u 74 u

u

Phoenix Lamps Ltd is probablyone of the first Indian companieswhich has seen a change in own-

ership where a private equity fundnow holds a majority (66 per cent)stake. First, in May 2006, the UK-based Actis (earlier CDC) bought outpromoter B.K. Gupta’s 47 per centstake for Rs190 a share. This was fol-lowed by the mandatory open offer,leading to Actis gaining full control ofthe company by March 2007. Afterthe change of guard, there has been arestructuring in management and thecompany is now run by professionals,backed by Actis.

“They (Actis) have changed theownership but ensured in the processthat the wheels do not fall out. They

have been adding value to the company by guiding the managementwith a vision, keeping control over thefinancial aspects and operations,”explains Rajiv Prasad, managing direc-tor, Phoenix Lamps, who came fromGujarat Glass just about a year ago.

“Actis had a good understandingof the sector and knew of Phoenix’sgrowing position in the halogen andcompact fluorescent lamps (CFL) mar-ket. We started off with the intentionof taking a minority position in thecompany, but things evolved subse-quently towards a controlling posi-tion, with the erstwhile ownersdeveloping high comfort in Actis’management capabilities and interestin growing the business,” says Girija

S. Tripathy, director,Actis Advisers (P)Ltd, reminiscing thatthe parting notefrom the owners was:‘we want to see a bet-ter Phoenix when wecome back to Indianext’. “I am sure wehave done justice totheir faith in us, bydelivering the high-est ever growth ratein the history of thiscompany; and this isjust the beginning,”assures Tripathy. Hehas already taken the first step to-wards reconstitutingPhoenix’s board,broadening the man-agement bandwidthwith the induction ofRaja Sahgal (formerlyof Osram), GurdeepSingh (earlier withLever) and JayantDavar (MD of Sand-har Group).

Phoenix wasestablished in 1991

by B.K. Gupta in technical collabora-tion with Phoenix Electric of Japan.Within the first year of operations,Phoenix Japan pulled out andPhoenix India was left to fend on itsown. However, with the technicalbase intact, the Indian company wasable to start making automotive halo-gen lamps and CFLs at the NoidaExport Processing Zone (NEPZ). Overthe years, it scaled up capacity fromone plant producing one millionunits to its current position of fiveautomated facilities (three at Noidaand one each in Dehradun and Hard-war), with an aggregate capacity tomake 95 million lamps per annum.

Product portfolioCurrently, Phoenix’s product portfo-lio is made up of over 500 differentlamps catering to the automotive andCFL segment. In the automotivelamps, it has a 70 per cent marketshare of the domestic OEMs market,selling under the brand name‘Halonix’. It is the fourth largest auto-motive headlamps manufacturer inthe world and holds a 7 per centglobal market share, with Philips,Osram and GE being the only playersahead of it. Apart from Maruti andTata Motors among the four-wheelermakers, it supplies to Hero Honda,Bajaj Auto and TVS Motors in the two-wheeler segment, besides being a tier-1 supplier to Bosch, Hella and Osram.

“While it developed a strong bond-ing with OEMs, the focus remained onmanufacturing and not on branding,”observes Prasad, pointing to the factthat, even in CFL manufacturing,where Phoenix has a capacity to make25 million units per annum, only 25per cent of this production is soldunder its brand Halonix. The balancecapacity is used for outsourced manu-facturing for other lighting industrymajors, who sell it under their ownbrands.

Post Actis, the first major change instrategy was to fine tune the companyas a marketing-oriented one. So,branding and capturing of a place inthe replacement market took centrestage at Phoenix. “This required a cul-tural as well as mindset change”,points out Prasad. He inducted freshblood into the sales force, increasing

B U S I N E S S I N D I A u May 18, 2008 Corporate Reports

Back in the limelightThe change of guard, new strategies and productlaunches have put Phoenix Lamps on centre stage

Actis has been adding value, says Prasad

u 75 u

u

it from 10 to 70 people pan-India.“The next stage is to further capitaliseon our manufacturing strength andpenetrate into the international mar-ket. Currently, bulk of the exports (60per cent of Phoenix’s auto lamps rev-enues) is to the European after-mar-kets. We are looking aggressively attapping the US, Chinese and MiddleEast markets too,” he adds.

