Eveready back on investor radar driven by improved growth prospects

ET Intelligence Group: There are few who understand the Indian consumer industry better than the Dabur group. In a short span of less than six months, the family office of the Burmans, Dabur India’s promoters, have managed to turnaround Eveready Industries India, their largest acquisition. Its shares, after consolidating for several months, now trade close to the 52-week high following an upbeat growth guidance by the management. The latest sale of 1% stake by the Burman family in Dabur, which fetched around Rs 1,000 crore, is viewed as a step towards increasing holding in Eveready to over 50% from 43%, which may also result in reducing debt.

After Eveready’s acquisition earlier this year, the new management has made the business profitable in just two quarters. In addition, it expects to double the revenue to over Rs 2,800 crore by FY26 implying an annual growth of 26%. The growth will come from three verticals - batteries, flashlights and LED lightings. Eveready is the market leader in the batteries segment with 52% share. Its growth is linked to AC and TV sales, given the use of batteries in remote controls.

Flashlight is another segment, where the company expects a higher growth. The non-rechargeable market has expanded over the past two years. This augurs well for Eveready given its large distribution network consisting of four million outlets. The third segment is LED lighting. It is relatively new and small for the company with a scope to take advantage of growing market size. It plans to outsource products and sell them under the Eveready brand.

If the management achieves the revenue target with 15% operating margin before depreciation and amortisation (EBITDA margin) with either zero or negligible debt, net profit may rise to Rs 250 crore in three years compared with a net loss of Rs 300 crore in FY22 and a net profit of Rs 61 crore in the first half of FY23.

At Wednesday’s closing price of Rs 357 on the BSE, the stock was traded at 35 times annualized earnings. Some of the consumer durable companies such as Voltas, Johnson Controls-Hitachi Air Conditioning India, IFB Industries, and Havells India trade above 50 times their respective earnings. Given the future growth potential, Eveready’s valuation gap is likely to reduce.