The Economic Times daily newspaper is available online now.

    In next 2 years, battery biz to contribute only 40% of revenue: Amritanshu Khaitan, Eveready Industries

    Synopsis

    “Expect the upcoming budget to push money into the rural sector and that will help create demand”

    Amritanshu Khaitan, Eveready Industries1ET Bureau
    "Our initial aim is to really double our revenue and treble the EBITDA of the company. Now whether we achieve that in five years or four years or earlier, that time will tell."
    In an interview with ET Now, Amritanshu Khaitan, MD, Eveready Industries, says of Rs 1400-crore, Rs 500 crore is coming out of non-battery new initiatives now. While the Eveready brand is used for lighting and consumer appliance space as well, diversification on the distribution model like confectionary or packet tea business is being spun off under Greendale brand.

    Edited excerpts:

    How exactly have your new businesses evolved, especially your white good business?
    Three to four years ago, 70% of the company’s revenue was coming out of batteries and another 10-15% was coming out of flash lights. We had a clear strategy at the management level that we want to bring the dependence down on batteries and flash lights to below 50%. We seem to be on track. Hopefully, in the next two years, battery business will constitute not more than 40% of the company revenue and 60% of the company EBITDA.

    The first step was obviously to extend the brand into the lighting space where we have successfully created close to Rs 400 crore business in LEDs contributing close to 13-14% at EBITDA level at the current running rate.

    Unlock Leadership Excellence with a Range of CXO Courses

    Offering CollegeCourseWebsite
    IIM KozhikodeIIMK Chief Product Officer ProgrammeVisit
    IIM LucknowIIML Chief Operations Officer ProgrammeVisit
    Indian School of BusinessISB Chief Digital OfficerVisit

    Our next step was going into small appliances. We are on line to clock about Rs 100-odd-crore this year. It should become EBITDA breakeven in the next two years which is a conscious effort by the management to scale up the business. If you take these two new initiatives together, of the company’s revenue which is around Rs 1400 crore, Rs 500 crore is coming out of these two new initiatives.

    I personally believe in the next two to three years, this will get scaled up to about Rs 1000 crore. These two key initiatives are on the brand side which we have successfully leveraged. And now the focus is also on leveraging the company’s other key asset which is a distribution network.

    Eveready being a very unique company, has products which are not typical FMCG. But batteries need the FMCG network to really distribute into the mass market and especially into rural India. So we reach out to about a million outlets directly and our products are available in about 3.5 to 4 million outlets indirectly.

    We want to leverage this key strength and bring in products which are mass market and have a bias towards rural India because in the next five years, the government focus on creating income at the grass root level will create strong demand. Confectionary is the first step we have taken for bringing in products at a Re1 price point which is a better quality offering and improves value addition into the confectionary industry and reach out to below the prop starter, which is down deep rural.

    Markets often talk about capital allocation. When you are trying to diversify from a battery company to an LED company and now a white good company and eventually confectionary business, do you think capital allocation could be an issue because your focus would be expanding and at your size, if you are expanding into multiple categories, than you will have to invest upfront a lot?
    We have a very clear strategy. The basic capital allocation has been on batteries where we manufacture the product ourselves. All other diversifications are on a asset light model where we have the R&D control but we outsource with reputed vendors to make the product.

    As we go forward, being a FMCG company we should continue to deleverage the balance sheet. There should not be much working capital requirement and virtually zero capex. The idea is to bring in a 15% to 20% topline growth, a much higher EBITDA and thereby PAT growth and maintain high ROCs and ROEs. We do not have a strategy on high capital allocation.

    On margins, given that there is an upward bias when it comes to input cost, how are you working with cost rationalisation at this point in time to ensure that you are not only defending the current margins but also enhancing them?
    Going forward, one key raw material which is zinc has seen a massive increase for the battery segment that has got offset with pricing corrections taking place as well as cost rationalisation at the plant front. We have commissioned a new plant in Assam which will give some rebates in terms of GST. We are also looking at overall cost rationalisation in terms of manufacturing in batteries. But if you look at overall company point of view by adding a third vertical of lighting at a good gross margin and EBITDA margin, overall profitability should see a substantial jump in FY19 and FY20.

