Eveready Industries

Though Eveready Industries’ growth has stagnated in the last few years, the company bids to make a comeback with new product launches and diversification

Beta 0.76
Institutional Holding 18.01%
Dividend Yield 6.5%
P/E 3.4
M-Cap Rs 475 cr

EVEREADY Industries, a market leader in dry cell batteries and flashlights, is a good pick in the relatively defensive FMCG segment. Leveraging on its distribution network, the company has diversified into products like packed tea, insect repellents and compact fluorescent lamps (CFL). FMCG companies usually trade at a substantial premium to their book value. However, Eveready is currently valued at one fourth of its book value. The stock is thus attractive in view of its turnaround story.

BUSINESS:

Incorporated in 1934, the company has traditionally been the manufacturer and marketer of carbon zinc batteries, rechargeable batteries, alkaline batteries and flashlights under the Eveready brand. Over the years, the company has emerged as the largest dry cell battery player with a market share of more than 50%, with the largest distribution networks across the country.

The company witnessed a period of stagnation in growth since FY02 posting losses in the four intermittent years. Higher debt on the company’s books resulted in larger interest costs. The company currently has plans to leverage its national distribution network to market other FMCGs like packaged tea, insect repellents and CFL.

In the case of its tea business, the company has not really aggressively advertised its four brands such as Tez, Jaago, Premium Gold and Classic, which are positioned for different consumer segments. The company’s insect repellent business is still relatively new. It has launched mosquito coils over the target markets across the country. The market share is varying between 1% and 4% in various states.

GROWTH STRATEGY :

Eveready has charted out an aggressive growth strategy by entering into new categories in the power source and lighting space. It is launching products in the alternative lighting space based on the energy-efficient LED (light emitting diode) technology. It is bullish on increasing its presence in the rural markets.

The company expects the newly diversified product businesses to mature within a period of 2-3 years. It is also looking at doubling its turnover to Rs 1,600 crore by FY10 helped by its recently-launched ‘Ultima’ alkaline battery and ‘HomeLight’ LED cells. Eveready also has plans to enter into GLS (general lighting solutions) bulbs category.

FINANCIALS:

The company’s consolidated net sales have stagnated in the last five years at an average of around Rs 777 crore. It has reported loss in three of the last five years with last two consecutive years posting negative growth. The company’s operations suffered due to high zinc costs in the last two years. Falling input prices has augured well for the company’s operations. However, a weak rupee has had an adverse impact on its margins. Lower demand in the battery business is likely to be a short term concern. Liquidation of its real-estate has also helped the company raise funds to pay off its debts. Consequently, the company has been able to generate profits in the last three consecutive quarters, an unprecedented feat since 2006.

The company has a debt of Rs 320 crore on its books. It is yet to receive Rs 110 crore as balance amount on the sale of its real estate. These funds are likely to help the company tide over the debts that it has on its books.

VALUATIONS:

While Eveready’s new businesses are generating profits, they are likely to mature over the next couple of years. Their contribution to profits has become visible from the recent quarterly results. Besides, the new product launches are likely to increase volumes and profitability. The company’s stock has under performed the Sensex, registering a fall of 70% over the last one year. At current valuations, it is good time to invest in the company, which is emerging from a bad phase, but is showing signs of a recovery.