“With the coming of private equityplayer Actis as an owner, the focus hasshifted to creating value through hav-ing a brand and a distribution network.We have also been approved byRenault France for their Indian project,besides having been recently approvedby one of the three largest OEM suppli-ers in the world, based out of Europe,”explains Rakesh Zutshi, vice-president,sales & marketing, at Phoenix sinceJuly 2007. His challenge is to create anindependent distribution network,create and strengthen the brand aware-ness for Halonix and position it as apremium player in the market.Halonix as a brand was rated secondbest (just after Philips) out of some 13brands by Consumer Voice in 2006. “We

need to leverage our technical strengthand marry it to our marketing efforts,so that we can be a major player in thelighting industry,” adds Zutshi. He isplanning a slew of operations to goretail.

“Our focus is to enhance the cur-rent productivity, increase capacityutilisation of the production lines byadopting lean and mean practice andlow-cost automation, besides addingmore new manufacturing lines,”observes A.S. Saini, director opera-tions (technical), Phoenix, since

1991, but an over-three-decade vet-eran in the industry, having workedwith American Universal ElectricalIndia (largest lamination manufac-turer in North India), Sylvania & Lax-man (largest lamps manufacturer)and ECE Co’s lamp division (nowtaken over by Osram). At Phoenix, heis responsible for the operational andmanufacturing activities. “We are alsolooking at expanding the productrange by adding different types ofmanufacturing lines, such as stop/tailmanufacturing line, street light and

B U S I N E S S I N D I A u May 18, 2008 Corporate Reports

FINANCIALS

Net sales Net profit

2004-05 2005-06 2006-07

193

233

278

12

24

31

(Rs crore)

other luminaries,” adds Saini.According to Rishabh Bagaria, ana-

lyst at PINC, the automotive lightingsegment in India is estimated to beRs1.8 billion in size with an annualdemand of 100 million units, 65 percent of which would be accounted forby OEMs, with the balance comingfrom the replacement market. “But,since Phoenix is only into headlamps,its addressable market is small,”observes Bagaria.

Bagaria feels that, with India fastemerging as a hub for small cars,Phoenix can capitalise on the opportu-nity unfolding in the domestic market.Phoenix has already secured approvalfor supplies to Tata’s Nano. “While therealisations would be lower, the vol-umes are expected to be high, as an

entirely new segment in passenger carsis being created. This will also helpPhoenix in other low cost/small carprojects being undertaken by variousOEMs. While increasing contributionof compact fluorescent lamps in theoverall revenues would pressurise mar-gins, tax exemptions from newly com-missioned Uttaranchal facility, alongwith backward integration benefits,would help cushion margins,” saysBagaria, recommending a buy atRs145, with a target of Rs250.

Above expectationsPrakash Kapadia, equity analyst, Edel-weiss, has also taken note of thechanges at Phoenix over the last 12months. “The third quarter endedDecember 2007 results were aboveour expectations in terms of prof-itability, while revenues were in linewith our estimates,” says Kapadia.“While net revenues grew 32 per centyear-on-year, EBITDA and net profitgrew 50 per cent and 77 per cent toRs19.20 crore and Rs14.20 crorerespectively. Change in product mixin favour of higher-value CFLs, opera-tional efficiencies, and reduction inwarranty claims during the quarterhas resulted in better margins”, headds, reiterating a buy. For the yearended March 2007, on a net sales ofRs277 crore, Phoenix has posted aprofit after tax of Rs31.40 crore, as

against Rs232 crore and Rs23.8 crorein the previous year.

The domestic CFL market is esti-mated to be around 140 million units,of which the organised sectoraccounts for 50 per cent. (Philips,Osram, Bajaj Electricals, Havells,Wipro and Phoenix account for 80 percent of the organised market.) How-ever, this market has been growing at35-40 per cent over the past few years,thanks to CFL’s inherent advantagesover incandescent lamps.

Prasad and team are constantlylooking at changing the position ofthe company and moving towardsproducing more energy-efficientlamps, besides getting into the lumi-naries and fittings market. In Februarythis year, Prasad signed up with NVC

of China for luminaries. “In the com-ing six months, we will launch a jointbrand called Halonix NVC in India,taking advantage of the wide range ofproducts offered by the Chinese com-pany,” says Prasad. He has also set up adivision for software-based technicaldesigning of lighting solutions forarchitects and institutions. “We willoffer a complete lighting solution,”affirms Prasad, planning for a year-on-year growth of 40 per cent to makePhoenix an over Rs600 crore outfit by2010 and altering the sales mix from55:45 (automotive: CFL) to 50:50.

u LANCELOT JOSEPH

B U S I N E S S I N D I A u May 18, 2008 Corporate Reports

100

150

200

250

Share price (Rs)BOUNCING BACK

2 Apr 2007–25 Apr 2008

u 76 u

u

The focus is on enhancing productivity