Motilal Oswal Financial Services

Eveready Industries

BSE SENSEX

27,882

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

29 January 2017

Q3FY17 Results Update | Sector: Others

S&P CNX

8,641

EVRIN IN

Growth continues to be subdued; New categories to drive growth



Revenue and EBITDA beat estimates:

EVRIN’s 3QFY17 revenue grew 2% YoY

17.5 / 0.3

to INR3,294m (est. of INR2,852m). Growth, however, was impacted by lower

291 / 190

demand due to demonetization, flattish growth in battery and a decline in

12/-2/-17

flashlights. LED business grew 73% YoY. This, however, was offset by a 56%

45.8

decline in CFL business, leading to small blended growth in the lighting

56.0

CMP: INR242

TP: INR287 (+19%)

Buy

Financials & Valuations (INR b)

2016 2017E

Y/E Mar

Sales

13.2

13.5

EBITDA

1.2

1.3

0.7

0.9

EPS (INR)

9.2

12.4

EPS Gr. (%)

8.3

34.3

BV/Sh. (INR)

28.4

37.3

RoE (%)

16.2

37.8

RoCE (%)

15.2

26.8

P/E (x)

26.2

19.5

P/BV (x)

8.5

6.5

2018E

15.0

1.5

1.0

13.9

11.9

46.5

33.1

25.1

17.4

5.2



Estimate change

TP change

Rating change



segment. EBITDA declined 6% YoY to INR352m (est. of INR292m) due to

incremental cost in appliances business, with EBITDA margin contracting

90bp to 10.7% (est. of 10.2%). Adjusted PAT grew 65% YoY to INR352m (est.

of INR155m) due to reversal of tax relating to the previous year.

Healthy growth in LED sales:

Total sales of LED increased 73% to INR467m

from INR269m in 3QFY16. This included revenue from government orders to

the tune of INR50m. Volume-wise, growth was 168% YoY. Management

highlighted that average selling prices have almost halved from last year and

that de-growth in CFL business has impacted lighting segment growth.

New product categories to drive growth:

EVRIN’s range of products in small

appliances segment (value for money positioning) clocked revenue of

INR120m in 3QFY17. The response for kitchen and heating appliances was

good; EVRIN plans to launch air purifier in 4QFY17. It also plans to expand in

west and south India, and invest ~5% of revenue in brand building in FY18.

Valuation and view:

We believe that new categories and LED business will

drive growth for EVRIN, leveraging upon its strong brand. Considering the

impact of tax reversal, we increase earnings for FY17E/FY18E by 34%/8%.

We expect revenue CAGR of 8% and PAT CAGR of 22% over FY16-19E. We

value the stock at 17x FY19E; maintain

Buy

with a target price of INR287.

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Niket Shah

(Niket.Shah@MotilalOswal.com); +91 22 6129 1535

Chintan Modi

(Chintan.Modi@MotilalOswal.com); +91 22 6129 1554

Eveready Industries

Revenue and EBITDA beats estimates



EVRIN’s 2QFY17 revenue grew by 2% to INR3,294m (est. of INR2,852m) as the

demand was impacted due to demonetization, flattish growth in battery, decline

in flashlights business.

The LED business registered a 73% yoy growth but the same was offset by 56%

decline in CFL business leading to small blended growth in lighting segment.

EBITDA margins declined by 90bp to 10.7% (est 10.2%) in 3QFY17; EBITDA

declined 6% yoy to INR352m(est 292m) due to incremental costs in the

appliances business.

Adjusted PAT grew 65% yoy to INR352m (est. of INR155m) due to reversal of tax

relating to previous year.

The volume growth in key categories stood at 1) batteries with 3%, 2) Flashlights

at 5% and 3) LED at 168%. The growth was decent considering the fact that

quarter was characterized by demonestisation. The value growth was lower on

account of decline in ASP’s of Flashlights and LED as the company passed on the

benefit of lower raw material costs.

Management indicated that costs were adverse due to external factors like

firmness in dollar and metal prices and internal factors like manpower and

distribution costs related to new business of appliances.

The increase in prices of Zinc impacted margins of battery business. The

company has taken price increase incase of D Size batteries.

