CMP: Rs. 239.95; Market Cap:
Rs. 1,744.13 Cr; 52 Week High/Low: Rs. 375.00 / Rs. 192.25.
Total Shares: 7,26,87,260 shares;
Promoters : 3,19,90,995 shares – 44.01 %; Total Public holding : 4,06,96,265
shares – 55.99 %; Book Value: Rs. 85.95; Face
Value: Rs. 5.00; EPS: Rs. 7.17; Dividend: 00.00 %; P/E: 33.46 times; Ind. P/E: 23.85;
EV/EBITDA: 15.15 times.
Total Debt: Rs. 207.27 Cr; Enterprise Value: Rs. 1,949.22 Cr.
EVEREADY INDUSTRIES INDIA LTD: The Eveready Industries India
Ltd (EIIL) was incorporated in 1934, but its journey started in 1905 in India,
whiles the company and became a part of the Williamson Magor Group in 1993. In
1994 the Williamson Magor Group through McLeod Russel (India) Limited bought 51
% of the equity shareholding of Union Carbide India Limited. The company was renamed
Eveready Industries India Limited in 1995. The company manufactures and sells
dry batteries and allied products, flashlights cases and parts, zinc alloys, strips
& plates, Stellite super alloys, cinema arc carbons, carbon electrodes
& electrolytic manganese dioxide and cultivation, manufacturing and selling
of tea. The company came with an IPO of 32,94,500 equity shares issued at a
premium of Rs. 6 per share in 1978. The company till have has declared bonus in
the year 1980 in the ratio of 1 new share for every 2 held. The tea
division McLeod Russel India Limited was merged with Eveready Industries India
Limited to form a new company with two Divisions—the Bulk Tea Division (which
managed the tea estates of McLeod Russel) and the Battery Division (which
produced and marketed the popular Eveready batteries and flashlights). In April
2004 Eveready Industries de-merged the two divisions into McLeod Russel India
Limited (Bulk Tea business) and Eveready Industries India Limited (Dry Battery
business). The company launched lanterns with
portable rechargeable products in 2012 and in 2015 it launched India’s
brightest ever 8W LED bulb. EVEREADY INDUSTRIES is locally compared with Indo National Ltd,
Panasonic Energy India Co Ltd, Khaitan Electricals Ltd, High Energy Batteries
India Ltd, Exide Industries Ltd, HBL Power Systems Ltd and globally compared
with Duracell Inc of USA, Hitachi Maxwell Ltd of Japan, EuroForce Battery Co. Ltd
of China, Panasonic Corporation of USA, Cell-Con Inc of USA, China Nice-Power
Group of China, Chung Pak Battery Works Ltd of Hong Kong, Sharp Corporation of
Japan, Sony Corp, Eurobatt Sp Zo.o. of Poland, GBT German battery Trading GmbH
of Germany, Energizer Holdings of USA, Leclanche S. A. of Switzerland.
