Business Games

The Story of Havells | Sachin Verma

The story of havells is one of the most iconic tales in the indian business history in the past 20 years havells stock price has shot up by 7490% going from just 1.58 rupees to 1082 rupees in 2022 and a mere 10,000 rupees investment in havells in 2001 would be worth 18 crores including stock splits and excluding the dividends and the most astonishing thing about this company is that it was made legendary by an ordinary drawing teacher with a salary of just 90 rupees who then turned to trading and went on to become one of the most iconic businessmen in the indian business history this man that I’m talking about is none other than Qimat Rai Gupta.

So the question is what is the story of havells what are the business strategies that turned havells into a gold mine for its investors and most importantly what are the study materials and lessons that we need to learn from this iconic rise of havells this blog is brought to you by wind but more on this at the end of the blog this is a story that dates back to 1948 when a businessman named Haveli Ram Gandhi registered a company called havells. Haveli was an astute businessman and imported several electrical products like switch, gears, starters and meters and after importing them he then re-branded them as havells and sold them in the market soon enough he even began manufacturing them and started selling them in the local market and because of the consistent quality of its products havells became a renault name in the market and coincidentally there was another Dutch Company by the name Havel so people presumed Havells to be a foreign company.
This also gave it an aspirational value but unfortunately after his wife’s death and son’s suicide heavily lost the zeal of running the business and while haveli was dealing with this tough phase of his life on the other side of the country during the same time from 1958 to 1971 an uncle nephew duo were running a company called gupta g and co this company was very well established but the problem was that they were just middlemen they neither had the financial clout to buy directly from the manufacturers nor did they have an established distribution network to sell to institutions or customers directly so they were essentially middlemen who bought products from wholesalers and then sold them to smaller retailers this nephew was none other than Qimat Rai Gupta himself or he’s referred to as QRG.

QRG realized that although their business was going very well it was in such a vulnerable position that if tomorrow the retailers found a better way to connect with the manufacturers their business would vanish right away why? because their value addition to the supply chain was nothing more than just logistics and when he did his research he realized that the actual gold mine was in manufacturing. So, QRG started thinking about building a factory such that they could increase their profits as well as become an important stakeholder in the supply chain the only problem was that building a factory was an extremely cost intensive process that would have been very heavy on his bank balance but it so happened that one of his clients turned out to be havels during that time as it turned out havells lost a very big government order and the company’s financials were in a terrible state so although they had a great name in the market the management was looking to sell the company so you know what Mr Indra Mata who was managing the business of havells during that time offered qrg to buy out the company and this is where QRG’s business acumen came into play since he was anyways in the pursuit of getting into manufacturing he decided to go ahead with the business deal but the catch over here was that QRG said that he would pay 7 lakh rupees not to buy the company but just the brand name and the goodwill of havells which means what he wouldn’t buy any of the physical assets of the company like a factory or a warehouse but only by the brand name havells that’s it.

Now the question over here is why would someone pay such a huge amount of money just for that brand name I mean it obviously wasn’t like the apple of electricals during that time right well listen to me very very carefully while most of us think of 7 lakh rupees as an overrated price tag for a brand name if you look closely you will see that it is actually a bargain why because had he gone ahead with establishing a new company let’s call it Indie Electricals. QRG would have to spend a ton of resources into actually pushing it into the market which means what since nobody knew the name of indie electricals he would first have to convince the distributors and retailers that this product will sell in the market this will need a huge salesforce and then he even has to pay the distributors extra margin as in an incentive so that they would buy the products after that chemotherapy would have to spend a ton of money into marketing with the hope that people will go and ask for Indie Electrical Products at the retail stores and after the sales are done then come establishing of trust with customer experience and only when this entire cycle is complete will the distributors actually keep pushing indies products by which they can slowly decrease the margins and establish themselves in the market all of this would anyways have costed QRG an enormous amount of money and most importantly a lot of time to establish the brand recall value but merely by buying the brand name of havells all of these initial costs dropped down drastically and since havells had been in the market for 23 years and had a good name in the market most people already knew the havells brand distributors anyways placed orders and most importantly the retailers were already happy to take the products. 

So the 7 lakh rupees that he paid was not just for the name but for this intangible benefit of the cost of building trust in the network and the time to establish the brand recall value and if you remember from our prega news episode it took mankind not one not two but seven years to become profitable in spite of having all the modern tools of distribution and even celebrity endorsements this is the reason why QRG paid 7 lakh rupees just to get the brand name of havells and then came step number two wherein instead of building giant factories he first outsourced the manufacturing and just sold the products with a label of havells this way although he had to pay margins for the outsourcing he did not have to take the risk of setting up giant factories and bear the heavy cost of land machines labor etc and as far as the distribution network was concerned since qrg enemies traveled to different cities to meet their distributors slowly he began expanding his network to establish the supply chain all across the country eventually once the business stabilized he used the profits to acquire acres of land to build great factories for manufacturing electricals and they used more or less the same strategy to acquire towers and transformers limited to make electric meters and standard electricals that enable them to diversify into different categories. 

