Eveready stake sale crucial for Khaitan group to put its house in order

In 1993, Brij Mohan Khaitan snapped up Union Carbide India (now known as Eveready Industries India), pipping the Wadias of Bombay Dyeing in a $96.5-million deal or about Rs 300 crore, in what was the biggest corporate takeover in India at that time. More than two decades later, that prized asset has been put on the block to deleverage group debt.

As on September, the debt within the group with interests ranging from batteries, tea and engineering, was at around Rs 4,500 crore. 

To put the house in order, McLeod Russel India, the bulk tea producer from the Khaitan stable, has been selling gardens; 12 deals have been sealed so far and with another eight memoranda signed in September, McLeod is set to rake in a shade less than Rs 800 crore from the sale of gardens in Assam and Dooars. Add to it the sale of interest in the profitable Rwanda operations, and the amount goes up to Rs 940 crore. 

That might not be enough to take the Khaitans to the target of retiring debt to a level of Rs 1,500 crore by September. But if lenders agree to debt resolution under Project Sashakt for McNally Bharat Engineering, the problem child within the group, then a lot of the burden would be taken care of.

Engineering has been a drag for the group. McNally’s debt in FY18 stood at Rs 3,500 crore. 

“The proposal for resolution of debt has been placed before the lenders. That would bring down the group level debt to Rs 3,000 crore,” sources pointed out.

Support was extended by Eveready and McLeod, which added to the debt burdens of those companies. Sometime around 2015, Toshniwal-owned EMC was brought in as a co-promoter in McNally but that didn’t quite help and the debt kept mounting. The two eventually decided to part ways. 

“If the whole restructuring goes through, change of ownership for McNally could also be an option,” said sources. McNally then would be the second company to consider a change in ownership after Eveready.

The battery maker has seen interest from the likes of global battery majors Duracell and Energizer, apart from a clutch of private equity players, for a majority stake in the company. The bids are expected shortly. 

The Khaitans, ideally, would like to retain a minority stake. The enterprise valuation is around Rs 2,000 crore and a premium on that is expected.

So what would the group look like post-stake sale in Eveready? The substantial focus naturally would be on tea. That would mean a return to the roots. 

The Khaitan story started with tea. Or, fertilisers, to be precise. Brij Mohan Khaitan used to supply packaging materials and fertilisers to Williamson Magor & Company, one of India’s top managing agency firms, at one point.

In 1961, when one of the Magor tea companies, Bishnauth, was close to becoming a target for a hostile acquisition, Khaitan, was brought in as the white knight. That taken care of, Khaitan was invited to join the board of directors in 1963 and by 1964 he assumed the role of managing director.

By 1995, according to Gita Piramal’s Business Maharajas, the group consisted of 25 companies with interests apart from tea in batteries (Eveready Industries, Standard Batteries), engineering (Macneill Engineering, McNally Bharat, Kilburn Engineering, Worthington Pumps, Deutsche Babcock), packaging (India Foils), financial services (Willimason Financial Service). But between early and mid- 2000, the businesses that took centre stage in the Khaitan scheme of things were tea (primarily consolidated under McLeod Russel), batteries (Eveready) and engineering (McNally Bharat Engineering and Kilburn Engineering).

Battling debt problems is not exactly new for the group. In 2000, Eveready had run up a debt of more than Rs 600 crore on a turnover in excess of Rs 800 crore. To tide over the situation, the company resorted to selling tea gardens. Amid the din, in 2001, the Khaitans and Magor split. 

But the wheel turned a full circle when Brij Mohan Khaitan’s elder son, Deepak Khaitan, managed to stitch a deal to buy out Magor-held Williamson Tea Assam four years later.

The deal, one of the biggest in the industry, was clinched in 10 days flat. Khaitan was on a holiday with his wife in London. For those who know Deepak Khaitan, it was hardly a surprise; he was known for his persuasive skills. 

The transaction became a turning point for the group. Other acquisitions followed. McLeod went on to acquire Doom Dooma Tea Company from Hindustan Unilever and Moran Tea Company from its UK parent. 

In 2015, Deepak Khaitan died. His son, Amritanshu Khaitan, and brother Aditya Khaitan, are at the helm.Prior to the split with Magors, the tea business was vested in Bishnauth Tea Company and Eveready Industries India. Subsequently, Bishnauth was merged into Eveready and thereafter, the tea business was demerged from Eveready into McLeod Russel.

Acquisitions in India and abroad took McLeod's production to 118 million kg. Apart from Rwanda, McLeod has a presence in Uganda and Vietnam. After the sale of gardens, production will stand reduced to 80 million kg.  

Insiders said the decision was to exit marginal gardens or non-profitable ones. Some more exits from marginal gardens could be in the offing. But a lot would be riding on the sale of the batteries business. How soon and how much would be the determining factors for the road ahead for the group.