Subdued performance of the domestic business, high debt and inappropriate timing of its acquisition of France-based Uniross in 2009 have led the Eveready stock reach abysmal levels of Rs 35 compared to Rs 80 in September last year.
However, things are expected to improve led by its battery business (accounts for 60 per cent of revenues) and given its recently-announced plan to sell 60-70 acres of land. The restructuring of Uniross should also yield positive results, albeit in the longer term. Though there are challenges in some businesses, the company’s efforts to turn them around should yield positive results. Given these developments, the value of its land and its consolidated book value of Rs 94 (FY11), there is potential for the stock to deliver in the long-run.
CORE BUSINESS
The company is a market leader in the domestic batteries and flashlights segments, with 50 per cent and 76 per cent market share respectively. It also has a small presence in tea and general lighting products businesses. While lighting products business has low entry barriers, the company faces competition from bigger players like HUL and Tata Tea in the tea business. In FY11, the company reported flat turnover in lighting products and tea while volumes had declined by seven per cent in flashlights. The outlook continues to be challenging for most businesses except batteries thanks to faster than historical growth of ‘AA’ and ‘AAA’ size batteries (80 per cent of industry volumes and 73 per cent of Eveready’s batteries’ sales).
Notably, the long-term prospects is also robust, given that India’s economy will grow bigger and rising incomes should lead to increased demand for remote-controlled durables (TVs and ACs), toys, clocks, cameras and portable music systems, thereby boosting battery consumption. While overall sales may continue to grow at a moderate rate supported by batteries, margins may remain under pressure due to higher costs of other inputs (despite correction in zinc prices) and rupee depreciation.
REVIVING BUSINESS
The company has roped in Bollywood actor Akshay Kumar (earlier Amitabh Bachchan) as the brand ambassador amid its renewed focus on marketing and advertising. In flashlights, it aims to focus on innovation and bring newer models to differentiate from copy-cats.
With regards Uniross, its acquisition which was done for getting a foothold in Europe, Southeast Asia and Africa, had added salt to the injury. Uniross, which has subsidiaries in Hong Kong, South Africa, the UK, Germany and Italy, was already under financial stress in 2009 and the global financial crisis worsened its performance further (loss of Rs 52 crore in FY11).
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Eveready now plans to introduce Uniross’ products in new markets and enter new segments like alkaline and carbon-zinc batteries (currently into rechargeable batteries). The benefits of its restructuring (selling loss-making industrial battery business, reducing workforce, cutting annual overheads by €3 million) is expected to accrue in the coming years. It expects Uniross to break even in FY12 and be profitable over next couple of years, though problems of the euro zone could derail its plans.
LAND VALUE= CORE BIZ
The company recently announced plans to sell 60-70 acres of land in Delhi, Hyderabad and Bangalore over the next two years. The move could help the company become debt-free as against its consolidated debt of Rs 327 crore as on March 31, 2011. It is expected to start with Hyderabad (25 acre), which should fetch Rs 250-275 crore. Sale from the other two regions, which are in prime locality, should lead to some surplus though their valuations are not known. However, it may also choose to develop the land parcels on its own or through its sister company, Mcnally Bharat (a civil construction), if the property market does not pick up.