The company now intends to get into LED luminaires business which is a high

margin business.

Targeting 5% of ad spends as a % of revenues in FY18 compared to ~4.5% in YTD

FY17.

Revenue (INRm)

3,236

15.7%

11.0%

9.7%

3,548

3,254

2,751

3,482

3,678

Growth YoY (%)

3,241

2,833

6.9%

7.6%

3.7%

2.9%

1.8%

1.6%

3,544

3,666

3,294

Exhibit 1: Revenue trend

-0.4%

-0.3%

Source: MOSL, Company

Exhibit 2: EBITDA trend

EBITDA (INRm)

10.4%

10.3%

10.5% 7.0%

10.7%

8.9%

4.8%

10.6%

10.7%

EBITDA Margins (%)

11.6%

Exhibit 3: PAT trend

PAT (INRm)

5.8%

4.4%

5.9%

5.5%

5.0%

PAT Margin (%)

6.6%

6.3%

7.0%

6.2%

332 370 342 193 373 327 376 137 376 426 352

4.0%

3.6%

143 211 187 99 191 183 213 113 224 256 352

Source: MOSL, Company

29 January 2017

Eveready Industries

Valuation and view

Over FY16-19E, we expect EIIL’s revenue to grow at 8% CAGR (to INR16.7b in FY19E),

EBITDA margin to expand 150bp (to 10.6%) and adj. PAT to grow at 22% CAGR and

return ratios to improve (adj. RoCE to improve 26.5% over FY16-19E).

We like the company because of its sustainable leadership (52% market share) and

competitive advantages in the battery segment, Robust growth in LED business,

opportunity to diversify into new product categories like small home appliances

backed by its brand power and vast distribution network, margin expansion, high

RoCE and cash flows.

On account of these reasons, we believe EIIL should be valued at PE of 17x on FY19E

EPS. The stock trades at 17x FY18E and 14x FY19E adj. earnings. We maintain Buy

valuing the stock at 17x FY19E EPS with a PT of INR287.

Exhibit 4: Price to earnings (one year forward)

Negative

Earnings

Cycle

P/E (x)

5 Yrs Avg(x)

15 Yrs Avg(x)

10 Yrs Avg(x)

Exhibit 5: Price to book (one year forward)

12.0

9.0

6.0

P/B (x)

5 Yrs Avg(x)

15 Yrs Avg(x)

10 Yrs Avg(x)

3.6

2.1

1.6

5.8

17.2

15.6

17.2

19.3

3.0

0.0

Source: MOSL, Company

29 January 2017

Eveready Industries

Story in charts

Exhibit 6: Chinese players dominate unorg. Battery market

Unorganised,

Exhibit 7: EIIL has consistently led the organized market

Others, 2

Panasonic ,

Eveready, 52

Nippo, 28

Organised, 91

Source: MOSL, Company

Exhibit 8: Consistent spends lead to top of the mind recall

Advt & Sales promo exp (INR m)

5.2

5.6

4.6

4.4

6.3

4.1

5.8

3.5

% of revenue

5.1

3.1

5.0

Exhibit 9: Distribution strength matches top FMCG players

8.0

4.8

3.6

3.2

380 432 386 378 694 445 635 365 362 647 658

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Source: MOSL, Company

HUL

Colgate

Marico

Eveready

Source: MOSL, Company

Exhibit 10: RoE to improve to 32%

RoE (%)

Exhibit 11: Net debt to equity to reduce to 0.20x

Net Debt to Equity (x)

0.72

0.46

0.70

0.44

0.20

FY14

FY15

FY16E

FY17E

FY18E

FY19E

FY12

0.38

0.35

FY13

FY14

FY15

FY16E FY17E FY18E FY19E

Source: MOSL, Company

29 January 2017

Eveready Industries

Exhibit 12: Key assumptions (INR m)

Y/E March

Sales Value (INR Million)

Battery

Flashlight

Tea

Electrical & Lightings

CFL

GLS

Led Lamp

Led Lamp (Govt order)

