booking that in the consumer business.Whereas Havells has taken a lower figure, since

theyhavedonethecostingandthevaluationofthebusinesstheyhavetakenalowerfigure

thatisalreadybigthing.

AtulMehra: ButSirearlier inthecallyousaidthatwedonotpriceasperarms lengthasweprice to

othercustomersofours?

NipunSinghal: Exactly that is thereasonwhy theEBITDAdeclared forninemonthswas87.5Crores for

LloydconsumerbusinessandHavellshasonlyconsidered75outof87.5.

AtulMehra: Justtoclarifythisyouhad12CroresofEBITDAforninemonthsonarevenuebaseofabout

1200 to 1300 Crores, which means the pure manufacturing business is a 1% margin

business?


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NipunSinghal: No. This is only to the extent of the supplies made from our factories to the consumer

business.Weonlyhave30‐40%ofourair‐conditioningsourcefromtheLloydfactory.This

figurekeepsonvaryingdependingontheplantcapacity

AtulMehra: Gotit.

Moderator: Thankyou.Thenextquestion is from the lineofAdityaBhartia from Investec. Please go

ahead.

AdityaBhartia: GoodmorningSir.Youhadmentionedthatsubstantialgrowthcapitalwasrequiredforthis

business. I just want to understand this growth capital that you are speaking about is

mainlytheworkingcapitalforconsumerdurablebusinessthatyouarereferringto?

NipunSinghal: No. It isnotonly limitedtoworkingcapital.Youseeworkingcapital isonepartof it.The

secondpartofitisalsoCapexbecausewewillhavetoincreaseourbackwardintegrationin

buildingfactories,morecapacities,wewillhavetoventureintorefrigeratorspossiblyand

that requiressubstantial capital, tocomplete thebookingofconsumerdurables.So there

areanumberofthingsthatneededtobedonetotakethistothenextlevel.It isnotonly

workingcapital,itisalsosubstantialCapex.

AdityaBhartia: Okay. Secondly Sir you arementioning that around 50% of AC relatedwork is done in‐

house that includes all heat exchangers, coils, assembly‐relatedwork everything thatwe

aredoing,allputtogetherwouldbecontributingaround30%ofroomACrevenues,ismy

understandingcorrect?

NipunSinghal: Yes.

AdityaBhartia: Okay. That 50% is the difference between what you are reporting and what Havells is

reportingthatisthemarginthatwehad?

NipunSinghal: Yes,absolutelycorrect.

AdityaBhartia: ThanksfortheclarificationSir.

Moderator: Thankyou.Thenextquestionis fromthelineofAshishKumarfromInfinityAlternatives.

Pleasegoahead.

AshishKumar: Thank you Sir and congratulations for the deal. A lot ofmyquestions are answered, but

somethingwhichIwantedtounderstandisthedealconsiderationis1550Crores,thedebt

asofSeptember30thwasaround700Crores.AssumingataxoutgoandIknowyouarestill

workingout,150to200Croresoftaxoutgo,assumingthatwerepayallthedebtincluding

theworkingcapitaldebt for theB2Bbusinessandthelong‐termdebt,wewillstillbe left

withmaybe600to700Croresofcashisthatcorrect


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NipunSinghal: Thatisacorrectassumption,thatisright.

AshishKumar: AndIsawinthepressreleaseandyourinitialcommentsthatyoutalkedaboutgrowthin

organic and inorganic opportunities. Is there a thought process in terms of returning a

portion of the capital back to the shareholders? It obviouslywill take some time for the

businesstorampuporganicallyevenifoneweretolookatitandthecapitalrequirement.

BrijRajPunj: Yes,weareworkingonthis.

AshishKumar: Bywhendowethinkwecangetsomeclarityonthat?

AshishKumar: ThanksalotSir.Wewillwaitforthatandbestofluckforaquickclosure.

Moderator: Thankyou.Thenextquestionis fromthe lineofAbhineetAnandfromSBICAPSecurities.

