Ready, finally

PENNY WISE

After several years of turmoil, Eveready has restructured its business.

If there is one person who is not so optimistic about the power reforms in the country, it is Deepak Khaitan, executive vice chairman and managing director, Eveready Industries.

He is also not optimistic about the state of infrastructure and government missionary. But these don't stem his exuberance for the business he runs.

The flagship of the Williamson Magor group, Eveready Industries has business interests in batteries and tea. With much of the country still in the dark, Khaitan envisages his batteries and torches lighting more households and making his balance-sheet brighter in the years to come. 
 

Financials
(Rs crore)	Fourth quarter ended March 31 (unaudited)		Financial year ended March 31 (audited)
	2005	2004	2005	2004
Net sales	150.74	192.96	654.93	880.52
Other Income	22.39	2.15	25.9	12.63
PBDIT	39.37	-37.71	106.8	64.84
PBT	25.27	-47.78	48.3	-9.4
Net profit	23.28	-39.16	46.31	-0.38
Equity*	27.89	55.78	27.89	55.78
EPS (Rs)	4.17	-7.02	8.3	-0.07
* Face value: Rs 5 for FY05

In order to bring in greater focus, Khaitan split Eveready Industries consisting of batteries, packet tea and bulk tea business into two entities - Eveready Industries and Mcleod Russel - each with a face value of Rs 5. While the former houses consumer products, including battery and packet tea, the latter carries on the traditional bulk tea business.

Eveready's shares - re-listed at the bourses last week - closed at Rs 89 on Friday, pretty much the price it was trading at before the spin-off.

Eveready Industries of 'Give Me Red' fame is a leader in dry cell batteries and torches in the country. It is the only local company to offer the full range of dry batteries - zinc carbon, alkaline and rechargeable. Similarly, it offers the entire range of flashlights - metals, plastics and rechargeable lighting.

With sales of close to one billion primary batteries every year, Eveready is the world's third-largest producer of carbon zinc batteries. In the Indian market, Eveready batteries have a 45 per cent market-share. Apparently, 60 per cent of consumers asking for a battery by brand specify Eveready.

According to a Mode survey (2004), the Eveready brand has a mindshare of 73.4 per cent against 22 per cent for competing brand Nippo and 4.5 per cent for Novino. So normally, three out of four people prefer Eveready to any other batteries.

"Our brand strength enables a 5 per cent price premium positioning at trade levels", says Khaitan. Currently, Eveready has a strong network of more than 3,500 distributors across the country. It reaches about 7.6 lakh retail outlets directly.

Eveready also imports and sells alkaline batteries apart from rechargeable batteries and chargers. Another significant product for the company is flashlights. Eveready is the largest manufacturer of flashlights in South Asia.

In the international markets, the company sells batteries and flashlights under the brand LAVA. "We have gained significant share in Nepal and we expect a similar experience in Sri Lanka also," says Khaitan. LAVA is being sold in 14 countries currently. Besides, it is also supplying to Toshiba in six countries.

Besides, Eveready Industries packets tea under the name Greendale. It sells three variants - Tez, Premium Gold and Jaago. The packet tea business contributes about a third to total sales and is profitable.

In FY05, Eveready (the demerged entity) clocked sales of Rs 745 crore, 16.3 per cent higher compared to the previous year. Earnings before interest, depreciation and tax increased 40 per cent to Rs 107 crore from Rs 76 crore.

Net profit for the fiscal stood at Rs 47 crore. Apart from strong sales growth, profits were boosted by the receipt of an upfront payment of Rs 25 crore for a real estate property being developed by the company with a developer.

"But for the rise in cost of raw materials, especially zinc prices, the profits could have been better," says Khaitan. Last year, dry cell batteries grew over 11 per cent, flashlights by 19 per cent and packed tea by 35 per cent.

According to Khaitan, the last five years have seen all-round improvement in sales volumes, market shares, costs and profitability. Cost cutting efforts have softened the blow of rising commodity prices which have been prevailing over the last 18 months. Going forward, lower commodity prices could ease the pressure on margins a bit.

Khaitan expects batteries and flashlights to continue to be the mainstay for Eveready while packet tea will provide the big leap. The battery business is growing at 16 per cent.

Incidentally, the company is setting up a Rs 60 crore new unit in Uttaranchal with a capacity of 400 million batteries per annum.

Besides, Eveready is set to earn some additional income by "unlocking of real estate" over the next three-five years. Says Khaitan, "the company has the potential to generate close to Rs 100 crore."

Last year the company relocated its Chennai plant and gave away its huge property to a developer to build an IT park, in lieu of which the company got Rs 25 crore as upfront payment and some space.

Over the next three years, the company is expecting similar inflows (around Rs 25 crore per year) as it will sell its share of the property in the IT park. Additionally, the company will develop real estates in Hyderabad (25 acres), Chennai (8 acres) and Noida (8 acres) in the years to come.

The company should be able to post a revenue growth of 15 per cent over the next couple of years. Based on this, the earnings per share should amount to around Rs 9 and Rs 14 for this fiscal and next; indicating forward price-earnings ratios of 9 and 6. Eveready looks charged up after the restructuring and the stock is probably worth a shot.