Havells' high-stake gamble

Havells India is a titan in the electronic appliances market today. But its origins were different and the journey was beset with moments of near-defeat. On the edge of the precipice, the company's architect Qimat Rai Gupta made a high-stake gamble of winding down the then-flagship business. His son and the company's current managing director, Anil Rai Gupta, has recounted the daring leap in his book "Havells: The Untold Story of Qimat Rai Gupta". Taking excerpts from the book, we take a look at what prompted the pivot and how it altered the company's trajectory.

The beginnings

In the late 90s, Havells India was a powerhouse in the electric metres business, which made up over 60 per cent of its annual turnover. The company thrived on India's booming power sector reforms that attracted multiple big corporations eager to invest in lucrative projects like power generation and distribution. Havells was perfectly positioned for this opportunity. As a result, its metres division grew from a Rs 60 crore venture to generating Rs 300 crore revenue in just four years!

At the crossroads

But the glory was not going to last. And Havells' leadership, in particular, Qimat Rai Gupta, fondly called QRG, caught up on the looming threats. The first sign of trouble was a shift in metre technology. Anil Rai writes in the book, "By 2000, it was evident that there was a shift in technology. The World Bank, as well as other funders and state electricity boards, decided to replace the existing electromechanical metres with electronic ones."

This shift made metres easy and inexpensive to produce, leading to a market flooded with new companies and plummeting prices. Coupled with deteriorating business norms, long-term sustainability became a major concern for Havells. "Towards the end of the nineties, the whole culture of kickbacks and commissions came into play in a big way. We were distinctly uncomfortable with all this." Power brokers openly demanded a 5 per cent commission on orders, exacerbating the challenges as World Bank funding increased.

The boom in the business attracted many new players, mostly smaller upstarts willing to sell at any cost to gain market share. Prices slid, and industry margins became wafer-thin, often disappearing entirely.

Havells was at a crossroads. It had to decide whether to stay put with no guaranteed returns or abandon the most profitable, yet increasingly unviable business. QRG chose to shut down the venture and shift focus to other lucrative avenues for revenue.

The pivot

In 2003, QRG announced bringing down the curtains on the metres business. Recalling his father's decision, Anil Rai writes, "His logic was that the new business dynamics did not gel with the DNA of the group. We did not have the skills to be successful in a corrupt market. He believed that it was better to spend money to develop the other businesses rather than continue in metres. It was a huge decision—we had to let go of our most successful enterprise."

The company stopped taking new orders, fulfilling only the existing ones to honour bank guarantees and maintain its reputation as a reliable vendor. By 2006-07, the metre business was history. While such decisions often involve overlooking the human cost, Havells was different. QRG, aware of the potential impact on employees, started a reskilling program where many technicians and workers transitioned to their new switchgear factory at the same site. "The human cost was kept down to almost zero," says Anil Rai.

The strategic retreat allowed Havells to reallocate resources to more promising ventures, transforming it into one of the largest electrical component companies in India. The exit from the metres business, despite its profitability, underscored the company's commitment to long-term sustainability.

Investor takeaway

Havells India's journey has a key lesson for investors, which often ranks much later on their priority list. It is that the management of a company is its lifeblood. Evaluating the people in charge of running the business is as important as scrutinising its financials. A robust leadership recognizes the industry's evolving landscape, knows when to pivot and pursue new opportunities. A solid management translates to solid business growth. Case in point, Havells India that has generated 23 per cent annual returns in the last decade.

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