A white knight galvanises Eveready as company fights mounting debt

The Burmans of Dabur become the biggest shareholder in India's largest dry cell battery maker as the Kolkata-based promoters struggle to ring-fence their tea-to-engineering group

Brij Mohan Khaitan stepped into the elite world of tea as a white knight when in 1961, a Marwari businessman, B Bajoria, had cornered a 25 per cent stake in Bishnauth, part of one of India’s top managing agency firms, Williamson  Magor & Company. The shareholding was just a per cent short of the 26 per cent promoter holding.

A rattled Richard Magor — then at the helm — made an offer to Khaitan, who used to supply packaging materials and fertilisers to the company, to become a partner. The rest is history — Khaitan not only made it to the board of directors, assumed the role of managing director and later, chairman, but also went on to become the world’s largest bulk tea producer.

Decades later, the tables have turned. The storied business house of Kolkata is faced with a debt of nearly Rs 6,000 crore that the sale of prized assets has not been able to clear. To fend off the crisis, the Brij Mohan Khaitan group is in dire need of a white knight.

Brij Mohan Khaitan died about a year ago. His elder son, Deepak Khaitan, died in 2015 after a prolonged illness. In the driver’s seat are younger son, Aditya Khaitan, and grandson, Amritanshu Khaitan. Their only task at hand is to ring-fence the companies.

“The problem is beyond solving. Each company is charting out its own route and will be looking at bringing in partners,” said sources in Eveready.

The companies in focus right now are: Eveready Industries India, India’s largest dry cell battery maker, McLeod Russel India, India’s largest bulk tea producer, once the world’s largest, and McNally Bharat Engineering, the EPC company that dragged the other two down.

The most obvious choice for Eveready is the Burman family — promoters of Dabur India — which now has a shareholding higher than the promoters.

The Burman family, which has known the Khaitan family for decades, has been buying into Eveready since March 2019. Last month, it bought an 8.48 per cent stake, taking its holding to 19.84 per cent while the promoters’ stake slipped to 15.07 per cent.

“We are the largest shareholders in Eveready, but our investment is financial in nature. We hope that the company is run efficiently for the benefit of all shareholders,” said Mohit Burman, vice-chairman of Dabur India.

The Khaitans are now looking forward to doing a friendly deal that would help them hold on to a minority stake in the company. The matter is likely to be taken up once a case filed by KKR India against the Williamson Magor group last year to recover a Rs 200-crore loan is vacated in the Delhi High Court.

An interim court order prevents a change in the capital structure and sale of assets of Eveready, McLeod Russel India and other Williamson Magor group companies. Asked whether the option of partnership would be discussed once the case in high court is sorted, Burman merely said legal matters take a long time.

For Eveready, having the Burmans onside helps because it would mean a higher valuation for the company whose image was sullied by extending funds to McNally Bharat Engineering. In the last six months, the Eveready stock has appreciated by about 142 per cent.

Supporting the engineering outfit by way of loans and advances that it couldn’t repay landed Eveready and McLeod in trouble. Promoter shares too were pledged to borrow funds for McNally. “From an investor community point of view, extending funds to McNally wasn’t good, though it was ultimately used to pay lenders, but of McNally,” sources said.

According to Bombay Stock Exchange (BSE) filings, about 68 per cent of the residual promoter holding in Eveready remain pledged. A year back, the promoter holding was at 42 per cent. But the sale of pledged shares by financiers who extended loans against stock continuously brought down the holding.

“The only way for the family to ring-fence Eveready is to infuse capital by issuing new shares,” said sources. Sources indicated that the Khaitans may make an attempt at clawing back their shareholding.

Eveready has debt of around Rs 350 crore on its books. But the problem is at the promoter level and over the past year some options of resolving it were weighed and discarded.

Talks for a slump sale of the battery business to Duracell were almost in the final lap but it is understood that Amritanshu Khaitan finally called it off because that would mean doing away with the core business without leaving much on the table.

In the interim, McLeod sold a clutch of tea gardens to bring down its debt and lost its crown as the world’s largest bulk tea producer. Now, a restructuring proposal is under discussion with lenders. A resolution for McNally that includes fund infusion by investors is also awaiting lenders’ approval.

Debt problems for Eveready, however, are not entirely new. In 2000, Eveready had run up a debt of more than Rs 800 crore when all tea gardens were merged into it; the turnover then was a little more than Rs 1,000 crore.

The tea business had a debt of about Rs 1,000 crore. When it was demerged, Eveready took Rs 800 crore of debt and McLeod Rs 200 crore. Eveready then sold non-core assets to bring its debt down to below Rs 300 crore. Later, the tea business was demerged from Eveready into McLeod. But a different problem started brewing for the battery maker as it started extending support to McNally Bharat.

A flashback to Eveready’s past throws up that its tryst with troubles started early. In 1995, McLeod made a rights-cum-public issue of Rs 303 crore to fund the acquisition of Union Carbide (now Eveready), the biggest corporate takeover in India at the time. In a depressed market, the issue had barely scraped through.

Over the years, Eveready has managed to wade through many a crisis. But perhaps its toughest challenge is still unfolding with promoter holding falling fast.

Ironically, however, the operations have seen a marked improvement. Battery volumes grew at around 16 per cent during January and February on the back of reduced dumping of imports from China after the implementation of quality standards issued by the Bureau of Indian Standards. Loss-making units such as packet tea have been divested to exporting house Madhu Jayanti International, which has resulted in improvement in margins. That is expected to sustain it through the year. But the Khaitans may not be in a position to regain their majority shareholding for some time yet.