Buoyed by improving cash flows, a balance sheet clean-up act and renewed interest from retail investors, the country’s largest dry cell battery major Eveready Industries India Ltd is making a renewed bid to be debt free over the next two-to-three years.

The BM Khaitan Group flagship has a debt burden of approximately ₹400 crore.

The company went through one of the worst patches in recent times because of high promoter pledges (due to inter-corporate deposits or ICDs to promoter group firms) and a continuous sell-off by institutional investors, including major fund houses, financial institutions and banks.

Stock rally

A turnaround of sorts began after the Burman family — promoters of Dabur — began picking up stake, to emerge as the largest shareholder group. The Burmans, through their investment arm, own close to 20 per cent in the company while the promoter group — Khaitans of Kolkata — shareholding stands at a little below 5 per cent.

In June 2019, two years back, the stock was trading at around ₹70. The scrip began reacting positively and after a series of high-profile exits by retail investors, Tata Small Cap Fund invested in the company over the last two to three months.

Eveready Industries initiates proceedings to recover ICDs, dues

From a 52-week low of ₹76.35, on June 6, 2020, the price recovered to report a 52-week high of ₹349 on June 8. On June 18, there was a more than 3.91 time volume spurt, and on June 21 the volume spurt was 2.13 times.

“There has been investor interest in the stock again and since the Burmans began acquiring shares, the stock prices have reacted positively,” a company source said.

According to Amritanshu Khaitan, MD, Eveready Industries India Ltd, the Burman family brought in the stability that the company required when it was going through a “bad patch”.

Eveready Industries posts ₹442-crore loss in Q4

Positive outlook

Eveready generated cash (at an EBITDA level) of ₹120 crore in FY20 and it improved to ₹220 crore last fiscal, driven by increase in demand for its prime vertical, batteries and flashlights. The segment is expected to witness a 7-8 per cent value growth as Chinese dumping and introduction of BIS standards have helped it gain market share. Volume growth will be aided by the current rise in demand for small health appliances such as pulse-oximeters, BP machines and temperature guns, says Amritanshu Khaitan.

New verticals like lighting and small appliances — badly hit by the pandemic — will stabilise over the next two to three years with a total turnover of ₹500 crore. The lighting segment — its big bet — has managed to script a turnaround in Q4FY21 (EBITDA positive) and the small appliances segment reduced losses to ₹15 crore.

“While there was a low base effect, I admit it will be difficult to sustain a long-term double-digit volume growth. We are looking at 8 per cent value growth in FY22 for batteries, provided there are no major pandemic-led disruptions. With lighting and small appliances verticals stabilising, we should be generating sufficient cash flows to be debt-free in two to three years,” he told BusinessLine .

“In June, both the battery and flashlight and lighting verticals are witnessing increased demand,” Khaitan added.

In Q4FY21, the company saw finance costs and interest payouts reduce significantly while it has already serviced close to ₹200 crore of debt in the last two years, through land monetisation.

Debt to EBITDA is at 2:1, which Khaitan says is a comfortable level. “Of our ₹400 crore-odd debt, nearly 25 per cent (₹100 crore) is working capital requirements,” he said, adding that debt shot up as the company invested in capex for its Guwahati plant.

“But our performance has been one of the best in recent times. EBITDA margins were up 25 per cent in Q4 and were at a record high of 18 per cent for FY21. With price hikes being taken in batteries and flashlights — due to raw material costs moving up — we are hopeful of maintaining margins in the current fiscal (FY22) too,” he said.

Balance sheet clean-up

Interestingly, Eveready has also initiated a balance sheet clean-up, making provisions to the tune of ₹630 crore against non-payment of ICDs to group firms. “These adjustments are accounting provisions and do not affect day-to-day operations,” Khaitan said.

However, the buzz in the market is that the Burman family is likely to get a Board berth in Eveready and this has prompted the clean-up act, after the issues were flagged by the company’s auditors over the last few years.

Khaitan says the company has not yet been approached by the Burmans for a Board berth. “We waited for the right time and lapse of grace period to promoter group firms in order to initiate recovery proceedings. The Burmans are yet to approach us for a Board berth,” he said.

There are no immediate plans by the Khaitan family to hike their stake in Eveready either. “Let promoter group restructuring be through. Then we will take a call,” Khaitan added.

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