Sharp fall in Eveready Industries stock catches investors off-guard

The sharp fall in the share price of Kolkata-based Eveready Industries -- amid concerns over debt on the company's books and outstanding loans extended to group companies -- has caught marquee investors and domestic fund managers off-guard.

As of March 31, the value of non-promoter investors in the company stood at Rs 780 crore, which has shrunk to Rs 333 crore, taking into account the last traded price of the shares.

"The concerns over group debt and the possibility of pledged shares getting invoked have prompted us to start reducing our positions on the stock. We have been selling shares in the market even though the share price is hitting new lows," said a fund manager, requesting anonymity.

Almost half the promoters' holdings in Eveready was pledged as collateral at the end of March. An e-mail sent to the company didn't elicit any response.

According to available factsheets of domestic fund houses, SBI Mutual Fund (MF), Kotak MF and Franklin Templeton MF held investments in Eveready Industries in some of their equity-oriented schemes.

Kotak MF's Emerging Equity Scheme held 0.34 per cent of its net assets in Eveready, while the fund house's Small Cap Fund held 0.7 per cent of its net assets in the company, shows factsheet for April. Meanwhile, SBI MF's Consumption Opportunities Fund had 1.85 per cent of its assets exposed to the firm. Franklin Templeton MF's India Value Fund's exposure to the company was at 0.34 per cent of the scheme's assets. Both fund houses are yet to share April's factsheet. The MFs' exposures could be different as the stock has come under heavy selling pressure in the last few weeks.

Eveready Industries had been on investors’ and analysts' radar due to its strategy of diversifying from its steady cash-flow generating dry-cell business. This involved extending the company's brand name to higher-growth businesses such as lighting and home appliances.

However, the stock has seen a sharp reversal of fortunes in recent weeks. On April 25, India Ratings in a note highlighted the company's debt exposure to the group companies and the stock has corrected 43 per cent since then. While downgrading the company's long-term rating from AA- to A+, the rating agency said: "We estimate Eveready's net leverage (net debt/earnings before interest, taxes, depreciation and amortisation) to have remained high at around 2.9-times at end-FY19, as it could not reduce its debt in H2FY19 to the expected levels due to the continuous financial support extended to group companies and delays in asset monetisation."

Moreover, the note pointed to the firm's slipping interest coverage ratio, which is a company's ability to service debt obligations through internal accruals.

Foreign institutional investors (FIIs) have also been at the receiving end of the price fall with the value of FII holdings falling by Rs 153 crore since March-end. As of March 31, FIIs held 19.2 per cent stake in the company, which is a sizeable bet by FIIs in a small-cap company.

Exchange disclosures show that other major investors in the company include Akash Prakash' Amansa Holdings (3.85 per cent stake), Goldman Sachs India (2.58 per cent), and Sumeet Nagar-backed Malabar India Fund (1.2 per cent). Motilal Oswal Focused Emergence Fund, which is listed as an alternate investment fund, held a 1.6 per cent stake in the company as of March 31. The holdings of these investors could have changed since then.

Amid the correction in share price, the value of these investors' combined holdings is down by Rs 75 crore, which at the end of March quarter was valued at Rs 130 crore.

Just a year-and-a-half back, the company's shares had hit their all-time high of Rs 457, with market capitalisation at Rs 3,321 crore. From these levels, the company's current market wealth is down by Rs 2,721 crore, with the stock price down by 82 per cent.