The stock of Havells India rallied sharply after its announcement of selling 80 per cent stake in Sylvania.
Though a well-known lighting brand in Europe, Sylvania has been mired in troubles.
Post-acquisition in 2007, Havells turned around the company by resorting to cost-cutting measures, repaying debt and pumping in equity. But since 2012-13, Sylvania has again slumped into losses due to lacklustre demand.
In this backdrop, the recent move is positive. One, it will save Havells cash that it was ploughing into Sylvania to make good its losses. This cash can now be invested in the more promising Indian business. Further, the parent company Havells may also see its return ratios improve.
For 2014-15, return on capital for Havells’ standalone business was 19.8 per cent, higher than the consolidated return of 17 per cent.
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