This is how the foundations of the harvest brand was laid in the 70s and 80s and this brings us to the second phase of havells wherein they made a strategic entry into the consumer durable space during the 1990s which was right after liberalization during this time the indian market had opened up and lots of companies entered the consumer durable space most of these companies tried to sell products at the most profitable rates possible but you know what guys haven’t actually took a completely different approach and they started selling products directly in the premium segment with their first targets being ceiling fans and lights. Now the question over here is while most brands were fighting in the affordable segment with an already tough competition why would a brand choose to enter in the premium segment isn’t that like directly losing out in the pricing war straight away well this is where another important business insight comes in which is brand perception leads to brand value to understand this concept the classy example would be the case of bata and nike now people if you were to spend 5000 rupees into buying a single pair of shoes and i gave you two options one is a 5000 rupees nike shoe and the other is a 5000 rupees bata shoe my question to you is which one would you buy. In most cases people would choose to spend 5000 rupees on a nike but will never spend beyond 3000 rupees on a bata shoe why because If you’re a 90s kid you would remember that since childhood bata has always been a budget option and nike has always been a fancy premium option so knowingly or unknowingly we have allocated the cost of bata shoe to a maximum of just 3,000 rupees but since nike is perceived as a premium product the company is able to push its price range so hard that they start selling shoes at 2,900 rupees but push it all the way to sell a 19,000 rupees jordan and even a 31,000 rupees airmag and in spite of being at such a high price range people still flock to buy a nike shoe and you must have seen the same thing happen with apple wherein the cheapest product is always just about the budget range and the most expensive product often touches unimaginable price points so the moral of the story is that once you establish yourself in the premium segment you can actually break through the price brackets of a budget product and push your price range insanely high eventually bagging extraordinary levels of profit margins this is the reason why not just travels but many of the brands often deliberately choose to be in the premium segment in spite of the market being flooded with players in the affordable segment and even today if you look at the price point of havell’s fans in comparison to others while orient fans maximum price point stands at 12,000 rupees bajaj touches 7,000 rupees crompton touches 15,000 rupees but havell’s fans go all the way up to 34,000 rupees and even touch 61,000 rupees.

In fact they even did something very similar by acquiring crap tree which was again a premium brand in the switches segment this was the second pillar by which harvest was actually able to stand out from the rest of the crowd and was able to achieve extraordinary levels of profit and this brings us to the third pillar of havell’s growth and that is their marketing.

Love and needless to say havells has obsessively focused on communicating its message in the most creative in the most humorous and most importantly in the most memorable manner possible and all thanks to their strategic appearances between cricket matches and specifically the IPL they are fresh in our memories even years after seeing them and this brings me to the last and perhaps one of the most critical reasons for their massive expansion and that is their diversification time and again have us very strategically and carefully diversified into electric meters by acquiring towers and transformers limited into acs and refrigerators by acquiring lloyd into affordable consumer durables by acquiring standard electricals and into switches by acquiring cratery and the best part is that in spite of the insane growth. In spite of they experiencing rapid expansion time and again and in spite of making extravagant acquisitions like Sylvania they have virtually stayed debt free most of the time and even today they have one of the healthiest balance sheets in the industry.

There are three lessons that we need to learn from the iconic rise of havells – 

1. Brand value and the time that a brand spends on the market has some intangible benefits that makes it extremely valuable because it saves the acquirer a ton of time, effort and gives them the trust of the formerly built network. In this case QRG was a master in leveraging the brand value starting from havells to craftory to stand electricals and even lloyds.

2. Always choose your segment in the market very very carefully before entering because within some time your brand perception will often bind you in a price bracket and this price bracket can change your fortunes both for good and bad. In this case we saw how QRG carefully chose to place the havells and craftery brand in the premium segment in spite of the market being flooded with affordable players and then he let standard electricals play in the affordable segment this way he was able to catch hold of both the premium and the affordable market.

3. Even if you’re selling something as uncool as wires mcv’s or fans if you know how to tell a memorable story to your audience you will achieve an extraordinary level of brand recall value which is an invaluable asset for any company and lastly time and again try to use diversification to stay relevant and risk your brand regularly and carefully without straining your balance sheet.

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