Eveready Industries is a Rs. 980 crore company, which is the flagship of the Khaitan group. The company has interests in the battery business and the tea business. Out of the 980 crores 650 crores comes from the battery business while the remaining 330 crores comes from the tea business. The company has not been doing well and has been in red for some time now. However this has slightly changed with the company netting a profit in the last three quarters ending December 2004. The cause of the losses has been the high debt that the company carries on its books among other reasons. The company carries a debt of around 745 crores on its books. Another reason has been the downturn in the tea cycle and the tea prices going southwards since 2000. The company in order to leverage its strong distribution network merged with McLeod Russel, which was a profit making tea company. The company decided to market the packet tea, which was sourced from their own tea gardens.
However the strategy has not worked out well for them as can be seen from their losses and the company has now decided to demerge itself into two separate units. One would be Eveready Industries which would continue to deal with batteries and flashlights and the other will be Mc Leod Russel which would take care of the tea business. The shareholders of Eveready Industries will get one share each in the new companies. The face value of the share of the newly formed entities is Rs. 5 each. Post split the debt of the company will be shared among the two companies. While Eveready will carry Rs. 525 crores Mc Leod Russel will carry Rs. 220 crores. The shares of the company have been suspended from trading and the re listing of Eveready will take place in the end of April while the shares of Mc Leod Russel will list in the end of May.
In the batteries segment Eveready is the market leader with a market share of 46%. The capacity of the company is 1.2 billion batteries per annum and has got manufacturing facilities at five places. The company also exports 50 million batteries to countries like Sri Lanka, Egypt, Bangladesh and Middle East.
It has also got a significant presence in the flashlight market where it has got 85% market share, which translates, into sales of 12.5 million flashlights per annum. The trouble started when cheap exports from China started invading the Indian markets. However very soon the consumers found out that there is quite a bit of difference in the quality or life of the batteries of Chinese origin and Indian batteries. And now the stage has come where the company is thinking of taking a stake in a Chinese battery company and will try and enter that market. The company wants to increase its market share in the domestic market to 50% and wants to increase capacity to 2 billion batteries per annum by going in for a brown field expanision in Kolkata, which will cost it Rs. 80 crores and going in for a green field expansion in Uttaranchal at the cost of Rs. 5 crores. However considering the huge amount of debt the company will have to finance these expansions through internal accruals something, which they feel can be done at present. The main concerns for the company are one that the import duty for the batteries have come down from 15% to 5% and two the cost of zinc which forms one third of the raw material that goes in the batteries has been steadily going up. However for a company that is the market leader in its category it should not be too difficult to raise prices to meet the higher cost, which the entire industry is facing.
The company is also developing a technology park called Olympia in collaboration for which it has already spent Rs. 25 crores and will get 2.5-lakh sq. ft of built up area which it expects to sell upwards of 100 crores. This park would come up at 2007. Also the two battery plants one in Guindy near the airport in south Chennai and one at Tiruvottiyur in North Chennai have been brought under one roof at Tiruvottiyur which has freed up the space in Guindy which the company plans to develop, Its clear that developing and selling real estate to clear up the debt are something that the company is working upon. The company owns a lot of real estate in prime areas and this strategy has got a good chance of working. Once the company reduces its debt it can take advantage of its strong brand and distribution network, which consists of, over 6 lakh direct retailers to grown market share and return to profitability.
