Eveready powers up for life after debt

After hefty provisioning for inter-group loans, the Khaitan-managed company says it is back on track. But who will be in control from here on remains an open question

The iconic logo of the country’s largest dry cell battery maker, Eveready Industries India, — a black cat jumping through the figure 9 — signifies the proverbial “nine lives” of a cat. The company has used up at least some of the lifelines.

The famous “Cat & 9” logo was launched in the 1930s by American company Union Carbide Corporation (UCC). In 1993, following one of the worst industrial disasters in Indian corporate history, the brand came into the Kolkata-based Brij Mohan Khaitan fold when it acquired Union Carbide India (renamed Eveready Industries India), beating the Wadias of Bombay Dyeing. At $96.5 million (or, about ~300 crore), it was the biggest corporate takeover in India at the time.

But the shock and awe of that takeover is on low power. If anything, in the past two years the story has shaped up as a tale of two halves: Of the company and its promoters.

Operationally, Eveready is in a good place; operating EBITDA in FY21 was the highest ever at ~224.72 crore, an increase of 86 per cent over the previous year, and the EBITDA margin at 18 per cent was significantly higher than the 10 per cent in FY20.

“FY21 was the best year in the history of the company,” said Amritanshu Khaitan, 37, managing director, Eveready Industries India.

“We have been focusing on growing profitability in the last two years. Even though it was a very challenging year due to Covid, we were able to improve our operating margins 800 basis points,” he added.

In fact, the Covid-19 pandemic proved a booster of sorts. A medical equipment-buying frenzy — pulse oximeter, digital blood pressure monitoring device, thermal scanner — sent battery volumes soaring. In FY21, volumes grew 6.4 per cent, after being flat for the past few years.

The company also benefited from the implementation of Bureau of Indian Standards (BIS) quality standards, which helped curb competition from cheap Chinese imports. Cost saving measures, too, played a part.

But Eveready ended the year with a net loss (see chart). Most of it was on account of a balance-sheet clean-up that was loaded on to the Q4FY21 net loss of ~441.20 crore. It is this provisioning that lies at the heart of a pulsing issue for this ~1,249-crore company.

In Q4, Eveready made a provision of Rs 629.70 crore for inter-corporate deposits (ICDS) and corporate guarantees given to promoter group companies. The loans and advances were made to support the perennially ill Mcnally Bharat Engineering. The recoverability of those ICDS was enough of a sparking point for Price Waterhouse & Co Chartered Accountants to resign as auditor in 2019.

Borrower companies (notable ones being, Seajuli Developers and Finance Limited and Babcock Borsig Limited) were given time till February 28, 2021, to repay, after which the company marked them down as losses.

Loans and advances were not the only support extended to Mcnally Bharat; promoter shares in Eveready and Mcleod Russel India — the group’s tea company and India’s largest bulk tea producer — were pledged and the pledge holders sold shares.

In this period, Eveready acquired a white knight in the form of the Burman family of Dabur — originally a Kolkatabased family with whom the Khaitans go back a long way. They had been buying into Eveready since March 2019 and in mid-2020 bought an 8.48 per cent stake, taking the holding to 19.84 per cent.

“Our view is that the board and company should take a prudent view and if the money is not recoverable then it should be written off, which they have now. The company should try and recover this money through all ways and means available,” said Mohit Burman, vice-chairman of Dabur India.

Eveready has initiated legal proceedings for recovery of the outstanding amount.

Meanwhile, the Khaitan holding has slipped to 4.77 per cent as on March 2021 from about 23 per cent a year ago as the pledged shares were called in by borrowers (it was 44 per cent in March 2019). The total debt at the group level — on account of Mcnally and Mcleod — was at about ~4,409.86 crore as on September 2020. But each company is charting its own way out of problems. A debt restructuring plan for Mcleod is in the final leg of approval by banks and a plan for Mcnally has been submitted.

Debt problems are not new to the group, though. In 2000, Eveready had run up a debt of more than ~800 crore when all tea gardens were merged into it; the turnover then was a little more than ~1,000 crore. But the company sold tea gardens, real estate and raised equity to pare debt. Today, Eveready has less than ~400 crore debt, which includes ~100 crore working capital. “In two years, we will be debt-free,” said Khaitan.

With the overhang of ICDS now gone, the company is focusing on growth. The core segments — battery and flashlights — are expected to see good growth. The lighting and appliance — where Eveready has a small market share — will be scaled up in the next two or three years. “Eveready is looking at a good journey ahead. It should shine bright,” said Khaitan.

But the question that is now being asked is who will manage the shining path ahead. The Khaitan family is running the show with a less than five per cent holding. Would the Burmans consider joining the board or taking management control? “As of now, we are financial investors,” Mohit Burman insists.

But he believes that all businesses should be run professionally. The appointment of a CEO over the next 6-12 months cannot be ruled out, said company sources.

On whether the Burman family would increase its holding in the company, Mohit Burman merely said, “We evaluate all our investments from time to time and then decide whether we wish to increase or decrease our holdings on market conditions and company performance.”

The investment by the family that controls a successful consumer goods and pharmaceutical empire has had quite a rub-off effect on the Eveready share price. In the last one year, returns on stock have grown four times. Clearly, the question of control at Eveready is still going strong.