Pleasegoahead.

AbhineetAnand: WhatisourcurrentcapacityintermsofhowmuchroomACswecanmake?

NipunSinghal: Wecanmakeabout600,000ACs.

AbhineetAnand: Andinternally30%ofthatisbeingtransferred?

NipunSinghal: Yes.Itisnot30%exactly.Itisbetween30%and40%,itchangesformseasontoseason,but

yesroughly30%to40%.

AbhineetAnand: And within this consumer part what is the breakup in terms of RAC, LED and washing

machineperseforninemonthswecanhavesomeballparknumber?

NipunSinghal: TheninemonthsfigureIhadgivenyouthebreakupintermsofturnoverofwhatwasthe

breakupofRAC,LEDTVandwashingmachine,butIwilljustgiveyouACandnonACfirst.

Itisabout65%ACand35%non‐AC.

AbhineetAnand: Okay.Intermsofthesethreeproductswhatisourmarketsharepresently?

NipunSinghal: In air‐conditionerswehave amarket shareof about13% to14%and inLEDTVweare

between3%and4%andinwashingmachinealsoweareabout3%marketshare.

AbhineetAnand: Okay.Wehavealso talkedaboutenteringsomeothersegments,etc.,sowhatare thekey

thingsthatwearelookingoncethismoneycomestous?

NipunSinghal: Wearelookingatmainlyintotransportair‐conditioningthatisthemetroandrailways.We

are looking intodefense air conditioningofheavy tanks, etc., andotherdefensevehicles,

etc.,aswellasairconditioningintothedefenseships.


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AbhineetAnand: Sobasicallyitisair‐conditioningofindustrialandtransportationetc.?

NipunSinghal: Thatiswhatweknowandthatwewouldliketo,tosomeextent,stickto.

AbhineetAnand: AndIthinkapartofthatwealreadydonowright?

NipunSinghal: Averysmallportionofit.

AbhineetAnand: Okay.Justtoclarifysomebodyhasaskedthatintermsofworkingcapitalwewere90days

earlier and itwould have come down now. Thiswas for company as awhole or for the

consumerproduct?

NipunSinghal: Alloftheseareintheveryhighmarginareasandweshouldbeabletodeliververygood

resultsinthecomingyears.

AbhineetAnand: I think my question was not communicated well. What I was asking is one of our

participantshadaskedaquestionthatthisworkingcapitaldayswassomewherearound90

dayslastyearwhichhascomedownnow.Iamtryingtounderstandwhetherthisisforthe

companyasawholeorfortheconsumerdurable?

AnitaKakkar: ItwasforConsumerbusiness.Ifyouseethecompanyasawhole,theworkingcapitaldays

werehigherbecauseoftheblend.B2Bisalwaysahighlycapitalintensivebusiness.

AbhineetAnand: Sothiswasfortheconsumerdurable?

AnitaKakkar: Yes

AbhineetAnand: Okay. I understand that obviously the tax rate aspects will be known, but any ballpark

numberoritistooearly?

AnitaKakkar: Itistooearlytocommentonthat.

AbhineetAnand: Okaymadam,thanksalot.

Moderator: Thank you. The next question is from the line of Jaspreet Singh Arora from Systematix

Shares.Pleasegoahead.

JaspreetSArora: Goodmorning.Thanksfortheopportunity.JustaclarificationSir,fromtheentireCDBpack

besides ACwe are selling the television,washingmachines, and the appliances sales, so

here itwasprimarily importand littlebitofassembly,sothat iswhat isgoingorwillwe

havesomekindofarrangementhereaswelljustthewaywehavinginthemanufacturingof

ACs?


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NipunSinghal: Atthemoment,theagreementisforsourcingalltheproductswhicharemanufacturedin

Lloydfactories.Wedonotatpresentmakewashingmachinesinourfactoriessothereisno

questionofaddingwashingmachines.Yes,wedoassembleTVs.