    That is heartening to hear. If you are not looking at building on capex, what are your growth plans going forward through this diversification model? My only concern is would not that be brand dilutive and how do you look at keeping the goodwill of Eveready in the wake of this business diversification strategy?
    The brand Eveready is only being extended to the lighting and the consumer appliance space where research has shown that the brand extension perfectly fits these categories.

    Any diversification on the distribution model like confectionary or our packet tea business being spun off into Greendale are going to be on new brand creation. So, Eveready will not be used on these categories.

    Just because our company name is Eveready does not mean every business we get into will have the Eveready name on it. The casing example is Nestle or Unilever or any other company that have multiple brands underneath the main company. You cannot assume that Eveready will be put on to every product which this company launches.

    What I have admired about Eveready is that a couple of years ago, debt was a huge challenge. Your debt has come down, you have significantly worked towards it. Let us update those number for FY18. What could be the projected number for your aggregate debt?
    Our net debt should be about 200 to 220 crores odd. The kind of free cash flows we are generating and whatever plans we have to bring down the debt should make this company debt free in two years time.

    You talked about growth in the LED business, white goods business is growing but your basic business which is the battery business is not growing at a very substantial rate, in fact the growth numbers are not all that encouraging. Do you think the aggregate picture may not look all that great because your main business is slowing down and the new businesses are growing? If you add it up together, there will be growth but the growth may just get masked because of your battery business?
    In a recent deal in the US, Energizer just bought Rayovac for about a $2 billion. It is a very cash rich business. We are not seeing more than 4-5% top line volume growth in this category because there is dumping from China and unfortunately the government has not imposed a dumping duty on the category. Otherwise, you would have seen decent volume growth.

    Overall at a company level, because our new initiatives are growing at a very rapid pace, our LED business is growing at over 50%, appliance business is doubling this year.

    On an aggregate level, after having virtually nil growth in last two years, we are fairly confident of driving top line growth at about 15% odd CAGR in the next two years. This would add a significant turnover and EBITDA to the company.

    What is the update on cheap battery imports from China, given where currency is? We understand that the local manufacturing in China is becoming more expensive. Chinese companies are suddenly focussing on profitability rather than gaining market share. Is the cheap battery dumping from China still a problem or is that passe now?
    See the cheap dumping from China is still a problem because it is not only cheap quality coming in, it is also grey market importers under-invoicing and bringing the product into india. We have appealed to the government that duty should be imposed on this category. The duty was not imposed stating that the industry is making profit but post our order, we have seen the government impose a duty on the tyre industry. So, we have appealed against the order stating that profit cannot be a reason for not imposing a dumping duty on a category and we will continue to pursue it. Being a small industry, we do not have lobbying power. It is very difficult to be heard but we are still trying to see if duties can be imposed.

    In that light, what do you expect from the upcoming budget for your sector?
    I think the upcoming budget will create impetus in terms of more money going into the rural sector and that will help create demand. Housing will play a key role and that will create strong demand for the lighting industry. Smart cities, urbanisation these are key routes where demand for lighting products will see a strong growth and the government’s push for electrification which is continuing is also going to help create strong demand for LEDs.

    Home appliance is a segment where GST rates have come down, especially in the fan segment. We are seeing a shift from the unorganised to the organised space which should augur well for the company.

    Please highlight what your growth numbers are on a compounded annual growth rate basis. You have done really well over the last 24-36 months. What will the picture look like over next five years?
    I will not give the number of years but our initial aim is to really double our revenue and treble the EBITDA of the company. Now whether we achieve that in five years or four years or earlier, that time will tell. But I definitely think the company has the legs to catch up on growth leveraging on its two key assets of brand and distribution.




    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more


    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

    Stories you might be interested in