Investment Rationale:
Eveready Industries India Ltd. is an India-based company
engaged in the business of marketing dry cell batteries, rechargeable
batteries, flashlights, packet tea and general lighting products. The Company
offers products, including dry cell batteries, flashlight (torches), and
lighting and electrical products. The Company's products are available under
the brand name EVEREADY. The Company offers alkaline batteries, EVEREADY
ULTIMA; rechargeable batteries, EVEREADY RECHARGE; brass torches, EVEREADY
JEEVAN-SATHI; light-emitting diode (LED) flash lights, EVEREADY DigiLED, and
packaged tea, including EVEREADY PREMIUM GOLD, JAAGO and TEZ. The Company has
distribution network all over India with around 15 branches. The Company's
manufacturing units are located in Kolkata, Noida, Uttaranchal, Chennai,
Lucknow and Maddur. The Company also has its own flashlight design and
development unit. It has packaging unit for packet tea at Chuapara tea estate. Eveready currently has six manufacturing plants
across India with 15 sales offices. Distribution footprint includes 4,000+ distribution
pints and a reach of 32 lakhs outlets. Its Brand power clubbed with vast
distribution network gives Eveready a leadership in market despite it charging 5 % to 20 %
premium in battery business. Eveready’s market share continues to be the highest
at 52 % in the organized dry battery industry due to its strong brand recall. Company’s
consistent investment of 5 % of sales in advertisement campaigns during the last
10 years has created a strong brand recall for itself. Further, its vast
network of 32 lakh outlets across the country covers almost 45 % of the FMCG
distribution universe and 70 % of the battery outlet universe. Post completion
of transition from D-Size to AA-Size, the company has led the price increase in
the battery business, with 23 % realization improvement over FY13-15 and a recent
hike of 5 % in September 2015 improved its EBITDA margins from 3.9 % in FY12 to
9.7 % in FY15. Digitization will drive its volume growth in
battery business. The India’s
per capita consumption of batteries is very low a mere 2 units p.a as against
10 units p.a. of China’s. Indian dry cell batteries market is estimated at 280
Cr pieces in volume and Rs. 1,600 Cr in value. As per the digitization plan,
sales of set top boxes are expected to be 12.4 Cr in FY17 and around 15.1 Cr in
FY18; this shall lead to strong demand for AA batteries. The TV remote segment
is the biggest consumer segment which accounts for 40 % of the total consumption
of batteries; growing at 20 % p.a on the back of digitization followed by
flashlights which has 25 % share. In the case of LED flashlights, the trend is
moving from 0.1W to 0.5W and 1W LED lights as a result, replacement cycle has
reduced from 100hrs to 30-40hrs; this will lead to increased demand for
batteries. Wall clock has a 25 % share, which is growing at slow pace. The last
category includes toys and games, which is a very nascent category at 3-4 % of
the share. Compared with China’s per capita consumption of
10 batteries per year, India’s per capita consumption is a mere 2 batteries.
Thus, there is considerable scope for growth in the battery market. In recent years low-priced Chinese
batteries have been taking away larger pie of this opportunity in the primary
sales, but demand for Eveready continues to remain strong in replacement market,
where it has maintained its market share. The LED-based lighting industry is
expected to grow at 36 % CAGR to Rs. 21,600 Cr over 2014-2020, as per a report
by ELCOMA. The growth in LED is on the back of shift from CFL and incandescent
bulb towards LED due to energy efficiency and cost savings. Eveready is well placed to capitalize on the LED
opportunity on account of increasing its presence in electrical outlets from
30,000 to 60,000 outlets, tie-ups with online players, dedicated 70 % of total
advertisement spends on LED, set up of own manufacturing facility which shall
help to save Cost of Goods Sold of 5 % and participate in government tenders. The
industry is characterized by high competitive intensity, with new entrants like
Syska which has the market share of 21 %, established players like Phillips
which has little lower share than Syska, while Bajaj, Havells and Eveready
share would be 7 % each and many unorganized players in LED market. Flashlight is the second biggest
contributor to Eveready’s revenue at 19 % in FY15. The company has leveraged
the ‘Eveready’ brand to build its flashlight business and now enjoys 70 % market
share in the organized flashlight market. The company has a wide product
portfolio in the segment, catering to almost all price points and market segments.
Another key advantage that Eveready enjoys is that it has been an early
innovator and first mover in several key products. The company was an early
mover in the LED torch segment, and introduced Digi LED technology in torches.