AnitaKakkar: AndtheTVassemblyisbasicallyapartofthetransaction,soitwouldbeprimarilyonlythe

ACcoming.

JaspreetSArora: SoinasensewewillcontinuetoassembletelevisionsandcontinuetoselltoHavellsor?

NipunSinghal: No.TheTVassembliesarepartof the transactionasAnitahighlightedand thatwill then

movetothenewcompany,onlytheair‐conditioningwillremaingoingforward.

JaspreetSArora: Understood. In terms of the new product expansion that you mentioned just like you

mentioned refrigerators, possiblywe could get into televisions andwashingmachines as

wellintermsofmanufacturingcapacitiesgoingforwardoritisagainstillinthepipeline?

NipunSinghal: Itisstilltobeconsidered.Wearestillworkingontheprofitabilityandmargins.

JaspreetSArora: Got it, but it is clear that we would primarily be focusing on the B2B businesses going

forwardwithintheCDBpack?

NipunSinghal: Thatisright.

JaspreetSArora: Alright,thankyousomuchSirandallthebest.

Moderator: Thankyou.ThenextquestionisfromthelineofAlokGoel,anIndividualInvestor.Pleasego

ahead.

AlokGoel: Iamstillalittleconfusedaboutthis1550Crores,howmuchexactlywillLloydreceive?

AnitaKakkar: We have alreadymentioned that this is the enterprise value on cash free and debt free

basis.

AlokGoel: So,onlydebtwillbereduced,andifyoutransferinventoryandreceivables?

AnitaKakkar: Yesinterestbearingdebt

AlokGoel: Willyoubetransferringinventoryandreceivablesalso?

AnitaKakkar: Ofcourse.

AlokGoel: Supposing thenetworkingcapital isapositive figure thatwouldbeadded I supposenot

reduced?


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AnitaKakkar: SorryIcouldnotgetyou.

AlokGoel: Youwilltransferinventory,youwilltransferreceivables,youwilltransferdebt,sothenet

figureifitisapositivefigurethenyouwilladditto1550correct?

AnitaKakkar: No,seethethingis,theworkingcapitaldebtwhichisthereinthebooksofLloydElectric&

EngineeringLimited,whichisascertainedatthetimeoftheclosingthatwouldbereduced

fromthetransactionvalue.

AlokGoel: Okayandwhataboutinventoriesandreceivables?

AnitaKakkar: Thatisdefinitelygoingitasapartbecauseitisonlytheintangiblewhichisgoing.

AlokGoel: So the total of inventory plus receivables less bank debtwould be a positive figure or a

negativefigure?

AnitaKakkar: Weareworkingonthenumbers.

AnitaKakkar: Wewillgetbacktoyouonthis.

AlokGoel: Yes,Imeanitiscompletelyambiguous.Secondthingisifyouareshrinkingyourbusiness

somuchyouaregivingaway60%ofyourturnoverthenisnotittimetoseriouslyconsider

shrinkingyousharecapitalbymeansofabuyback?

NipunSinghal: Letusworkoutonthenumbersandgetbacktoyouthen.Itistooearlytocommentonit.

Moderator: Thankyou.ThenextquestionisfromthelineofCharanjitSinghfromB&KSecurities.Please

goahead.

CharanjitSingh: Iwantedtojustfollowuponthequestionlikeyouhadmentionedthatwecouldhavedone

a lotof investmentactually to rampup this consumerdurablebusiness.Canyouhelpus

understand,givemoredetailsintermsofwhatcouldbethequantumoftheinvestmentyou

would have required to scale up this business, which we could not have done on our

currentbalancesheet?

NipunSinghal: Roughly the refrigerator plantwould be about 500, 600 Crores for that advertising etc.,

wouldanotherbeabout30,40,50Crores,sothiskindofnumberswerecomingup.

