Are they getting into EV space or already they have products. Any insights will help from anyone, as I understand they have some work going on EV space in US and not sure about India.
Amazing resultsâŚannualised 3x P/E. sustainable margins ?; Chinese imports come down sharply think I heard/ some duties ?
Panasonic Corporation is the parent company for Panasonic energy and it is associated with Tesla for battery supplies. But they also have a separate entity in India with name âPanasonic Automotive Systems Indiaâ which caters to automative parts. Refer the link given below which clearly mention EV batteries as one of the product category under Panasonic Automotive Systems India.
Request views if this correct interpretation.
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This filing talks about 100% ownership moving to Minda Industeries. Any idea if this was same JV formed in 2014?
Panasonic energy will not have car batteries in there portfolioâŚthey have a jv with minda so most likely it will be manufactured in there jv companyâŚas far as panasonic energy products are concerned it will be limited to dry cell batteries but even there, there is huge potentialâŚthey have recently launched evolta which is selling very well in other countries and expected to do well in India too.
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Hi All,
Came across this news. Was wondering if this is under Panasonic Energy India or some other unlisted/listed subsidiary of Panasonic in India?
Thanks,
Deb
PANASONIC BATTERY CHIEF: NEW 4680 FORMAT BATTERY WILL STRENGTHEN BUSINESS RELATIONSHIP WITH TESLA.
This is todayâs news
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I was reading about Buffettâs investments in Japan recently and came across some suggestions that the listed Japanese market as a whole had seen significant changes in their capital allocation policies in focusing on improving ROE and returning capital to shareholders.
Simultaneously, I was also looking for stocks in the consumer staples space that have been ignored as a part of the post Russia-Ukraine war run. This electionâs surprising result might push the govt towards a more populist policy since their previous strategy didnât work as well as they expected.
Thatâs how I landed upon this and I was excited to see the above description fit the co well.
Since COVID, the company seems to have taken various measures to shed the fat:
- moved out of the Flashlights business citing low margins and non-profitability of the business. The company move out of this segment after liquidation of their inventories. The procurement of models was stalled effective from January, 2021.
- The company has also stalled the production of R20 and R14 batteries post March 31, 2021 due to inadequate demand in the domestic market as well as very marginal profits from both these product lines.
- Consolidated Vadodara mfg plant into Pithampur and gave VRS to Vadodara employees.
- Employee count trends from FY17 to FY24(descending): 714(FY24), 717, 821, 809, 880, 848, 817, 827
Cut to FY24,
|Column 1 | EVEREADY(battery segment) | PANASONIC|
|â | â | â|
|Revenue | 865cr | 292cr|
|Volume growth | -3% | Double digits|
|Market Share | 53%(flat YoY) | 18.5%(up)|
|EBITDA margins | 15.5% | 6%|
|Projected EBITDA margins for Alkaline batteries | Upto 25% | -|
*Panasonic market share is derived from Evereadyâs numbers.
Eveready claims that battery traditionally grows at around 4%, 5%. This year was an aberration due to the rural side of it.
Currently, the Panasonic product portfolio is around 87%(vs 89% for the market) Zinc Carbon batteries
and 5%(10%) alkaline batteries, 5%(1%) rechargeable batteries, and 3% Lithium coin batteries.
Amazon ranking/reviews seem to second this. Panasonic seems to lead in the Lithium coin segment and are only behind Duracell in the rechargeable segment with their eneloop range. Their alkaline batteries seem middling to good. Amazon sales numbers would be a poor proxy to Zinc-Carbon batteries since theyâre mostly used in the rural market and sold offline through general trade.
India is due a shift from Zn-C batteries to alkaline batteries like everywhere else in the world and the terminal value of battery cos seem to be misunderstood since even mature markets like the US see companies enjoy significant pricing power.
Duracell is a Warren Buffett company, after all. He acquired it in the mid 2010s.
(WSJ article from 2016)
It also helps that the VP thread has been dead for around 3 years now.
Considering all the above, this does not seem as expensive if we assume that steady state margins of Panasonic will trend towards 70-80% of that of Eveready in Zn-C and alkaline. The stock price has not done much for almost 10 years now.
There could be some technical reasons to look at the stock now too.
Several surveillance restrictions like ESM, T2T etc apply to stocks under 500cr market capitalisation. The stock has actually been in T2T segment for a few months now. Crossing 500cr might improve the liquidity from traders and also bring in market participants averse to illiquid stocks due to their mandate(family offices, PMSs etc). This could help in quicker and better fair price discovery.
TL;DR:
A strong brand with a large and improving market share in an industry where thereâs significant margin upside tied to the India growth story and the terminal value is possibly misunderstood. More importantly, the management did this post covid.
Would love to hear othersâ thoughts, especially pushback.
Disclosure:
Invested, recent transactions, still evaluating and hence might do further transactions in the near term
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Exciting set of Q1 results.
Points that reaffirm/further the thesis:
- Revenue up 7% YoY adjusting for the B2B order.
From Evereadyâs call according to Neilsen:
The segment of carbon-free
batteries, which still constitutes nearly 90% of the battery market by value, remained
muted during the quarter, primarily due to weak rural demand, and our performance
was in line with the market.
This implies yet another quarter of market share gains for Panasonic. During 4Q24, they had outlined ambitions to increase market share by 2 percentage points every year. They seem to be exceeding their own expectations last year and this year till date.
- Gross margins up sharply.
Gross margins up approx 500bps for the industry. Not sure what part of the remaining increase can be attributed to the lower base from B2B customers and what part to increased realisation over and above the industry. - EBITDA margins up to 8.5% vs 4.8% in 1Q24.
