Eveready Industries India - SPA Securities

We met the management of Eveready Industries to understand the company's strategy going forward. Despite having good brands like "Eveready" & "Powercell", the company has been struggling to achieve desired level of growth. Eveready primarily deals in batteries, flashlights & lighting products with batteries contributing to ~60% of the revenue. Recently it has launched a portable mobile charger. Excerpts of our discussion are as follows-

Revamping the distribution channel

Despite having a strong brand recall Eveready is struggling to achieve desired level of growth. According to the management this has been primarily because of gaps in the distribution channel. The company is revamping its distribution channel & has also started parallel distribution for the lighting & the newly launched portable charger product. Parallel distribution means that these products will have separate distribution outlets in addition to the existing battery & flashlight outlets.

New products on the anvil

Eveready had recently launched 4 variants of portable chargers used for powering mobile, tablets & gaming devices among others ranging between INR 1200- 3200. The company has plans to launch products such as Wall Mounted Light Fittings, Rechargeable fan with embedded light, Radio & Luminous products. The focus going ahead is on the rechargeable products. Considering the severe power-cut situation in the country, Eveready's rechargeable products may see a good traction.

Revenue from New products to aid profits going ahead

The per unit realization from the current product portfolio is low. Consumer resistance is also witnessed for price increases because of easy availability of substitutes. The newly launched portable charger is ranged between INR 1200-3200 & margins are also higher compared to the current product portfolio because of good demand, absence of competition from the organized/ branded segment. Going ahead, major product launches are value added products which will aid margins. The management is targeting revenue of INR ~5 bn in 3 years from these products.

Focus on Debt Reduction

The standalone debt & interest cost of Eveready is ~INR 2.76 bn & ~INR 0.36 bn respectively at the end of FY12. With improvement in EBITDA & cash flows the company aims to repay ~INR 0.4 bn & INR ~0.6 bn through cash profits in FY13 & FY14 respectively. It aims to reduce its debt & interest cost to ~INR 1.5 bn & INR 0.2 bn respectively in 2-3 yrs. The company also owns ~35 acres of disposable land (at Hyderabad & NCR) which it is willing to sell after the recovery in the property prices.

Outlook & Valuation

Currently Batteries & Flashlights contribute 80% of the total revenue of Eveready. Digitization & consequent use of 2 remotes should increase its AAA battery sales. Going forward, with improvement in distribution channel, sales from other divisions should also pick up. Our outlook on smart phones & tablets is robust & hence we believe that demand for the portable charger should go up. The company is targeting revenue of INR 15 bn in FY16, CAGR of 11% from FY13E to FY16E. Though the company has INR ~2.76 bn of debt but there is also a cushion from ~35 acres of disposable land. Currently the stock is trading at a P/E of 18x its FY13E EPS of INR 1.

Source : Equity Bulls

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