CharanjitSingh: OkaySir. Ifyou lookatourprofitability in theconsumerdurablebusinessversusa lotof

othercompetitors,thereisabigdifferential.Ifonacontinuingbasisifwehavetoimprove

the profitability or the margin what were the steps you would have taken in terms of

improvingthemarginprofileofthisbusiness?


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NipunSinghal: Wehavealways talkedabout this that the improvingmargins isa journeyand the initial

stagesofanybrandismorepushlatethenpulllate.NowyoucanseewiththekindofAMP

spendthatwehavedone,wehavealreadycreatedawarenessinthemindsofconsumers.

Thereispullthatisbeinggeneratedandgraduallythiswillleadtohighermargins.Wehave

maintainedthisrightthrough.Asthepull increasesinthebranddefinitelytheconsumers

arewilling to paymore for best quality service, best quality products. You cannot build

somethinginaday.Ithasbeenajourney.Todaywehavereachedapointwhereconsumers

areawareofthehighqualityproductsthatwedeliverandawareofthebestinclassservice

thatwedeliver,andnowcustomersaregoingtobewillingtopaymoreandthatishowwe

willincreaseourmarginsanditisalogicalnextstepanditwillhappen.

CharanjitSingh: And Sir if you can just help us understand your journey on the AC business, you have

mentionedthatwehaveamarketshareof13%to14%currently.Ifyoucouldexplainlike

how itwas two to threeyearsback andhow ithas goneupandwhat is thedistribution

rampupandhowwedidthat?

NipunSinghal: Yes, see the thing is that when we started out we had all the backend, we had the

manufacturingcapabilitiesofheatexchanger,manufacturingACs,andwehavebeendoing

itforseveraldecades.So,wehadallthecapabilitywithustheideawastonowtakeittothe

marketandshowthecustomersanddealersthatlookwecandeliverworldclassproduct

andbackitupwithevenbetteraftersalesservice.Ithinkwhatwewentoniswewenton

thisgap in themarketof after sale service.A lotof companiesare therewhomakegood

products.Iamnotsayingthatwearetheonlyone.ButwhatLloyddidisitleadsaheadon

the after sales service side. I talked about in the past that KKG code, the Khushiyon Ki

Guaranteecode,whereeverycustomergetsthecodeanduntilhedoesnotgiveusthecode

wedonot close this call, so 100%customers are ensured that they are happy. Then the

MyLloydapp,lastyearwecameupwiththisapp,whereinturnsIthinkyoucansendyour

servicerequired.Somany,many,manystepsIcangoonandspendanotherhouronthis

call telling youhowmany stepswe have taken,which iswhy today Lloyd is a preferred

brand by customers and dealers are promoting it because they feel that this brand can

deliververygoodproductandevenbetteraftersalesservice.Youasacustomeralsowant

aftersalesserviceandthatisabigproblemtodayinmanybrands.

CharanjitSingh: IfyoucanjusthelpusunderstandhowthemarketshareintheACbusinesshasmoved?

NipunSinghal: Yes,wehavegrownveryrapidly inthelastthreetofouryears.Youcanunderstandfrom

wherewestarted.Threeyearsbackitwasbelow8%,sowehavebeenaddingmarketshare

and I think with the kind of efforts that we are putting in you have seen the new

announcement ofMr. Amitabh Bachchan as a brand ambassador. I think this is going to

make a very big impact on the brand stature. The confidence it will give to consumers

coupledwithourquality,ouraftersalesservice,Iseefurthergrowthinthemarketshare.

CharanjitSingh: FineSir,thanksalotfortakingmyquestions.Allthebest.


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Moderator: Thankyou.Thenextquestion is fromthe lineofBhargavBuddhadev fromAmbitCapital.

Pleasegoahead.

BhargavBuddhadev: Congratulationsgentlemenforthisdeal.Intheconsumerdurablebusinessyouhighlighted

that30‐40%%of theair‐conditionerswhichweresoldweremanufactured inhouseand

restweretraded.Ijustwantedtoknowwhythisnumberwassolow.Isitthattherewasno

capacityinyourfactorytomanufactureinhouse?