Trending closer to Evereadyâs margins as per thesis. - Continue the renewed focus on shareholder value
Dividend resumed, at 8.85 per share vs 7.5 per share in FY22
Employee costs have increased by around 20% YoY. Looks like the restructuring phase is over and they have resumed our growth phase. Given the widely anticipated rural market recovery in the upcoming quarters driven by strong rains and hopes for populist policies in our country in the coming years, Iâm excited to see the growth theyâll be able to provide given that theyâve done strong numbers in such a weak environment in the recent quarters.
Minor reflections/rant(not analysis):
I continue to be confused by the strong performance by Evereadyâs stock price despite continued muted performance and the valuation discrepancy with Panasonic.
The market seems not to appreciate that even in developed markets, revenues continue to grow single digits(according to Evereadyâs claims in the latest concalls) and that batteries are proxy plays to several attractive bets on skyrocketing discretionary spends when percapita income grows beyond $2000.
eg. FirstCry listed at a very strong premium to the IPO price and saw good demand on listing. Given that toys are a great percapita play cited above, why does the market not seem to reward a strong brand like Panasonic with valuations similar to or better than a company like Eveready which has not only struggled to grow in batteries but also scale profitably in other categories such as lighting and flashlights.
FYI, only Duracell and Panasonic have their batteries being sold on FirstCry.
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Good detailed post. Thanks for sharing.
Have added it to the watchlist now. Like the MNC heritage and that they reward shareholders thru dividends
While itâs understandable that you feel the stock should command a higher premium, a few things that may be worthwhile to note
-
Stock has already run up a lot in the last 1 year. 31 pe for a microcap (albeit Panasonics heritage) is not a bad valuation given the market segment it operates in
-
Return metrics for Eveready are superior on a few parameters: operating margin, roe (although Eveready is debt heavy)
The question to ask is whether the stock is undervalued and my limited sense is itâs not. Will not be too confident to buy at the current price
However I havenât read on the company so it could be a flawed assessment.
Thank you
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Thanks for pointing out the technical factor of the stock possibly taking a breather from an earlier run-up.
However, the trailing PE as well as the run-up isnât fully reflective of the change in fundamentals IMHO.
After double digit volume growth in FY24, I think that they should do another such year exiting Q4FY25 at 10% margins. RoE should rapidly improve.
So, I see them doing around 365cr rev with 40-44cr EBITDA in FY26 without making extraordinary assumptions.
Iâm not assuming a massive rural revival and growth here which could very well be the case due to probable policy focus.
At the sectorâs expected volume growth of 4-6% every year, shifting of the industry from ZnC to alkaline as well as minor gains in realisation would push the industryâs profit growth trajectory to over double digits for the next five or more years.
I understand that the narrative is important for the high PE most consumer companies in India have enjoyed. The narrative could very well be:
- a proxy play on growth categories like smart TV/fan remotes, toys etc in a consumer sector where the threat of white-labels are minimal due to safety/reputation playing on consumersâ minds unlike other consumer categories
- a debt-free co with a parent with strong R&D capabilities across group cos that pays relatively handsome dividends
Iâm puzzled by Evereadyâs price and valuation more than being disappointed by Panasonicâs situation. I consider this as being on the lower side of the risk spectrum and hence plays an important role in my pf even if it doesnât give multibagger returns.
I donât mind paying 12-13.3x FY26 earnings for a co like this at all.
I think that the most important thing you pointed out is that nobody seeks stability/robustness in the âmicrocapâ section of the market and hence this might not be as attractive as it would appear if it were trading over 1000cr.
Stock could go down with the market in these illiquid stocks. The recent move of one surveillance measure(ESM) being applied to sub 1000cr cos now doesnât help in improving liquidity either.
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Hi @Bull_Miller ,
This is a good detailed write up on the business update regarding Panasonic. It seems like a safe company to invest in the microcap space. But I do have a few questions on Panasonic and dry cell battery market in general and I am hoping you could help me with those.
The total addressable market(TAM) for dry cell batteries in India is ~ 3000 Cr right now. Almost 50% of this is unorganized. Panasonic has a 20% market share already from the organized space. The dry cell market size might grow at 4-6% every year. Donât you think that there is very limited scope for growth in terms of revenue with such a limited TAM ? What could be the maximum revenues that Panasonic can achieve in the next 5 years? It seems like a tiny market space with multiple players at work.
I was looking up at the price range for Everready batteries and Panasonic on Amazon. Set of 8 AAA Alkaline Evolta Panasonic battery costs 252 Rs after Amazon discount.
Set of 10 AAA 1.5 voltage Alkaline Everready battery costs Rs 189 after Amazon discount.
Why do we have such a huge difference in pricing here? And even after that the margins of Panasonic are less when compared to Everready! Am I missing something here? Please help me understand this discrepancy.
Panasonic does not have a manufacturing facility for Alkaline batteries in India. So it will be totally reliant on Japan to get the batteries. Do you know what is the business arrangement between the Japanese entity and the Indian entity? Shipping the batteries over from Japan doesnât lead to any overhead costs ?
Currency fluctuations can have a significant impact on the margins depending on what arrangement the 2 entities have right now.
Isnât the growing market for smart homes where everything controlled by mobile phones a big risk to the battery segment general?
Sorry for the long post but was doing some analysis on the company as it seemed interesting and would love to hear your thoughts before I decide to take a position. I might reach out to you again if I have more questions. Thanks in advance!
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