Recently, Eveready announced the launch of economy range of flashlights which
is estimated to be Rs. 250 Cr to Rs. 300 Cr market. The total Indian dry battery
is estimated at 280 Cr pcs and has grown at 4 % CAGR over FY11-15. In FY15, the
organised players constituted about 91 % and unorganized players mainly low
priced imports from China constituted around 9 % of the total market. The Indian
dry battery market is mainly dominated by three players, led by Eveready
Industries Ltd which has a market
share of 52 % in volume terms, also it’s the highest in the segment under its
strong brand name ‘Eveready’ and Powercell’, followed by Indo National under
the brand ‘Nippo’ and Panasonic Energy under the brand ‘Panasonic’. Chinese
batteries are available at 1/5th the price of Indian batteries i.e. Rs. 2 pc as
against Rs. 10 to 4 pc. The share of unorganized players was negligible during
the period 2002 to end of 2013 as anti-dumping duty was applicable on Chinese
import. Post removal of the anti-dumping duty the share of unorganized players
has gradually increased to 9 %. The Carbon
zinc is the dominating category in India’s dry battery business about 97 % share,
followed by alkaline about 2 % and rechargeable about 1 %. The key difference
between Carbon Zinc and Alkaline battery is the type of electrolyte used due to
which the Capacity of alkaline battery is higher compared to carbon zinc and the
shelf life is also higher. In a price-sensitive market like India, carbon zinc
batteries are generally preferred for low-drain items like remote controls,
clocks, flashlights and low-end toys whereas alkaline batteries are preferred
for high-drain items like gaming consoles, digital cameras, MP3, radio,
wireless mouse and high-end toys. However, in practice in India, carbon zinc
batteries are used even in high-drain items owing to the prohibitive cost of
alkaline batteries which is an AA alkaline battery costing Rs. 35 pc compared
with Rs. 10 to Rs.14 pc for an AA carbon zinc battery. Eveready
is present in all the three battery segments, reflecting the same pattern of
mix as the industry. The company’s ‘Give Me Red’ campaign in the early 90s caught the imagination of
people and irreversibly powered the brand into the consciousness of Indian
audience, who came to associate the company’s batteries with Red colour. The
campaign received a new fillip when Eveready signed the famous Bollywood action
hero Mr. Akshay Kumar as its brand ambassador to promote the company’s LED
business. Eveready has been regularly invested in advertising and sales
promotion to maintain its brand strength. Eveready
is amongst the best quality product in the market at the most in-expensive
pricing which has also been well captured in its advertising communication and
this will give the company an edge over the competitors. Company has been
fairly pro-active in terms of building up the distribution network for the
business and has been working hard to establish a pan-India presence in the
electrical outlet channel in the coming years. It has already established a
direct reach of 30,000 outlets and aims to cover the entire universe of 90,000
outlets soon. This will enable the company to reach out to more consumers, giving
the brand more visibility and help to boost the growth. Eveready’s marketing
strategy is targeted towards leveraging the mega brand “Eveready” which already
has a strong consumer connect in the lighting, flashlights and batteries space
and this will provide the company an advantage over its competitors. “Everyready”
is one of the most best and cost effective in its products. Its 100 lumens per
watt costs Rs. 449 whereas for Phillips its Rs. 599 for 86 lumens watt; for Syska
it is Rs. 599 for 93 Lumens per watt; for Bajaj it is Rs. 485 for 86 Lumens per
watt; for Halonix its Rs. 550 for 86 lumens per watt; for Surya its Rs. 600 for
80 lumens per watt, for Havells its Rs. 600 for 74 lumens per watt and for Wipro
its Rs. 650. This cost effectiveness helps Eveready to bid for government
projects. Eveready recently bid for Madhya Pradesh government LED bulb
tender which is its first tender in government order. It has been declared L2
and expects order of 70 Lakhs bulb pcs to be executed over 6months. The bid price is Rs. 64.6 per LED bulb
and its impact on revenue is expected to be seen in 1Q and 2QFY17. As per
industry sources, the total LED tender opportunity available in next 12months
stands at 15 Cr pcs of bulb which will be either in 7W or 9W category. The company
intends to participate in more such orders during FY17. The company also intends
to set up its own manufacturing unit in the form of a JV with a domestic player
by January 2016 and this will reduce costs by 5 % to 6 % and ensure its steady
supply. Brand recall value, new launches, cost effectiveness, raising demand
and government bids will ensure stable growth for Eveready and better margins
will protect its profits and in all Eveready is all set to take advantage of
new trend to use fuel efficient bulbs and appliances.