NipunSinghal: Thereare several reasons.One iswehave capacity constraintsbecausewewould like to

definitelygivepreferencetoourcustomersoutside.Secondly,itisalsothatcertaintypesof

air‐conditioners are not manufactured by our company. I will tell you which types, like

portableACs,likecassetteACs,floorstandingACs,thesetypesofACsarenotmanufactured.

There are also some small quantities like let us say 9000 BTU ACs, it is a very small

segment, so itdoesnotmakesense forus tomanufacture for thesmallquantity, soboth

thesereasonscombined.

BhargavBuddhadev: And Sir would it be fair to say that going forward where the Havells also continues to

source, they would also continue to maintain the same mix, which you have in the

consumerbusiness?

BrijRajPunj: Ithinkgoingforwardeditwilllooklikethatonly,butwewillhavetodiscusswiththem.

BhargavBuddhadev: Isitpossibletoknowthebreakupofthis1550Crores?

AnitaKakkar: Beingaslumpsale,thereisnoseparatelyassignedvalueassetwise

BhargavBuddhadev: Somadamhypotheticallyifyouassumethatby31stMarchyourinventoryandreceivable

levels increase fromthecurrent levelsandassuming that this isnot financedbyworking

capitaldebt,inthisscenariodoesthisconsiderationincreasedfrom1550Crores?

AnitaKakkar: Yesitwillincrease.

BhargavBuddhadev: Andisitpossibletoknowtheworkingcapitaldebtasonthedateofthetransactionforthe

consumerbusiness?

AnitaKakkar: No.Itwouldnotbepossiblebecauseaswementioneditwouldbeonlythetradingbusiness

whichwouldbegoingout,sothenumbersneedtobeascertainedandweareintheprocess

ofdoingthat.

BhargavBuddhadev: Okaymadam.Thankyouverymuch.

Moderator: Thank you. The next question is from the line of Ankur Sharma from Motilal Oswal

Securities.Pleasegoahead.


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AnkurSharma: Sir just one question, as we transfer this division out to Havells how many employees

wouldgetmovedoutfromthecompany?

AnitaKakkar: Itwouldbetheentireconsumerdurableteamthatwouldbemovingout.

AnkurSharma: Understood,thankyou.

Moderator: Thankyou.ThenextquestionisfromthelineofYashAgarwalfromCrestWealth.Pleasego

ahead.

YashAgarwal: Just to understand you residual business profitability, in nine months we reported 186

CroresEBITDAand75CroresisHavells.OurresidualEBITDAforninemonths110Crores

right,isthatarightwaytolookatit?

AnitaKakkar: Yes.

YashAgarwal: Okay.SecondlyinFY2016theintersegmentsaleswere440oddCroressothatwillbethe

salestoHavellsright?

AnitaKakkar: Yes,itwouldbeinthatrange..

YashAgarwal: AndlastlywhatwasthewholecompanydebtlevelasonDecember?

AnitaKakkar: Its’nothandywithme.Wewillgetbacktoyou.

YashAgarwal: Andonemorequestion,theconsiderationmentionedbyHavellsis1600Croresand1550is

toLloyd,sowhereisthedifferenceof50Croresgoingto?

AnitaKakkar: 50croresconsideration isbeingpaid toFeddersLloyd,associatecompany for thesaleof

the“Lloyd“trademarkwhichisusedforallrelatedbusinessofFeddersLloydaswellandis

beingtransferredinitsentiretytoHavellsaspartofthedeal.

YashAgarwal: Alright,thankyousomuch.

Moderator: Thankyou.ThenextquestionisfromthelineofBalmukundDagar,anIndividualInvestor.