Luminaire

Electrical Appliances

Tube light

Others

Small Appliances

Total Sales Value

Sales Value Growth %

Battery

Flashlight

Tea

Electrical & Lightings

CFL

GLS

Led Lamp

Total Growth %

Notes

FY12

5,854

2,151

724

1,033

707

317

9,762

-1%

-2%

67%

FY13

6,038

2,516

745

1,044

699

317

10,343

17%

-1%

FY14

6,870

2,441

768

1,444

934

385

11,523

14%

-3%

38%

34%

21%

11%

FY15

7,700

2,417

762

1,898

1,121

431

182

12,778

12%

-1%

31%

20%

12%

1229%

11%

FY16

7,641

2,006

724

2,833

1,256

452

898

102

13,203

-1%

-17%

-5%

49%

12%

395%

FY17E

7,782

1,946

746

2,732

502

466

1,024

420

116

140

250

13,456

-3%

-4%

-60%

61%

FY18E

8,661

2,025

768

3,145

251

475

1,352

399

304

293

400

14,999

11%

15%

-50%

21%

11%

FY19E

9,640

2,106

791

3,539

126

485

1,460

364

575

453

650

16,727

11%

13%

-50%

12%

29 January 2017

Eveready Industries

Financials and valuations

Consolidated - Income Statement

Y/E March

Total Income from Operations

Change (%)

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT bef. EO Exp.

EO Items

PBT after EO Exp.

Current Tax

Deferred Tax

Tax Rate (%)

Reported PAT

Adjusted PAT

Change (%)

Margin (%)

FY12

11,001

2.4

424

3.9

292

132

383

150

-101

-773

-874

-0.8

-881

-102

-141.1

-0.9

FY13

10,353

-5.9

654

6.3

170

484

405

173

-181

-8

-49

-10

753.5

139

-235.9

1.3

FY14

11,534

11.4

907

7.9

253

654

411

330

-165

165

17.5

136

272

96.4

2.4

FY15

12,789

10.9

1,240

9.7

155

1,085

340

784

-165

619

128

21.0

489

620

127.7

4.8

FY16

13,233

3.5

1,209

9.1

141

1,068

310

840

147

20.1

671

8.3

5.1

FY17E

13,456

1.7

1,292

9.6

148

1,143

227

1,001

100

10.0

901

34.3

6.7

(INR Million)

FY18E

14,999

11.5

1,515

10.1

108

1,407

248

101

1,261

252

20.0

1,009

11.9

6.7

FY19E

16,727

11.5

1,773

10.6

112

1,661

175

106

1,592

366

23.0

1,226

21.6

7.3

Consolidated - Balance Sheet

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Deferred Liabilities

Total Loans

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Curr. Assets, Loans&Adv.

Inventory

Account Receivables

Cash and Bank Balance

Loans and Advances

Curr. Liability & Prov.

Account Payables

Provisions

Net Current Assets

Deferred Tax assets

Appl. of Funds

E: MOSL Estimates

FY12

363

4,711

5,075

147

3,720

8,917

13,517

5,562

7,955

111

3,635

2,321

619

623

2,846

2,615

231

789

8,917

FY13

363

5,478

5,841

134

2,761

8,736

13,296

5,659

7,637

3,317

2,210

442

620

2,357

2,187

170

961

8,736

FY14

363

5,571

5,935

149

2,251

8,334

13,173

5,870

7,303

144

3,629

2,569

490

559

2,785

2,566

219

845

8,334

FY15

363

5,883

6,246

148

2,278

8,672

13,255

6,292

6,964

278

3,715

2,596

489

559

2,344

2,169

175

1,371

8,671

FY16

363

1,700

2,063

110

1,518

3,691

6,914

4,586

2,328

221

4,094

2,381

705

936

2,951

2,787

164

1,142

3,691

FY17E

363

2,346

2,709

110

1,968

4,788

7,914

4,734

3,180

4,341

2,514

627

1,123

2,734

2,537

197

1,608

4,789

(INR Million)

FY18E

363

3,014

3,377

110

1,568

5,057

8,214

4,842

3,372

4,799

2,675

699

1,347

3,115

2,879

236

1,684

5,057

FY19E

363

3,815

4,178

110

968

5,258

8,514

4,954

3,560

5,214

2,837

779

116

1,482

3,517

3,234

283

1,697

5,258

29 January 2017

Eveready Industries

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

FCF per share

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Asset Turnover (x)

