Eveready - Opportunistic Bet


(Ashwini Damani) #1

[ Comment too short ]


(Subash Nayak) #2

Post violate new thread start guidelines. Admin, please take necessary action.


(Ashwini Damani) #3

Hi Admin,

I had written a lengthy post…Not sure why it didnt reflect. Will take corrective action over the weekend


(Ashwini Damani) #4

Hi,

Dont know why the last post didnt get pasted correctly.

Market Cap

1400 Crores

Turnover Marâ14

1150 Crores

Net Profit

Marâ14 = 13 Crores

5 years Sales CAGR

6%

5 years Profit CAGR

0.1%

5 years ROE

5%

- Clearly past has not been impressive for Eveready. (psst : thatâs why itâs in cyclical areas of VP)

So what draws me towards Eveready:

a. Company has been hiking battery prices and has taken an almost 20% increase in recent months. Earlier this price hikes were not sustainable due to the stiff competition from Chinese Batteries. Now that the demand for Chinese batteries is almost tapering down (due to bad quality and safety issues), the price hikes were easily acceptable by the market and hence giving some brownies to the company

b. Raw Materials (Zinc and Lead) form 60% of the RM Cost of Eveready. So any drop in RM prices, will definitely add to bottom line.

c. We all are aware that commodities are going down a steep hill.

d. If you see last qtr results of Eveready (http://www.bseindia.com/xml-data/corpfiling/AttachHis/Eveready_Industries_India_Ltd_111114_Rst.pdf ), you will observe that revenue increases a measly 10% from 338 Crores to 369 Crores, and cost of material actually went down from 151 crores to 138 Crores.

e. Same trend observed in results of all battery manufacturers like India Nippon.

f. During peak of 2005, 2006 and 2010, Eveready was operating at 14% Operating Margins. At present it is at 10% margins based on last quarter results

Will the RM price drop continue?

a. I believe yes. Especially if you consider latest results of Hindustan Zinc, where price realizations have decreased by almost 10%

Sales price increase and RM Price decrease can bring a good opportunity.

Whats not good

Management is not fair and is known to have been unreasonable in past

WAIT...BONUS TIP

The company has just launched LED Bulbs as a part of Modi Govt's scheme of LED Bulb replacement.

Disclosure : Have 5%+ allocation.

This is not a recco to buy/sell.

Looking forward to counter and opposing views


(Vijay) #5

Good timing! The stock just broke out today! Was it you Ashwini? :slight_smile:


(Subash Nayak) #6

What I love about eveready is the multiple macros merging to create a potential multibagger. Major theme that working in tandem for eveready are

1). 50% market share in Dry cell battery

2). Nil Chinese competition

3). Oligopoly, New found ability of increasing price

4). Declining commodity price (expected to be subdued)

5). Branding

6). NaMo’s new push for LED

7). India’s rapidly growing middle class, and far rapidly growing electronics gadgets which needs dry cell

The only negative is not so nice perception of management (Have heard nasty adjectives appended before some of them :frowning: )

I have seen few reports where they expect it to grow 50% cagr for next couples of year.

Disc : Not a reco, just sharing my thinking on the stock/business, and how various macro changes are expected to positively influence it). Around 2% of my pf


(Ashwini Damani) #7

Yes Subhash,

The points that you mention are spot on, including the very true perception of management (it is not clean).

Invest in this stock with eyes open please


(Vivek Gautam) #8

wkat abt Panasonic energy makers of panasonic n novino brands battery under japanese MNC clean mgmt low PE & good ROCE?


(Subash Nayak) #9

Few minus for Panasonic (when compared with eveready)

1). Not market leader

2). Has no brand ambassador like Akshay Kumar :frowning:

3). Less branding effort

4). Are they entering lucrative LED segment ?


(Abhineet Joshi) #10

Hello all,

I am sure everyone might have already caught this but there’s a big Eveready advert on the front page of the ET today - on the LED bulbs/lamps.

Best,

Abhineet


(Vasim) #11

Hi @ashwinidamani ,

Can you help me verify this statement, I have been searching in AR and news portals but found nothing.

Disl: Evaluating

Regards,
Vasim


(Vijayk) #12

The retail prices have actually increased for the end customer. However, the stocks that offer real value are the other 2 MNC players- indo national and Panasonic energy. Indo national is at 4% dividend yield. Both are launching Led etc…
With price increase, margins of all players are increasing. Eveready has already moved up.
These other 2 players should do well now


(Manish) #13

It’s my best performing stock in this bull mkt. Bought at 20 rs, that time mcap was 150 cr with 50% mkt share & talk of led entry.