Pleasegoahead.Asthere isnoresponse fromthecurrentparticipant,wewillmoveonto

thenextparticipantthat is fromthe lineofSahilTaneja,anIndividualInvestor.Pleasego

ahead.Thelineforthecurrentparticipantseemstohavedroppedout.Wewillmoveonto

thenextparticipant that is from the lineofYashMata fromVibrant Securities. Please go

ahead.

YashMata: GoodafternoonSir.ThefirstquestionisthatasyousaidtheincrementalEBITDAwhichwe

will get from the business from Havells is around 12 Crores on nine‐month basis is it

correct?


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NipunSinghal: Sorrycanyourepeatthatquestion.

YashMata: TheincrementalEBITDAwhichyouwillgetfromthebusinessofOEMtoHavellsisanine‐

monthbasisaround12Crores,isitcorrect?

AnitaKakkar: Itisnot12Croresbecauseitalsoincludessomecorporateallocationaswell.

YashMata: Soitwillbelessthanthat?

AnitaKakkar: Yes,itwouldbelessthanthat.Wedonothavetheexactnumberwithusbecausethatfigure

includesthemarkupoftheOEMaswellassomecorporateallocation.

YashMata: Butthethingisthatmarketissayingthatthestockisdownby18%,soclearlyIthinkithas

notturnedoutwellfortheshareholderssoanythoughtsthat?

BrijRajPunj: wearegoingtoevaluateinvestinginthehigh‐marginproductsandthatwillincreasevalue

ofthestakeholders.

Moderator: Thankyou.ThenextquestionisfromthelineofSiddhartMundrafromFairwinds.Pleasego

ahead.

SiddhartMundra: GoodmorningSir.Congratulationsonthedeal.Iwouldliketoknowoutof6lakhsACswhat

isthecurrentcapacityutilizationintheB2Bbusiness?

AnitaKakkar: IntheB2Bbusiness,itislike90%isutilized.

SiddhartMundra: SogoingforwardwehavetoengagemoreintheOEMbusiness?

AnitaKakkar: Yesitcallsforsomesortofaninvestment.

SiddhartMundra: Howmuchyouwouldliketoincreasethecapacityfrom6lakhstosay10lakhsto12lakhs,

isthereanycostonthat?

AnitaKakkar: No,wehavenotworkedonanynumbers.Wewilldefinitelybeworkingout.

SiddhartMundra: Okay. What about other products in consumer durable which you would like to invest,

refrigeratororwashingmachineorboth?

AnitaKakkar: Wehavenotgivenanythoughtprocessasofnowontothis.

SiddhartMundra: Okay.Whatisthesizeoftheresidualbusiness,whichwehavenowleftinB2B?Lastyearwe

reported1400Crorestopline.Whatwouldbetheestimatesizeofthisbusinessthisyear

thatwillbeleftwithLloyd?


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AnitaKakkar: Itwouldbeapproximatelythatsizeonly.

SiddhartMundra: Okay.Thelastquestionisthisgentlemenaskedthatyouwillbeleftthis500or600Crores

cashandtherewouldbesomewayofgivingbacktotheshareholders.Apartfromthat,how

muchdoyouwant to invest inotherbusinessesotherthanOEMsotherewouldbesome

yearmarkfor300CroresforOEMs,balanceforotherdefenseandrailwaysAC,isthereany

allocation?

NipunSinghal: Itistooearly.

SiddhartMundra: OkaySir,thankyou.

NipunSinghal: Couldwehavethelastquestionplease?

Moderator: Sirthatwasthelastquestion.Wouldyouliketoaddanyclosingcomments?

BrijRajPunj: I thinkwehave tried toclarifyasmuchaswecouldandbecause thishashappenedvery

recentlythereareoneortwopoints,whichoneortwoinvestorshavepointedoutandwe

willdefinitelyplantogetbackonthat.Thankyou.

Moderator: Thankyou.Ladiesandgentlemen,withthatweconcludetoday'sconference.Thankyoufor

joiningus.Youmaynowdisconnectyourlines.

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