Outlook and Valuation:
Eveready Industries Ltd has a
well-diversified product portfolio spanning four products, with strong
leadership in two key products segments such as batteries which has 52 % market
share in the 2.7 bn pieces Indian battery market and in flashlights it has 75 %
market share of the 35mn pieces Indian
organised flashlights markets. It
commands premium pricing over its peers driven by regular brand building
exercise and vast distribution network of around 32 lakh outlets. Company’s battery
segment contributes 60 % to revenues, flashlights contribute 19 % to revenues,
lighting and electrical contribute 15 % to revenues while packet tea
contributes balance 6 % to the revenue. Eveready
will launch at least 19 products, such as ceiling fans, electrical kettles and
mixer-grinders, which will be contract manufactured in China and India. Eveready
will be launching at least 60 products over the next three months. Though it
will position itself as a “value-for-money brand”, Eveready will split its home
appliances between two categories: popular and premium. Put together, the
company expects the category to yield an operating margin of around 10 % -12 %.
The Rs. 15,000 crore home appliances market is fragmented and even a 2-3%
share of the market will give a huge fillip to Eveready’s revenue and
profitability. The company has so far been selling batteries, flashlights, LED
bulbs and packet tea. Eveready has for long been trying to expand its product
portfolio to get the most out of its pan-India distribution network and brand
recall. Eveready’s existing distribution network should be able to sell at
least 25 % of these new products. A bigger driver of sales is expected to be
digital marketplaces. At least 30 % of home appliances currently sell through
e-commerce platforms. The company is eyeing a 4-5% share of the home appliances
market in three years. The sale of these goods in India is expanding at around
15 % a year. Eveready Industries may sell assets like land as well as
close off some of its unproductive plants to cut costs and raise funds for its
new diversification in response to continuing Chinese dumping. The company is
looking to monetise surplus real estate in next two years. The company had a
land bank comprising of properties in Noida, Kolkata, Lucknow and Hyderabad,
which would be monetised depending upon market conditions. Eveready, which so
far has been financing its foray into LED lighting category from internal
accruals, now need money to fund its recent diversification into electrical
appliances. The company will continue to
invest heavily in brand building in the LED business that would help it to
command a position among the top three players in the category. Eveready currently has plants at Taratola Road, in
Kolkata,
Tiruvottiyur in Chennai, Noida in UP, SIDCUL
industrial estate in Haridwar, KIADB Industrial Area in Karnataka, Aishbag in
Lucknow and at Vaikadu in Chennai. And are setting up a 400 million battery
plant which would get completed by March 2017. As the north east still enjoys
excise duties and IT exemptions we see a payback of three years for this
investment. This gives them the flexibility of shutting down some of our older
plants which run at higher costs. The unorganised
segment, primarily cheap Chinese imports, has been rising for the past two
years after the removal of the long-standing anti-dumping duty. Its share in
the industry has risen from 7 % to 9 % over the past few quarters. As a result,
even though the ‘AA’ and ‘AAA’ segments are growing at 6 % to 7 % and 13 % to 15
%, respectively. While the Eveready batteries business will
continue to be the largest contributor to revenue and profits over the next few
years, the new LED business should provide additional growth over the long
term. As a result, it can be expected that the company can deliver a 35 % EPS
CAGR over FY15-17F. The company has announced a capex of Rs.
100 Cr for shifting its battery manufacturing to Assam by March 2017 in order
to enjoy excise and tax benefits. The management expects a payback after 2.5
years. A part of the capex will be funded through debt, though Eveready also
has plans to monetize certain assets within 18-24 months, which will raise a
similar amount as the required capex. On financial side Eveready Industries’
posted moderate 4QFY16 numbers. Its revenue grew moderately by 3 % to Rs. 283.3
Cr on account of a flattish growth in the battery business and decline in
flashlights, which was compensated by a healthy growth in the LED business. Its
EBITDA reduced its growth 39 % to Rs. 13.7 Cr while EBITDA margin declined by 2.20
% to 4.8 % mainly due to a mark down of LED bulb inventory and higher advertisement
& promotional spend. According the management, there was a sharp decline in
LED bulb prices in 4QFY16, which led to the mark down of old LED bulb inventory.