About management they been raising there stake. Amritanshu Khaitan is suppose new generation I hope he is not like his expired father.

Negatives:
led business is very competitive more like a commodity
Sales growth not picking up as expected.
High RM cost in final product price so making margins volatile.

Consulsion:

I am optimistic on the stock, with falling commodity prices, great distribution network, dry battery with low competition, low market cap considering market size, promoters buying.

Current exposure 18% due to its a 15x move


(Aniket Gore) #14

@Manish26 very good things are being said about Amritanshu Khaitan,he is supposed to be totally driven and focused.

With Copper price drop and outlook, there are significant tailwinds in the near term.

Disc: Not invested, evaluating.


(Ashwini Damani) #15

Since this thread was started by me, it is fair that I disclose that I hace recently sold my holdings (at prices 10-15% lower than CMP).

Falling Zinc prices may continue to help, but I would rather wait for growth in sales.

They have been aggressive on LED AD Campaign, but word on market is customers dont prefer to buy LED’s of untested brands.


(Manish) #16

Hi. some of my views on the stock since my current exposure is 10% but frankly confused what to do. Few of my points

  1. Batteries business is almost showing low single digit growth; but should benefit from fall in zinc. They are able to hike prices now regularly without hurting sales.

  2. LED seems to be the focus for growth. Very aggressive ad campaign & pricing point. Low cost model without its own manufacturing. Low margin but volume business. Can grow 20% for next 4-5 years.

  3. I think they have a great dealer network being a old company which enables them to push new products better than a new company.

  4. E-commerce focused vertical for sales. Most sites only sell eveready products in LED & batteries.

Now the new development of entering into electric house equipment like toasters, mixers, iron etc not sure how will things turn up but i consider that management is trying newer products & not lazy types like those earlier days. Amritanshu Khaitan seems to have taken off well it seem

Warm Regards

Manish Shah


(Learning_investor) #17

CONCALL ONLY FOR LIMITED INVESTORS
… then why do such companies get publicly listed


(hemtan100) #18

New plant at Assam commenced production with capacity of 500 million of batteries and 9 million LED flashlights per annum.


(hemtan100) #19

ebitda 133cr in fy17 - highest ever. PAT fy17 grew by 22%.
operational efficiencies despite investments
largest battery facility in assam.
lighting segment growth = 8%
CFL degrew by 50%.
Q4 turned ebitda positive for the lighting segment.
appliances - register 18cr topline in q4. 40cr topline in fy17. target 100cr revenue in fy18 - that would make it ebitda breakeven.
battery and flashlight stable. lighting starting to contribute. appliances should be on track for fy18.
gst should be positive with minor hiccups in the interim. battery neutral gst. lighting positive.
debt flat at 200cr despite plant commissioning. debt free by fy19 due to significant FCF.

Revenue breakup FY17
Battery 55% - 14% EBITDA -> trend is flattish for fy18. pricing discount between organized and unorganized 8-10 rs vs 5 rs. flat volume growth in fy17.
Flash 15% - 13% EBITDA -> volume growth but value flattish. volume growth of 4% in fy17.
Lighting 22% 7% EBITDA, LED = 10% EBITDA. CFL 50% vol decline, LED 225% growth
Appliances 3% Loss of 12cr. 15000 cr category. aiming to gain 1% = 150cr. Launched in north and east. Appliance products have to be launched through a new distribution network and a new sales team altogether.
Tea 5% Loss of 6cr. Flat volume growth in fy17.


(hemtan100) #20

Q4-concall highlights continued

Battery market growing 7%. Co remained flat as chinese dumping continued unabated.
in fy20, appliances guided to reach 200-250 cr revenue.

assam plant output will be used to scale down operations in other higher cost plants. 65% utilization currently. Can go to much higher level. plant has been fully commissioned.
fy18 income tax rate should be at MAT.

capex for fy18 - 15cr for routine capex.
no anti-dumping duty on chinese batteries - companies make profits. an appeal has been filed against that rejection.

why do we want to remain in tea business - brand and fmcg network is good enough to take the tea brand to the next level.
Tea business can reach a 10-12% ebitda margin once it achieves a scale of 150-200 cr.

ramp up on appliance distributions reach - 6000 outlets for kitchen appliances- target to reach 10000 outlets in fy18. 200 distributors currently.