The Hindu Business Line : Lloyd Electric buyout to help access Europe

Lloyd Electric & Engineering’s (LEEL) acquisition of Prague-based Luvata Czech is likely to provide the former with easier access to the high-potential European markets as well as enable superior technology absorption.

Luvata Czech is a maker of customised coils for heat ventilation, air conditioning and refrigeration. The acquisition for an undisclosed amount has been routed through LEEL’s special purpose vehicle Lloyd Coils Czech.

Customised Solutions

Lloyd Electric makes air-conditioner coils and also contract manufactures air conditioners for companies. Increase in the product range of ACs in India may require Lloyd Electric to provide more customised solutions. The current acquisition may provide the much-needed sophistication. The acquisition would also provide geographic expansion in the European market, which is said to be at a nascent stage of ‘coil manufacture outsourcing’ by original equipment manufacturers (OEMs).

Further, while LEEL has maintained strong profit margins, it has been threatened by increasing raw material costs in recent times. Technology absorption from Lovata, may help the company increase its mix of customised coils, which command higher margins. Lovata’s revenue for FY2007 at about Rs 200 crore was half that of LEEL’s turnover over a similar period. Lovata’s operating profit margins (OPMs) are, however, less attractive when compared with LEEL’s OPMs of 12 per cent. LEEL, while planning to invest in the acquired facility, may also seek to access the Indian manufacturing base to boost profit margins for the Prague facility.

The acquisition funded through a combination of debt and equity is unlikely to affect LEEL’s balance sheet directly, given the special purpose vehicle route adopted by the company.

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