Eveready’s battery business, which contributed 57 % of its total revenue in
FY16, remained flat during the year due to the import of cheap Chinese
batteries. As per management, there is a high possibility of anti-dumping duty
being levied by the end of 1HFY17 and if this happens, then domestic battery
companies are likely to record high growth and margin expansion. The lighting
and electrical segment grew by 46 %, driven by LED and will remain in the high
growth trajectory, helped by government order of 70 lakhs bulbs to be executed
in FY17. Given this, Eveready will trade closer to FMCG multiples
rather than capital goods companies such as Havells. Eveready will be able to
deliver consistent mid-teens revenue growth over the medium term with
possibility of driving some margin improvement as well. This will mean that the
company’s earnings growth is more likely to be closer to the FMCG sector which
is another factor which will mean the trading multiples will eventually be
closer to the FMCG average. Eveready Industries has been able to build a strong
brand over a long period which is clearly visible in the pricing power that the
company has. The company will be able its sustain its leadership 52 % market
share and enjoy competitive advantages in the battery segment. Robust growth in
LED business, opportunity to diversify into new product categories like small
home appliances backed by its brand power and vast distribution network, margin
expansion, high RoCE and cash flows makes Eveready Industries an attractive
play in the given sector. At the current market price of Rs. 239.95, the stock is trading at a PE of 27.58 x FY16E and 19.99 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 8.70 in FY16E and Rs. 12.00 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.
KEY FINANCIALS | FY15 | FY16E | FY17E | FY18E |
---|---|---|---|---|
SALES (₹ Crs) | 1,278.90 | 1,323.30 | 1,532.60 | 1,773.90 |
NET PROFIT (₹ Cr) | 48.90 | 50.60 | 75.55 | 109.00 |
EPS (₹) | 8.50 | 8.70 | 12.00 | 16.70 |
PE (x) | 28.70 | 28.30 | 20.40 | 14.60 |
P/BV (x) | 2.90 | 2.70 | 2.50 | 2.30 |
EV/EBITDA (x) | 16.10 | 15.90 | 12.60 | 9.70 |
ROE (%) | 10.20 | 9.80 | 12.80 | 16.30 |
ROCE (%) | 13.50 | 13.80 | 17.20 | 20.00 |
*As the author of this blog I disclose that I do not hold EVEREADY INDUSTRIES LTD in my any of the portfolios.
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Disclaimer:
Disclaimer:
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
As a Disclosures I Confirm that :
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
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This is very useful nifty tips.
ReplyDeleteGood to know about Eveready! A post about less known matters of a much known name :-) Thank you!
ReplyDeleteI had no clue ever ready had this diverse portfolio....extensive research indeed
ReplyDelete:)
I had no clue ever ready had this diverse portfolio....extensive research indeed
ReplyDelete:)
Hii shweta welcome:)
DeleteAnd m very happy that u liked it
Eveready Industries is now tapping on LED products and other appliances
Thanks and pls do visit again :)
Nice Info About market....Thanks
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ReplyDeleteBalance sheet of the company is showing good performance record . Tough i was not aware of such diverse portfolio of ever-ready industries. Also their segment of product is very unique.I am a intra day trader and use stock tips of epic research. It benefited me with good amount of profit.
ReplyDeleteSold half of the stock, not happy with performance, also not expecting recovery soon. Main business of cell facing problem due to Chinese dumping, led have alot competition now,their kitchenware business will take time. Also their offshore business not doing good. So sold half stocks
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ReplyDeleteDear what is your view on the huge land bank they have. If and when they sell or develop it then how much it will add to stock price.
ReplyDeleteHi dear,
ReplyDeleteIt would be great if me and my reader's know ur good name.. :)
Anyways Eveready has around 70 acre's of land and could be valued around Rs. 300-400 cr tht could be an additional of around Rs. 40 to 55 per share to stock price.
Please do visit again
And wishing you a very happy Diwali and prosperous new year
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