Inventory (Days)

Debtor (Days)

Working Cap. Turnover (Days)

Leverage Ratio (x)

Current Ratio

Interest Cover Ratio

Debt/Equity

FY12

-1.4

2.6

69.8

0.0

FY13

1.9

4.2

80.4

0.0

FY14

3.7

7.2

81.7

0.5

31.0

FY15

8.5

10.7

85.9

0.0

28.4

22.7

2.8

1.5

15.9

0.0

5.4

-1.8

3.1

1.5

1.2

118

1.3

0.7

2.5

-43.4

-36.5

1.2

117

1.4

0.5

4.6

7.3

6.4

1.4

122

1.3

0.4

10.2

10.6

10.4

1.5

117

1.6

0.4

FY16

9.2

11.2

28.4

2.3

28.5

26.2

21.7

8.5

1.4

15.7

0.9

16.5

16.2

15.2

14.6

3.6

105

1.4

0.7

FY17E

12.4

14.4

37.3

3.0

28.3

19.5

16.8

6.5

1.4

15.0

1.2

0.5

37.8

26.8

25.4

2.8

110

1.6

0.7

FY18E

13.9

15.4

46.5

4.0

33.7

17.4

15.8

5.2

1.3

12.5

1.7

13.6

33.1

25.1

23.2

3.0

105

1.5

0.5

FY19E

16.9

18.4

57.5

5.0

34.7

14.3

13.1

4.2

1.1

10.4

2.1

17.0

32.5

27.0

25.3

3.2

100

1.5

0.2

Consolidated - Cash Flow Statement

Y/E March

OP/(Loss) before Tax

Depreciation

Interest & Finance Charges

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

CF from Operating incl EO

(inc)/dec in FA

Free Cash Flow

Others

CF from Investments

Inc/(Dec) in Debt

Interest Paid

Dividend Paid

CF from Fin. Activity

Inc/Dec of Cash

Opening Balance

Closing Balance

FY12

-874

292

353

-119

-300

393

-257

135

-199

138

-367

-42

-271

-78

150

FY13

-8

351

336

-134

621

644

-101

543

-55

-156

-97

-417

-514

-26

FY14

165

418

408

1,000

931

-66

865

-63

-499

-398

-5

-902

-35

FY15

619

320

314

-103

-440

710

717

-323

394

-290

-362

-42

-368

FY16

840

141

310

-147

316

1,460

-259

1,201

-259

-759

-310

-191

-1,200

FY17E

1,001

148

227

-100

-460

816

-779

450

-227

-255

-32

(INR Million)

FY18E

1,261

108

248

-252

-76

1,288

-300

988

-300

-400

-248

-340

-988

FY19E

1,592

112

175

-366

1,539

-300

1,239

-300

-600

-175

-425

-1,200

116

29 January 2017

Eveready Industries

Corporate profile

EIIL has a well-diversified product portfolio spanning

four products, with strong leadership in two key

products segments—batteries (~52% market share)

and flashlights (~70% market share). It commands

premium pricing over peers driven by regular brand

building exercise and vast distribution network (3.2m

outlets) unmatched by its peers. Battery segment

contributes 60% to revenues, flashlights contribute

19% to revenues, lighting and electrical contribute

15% to revenues while packet tea contributes

balance.

Exhibit 2: Shareholding pattern (%)

Sep-16

44.0

10.5

22.9

22.6

Promoter

DII

FII

Others

Company description

Exhibit 1: Sensex rebased

Source: MOSL/Bloomberg

Jun-16

44.0

9.1

21.5

25.4

Sep-15

44.0

7.5

16.9

31.6

Source: Capitaline

Exhibit 3: Top holders

Holder Name

Amansa Holdings Private Limited

Dsp Blackrock Micro Cap Fund

Nomura India Investment Fund Mother Fund

Franklin Templeton Investment Funds

Amundi Funds Equity India

% Holding

6.6

4.7

3.7

2.1

1.7

Source: Capitaline

Note: FII Includes depository receipts

Exhibit 4: Top management

Name

B M Khaitan

Aditya Khaitan

Amritanshu Khaitan

S Saha

T Punwani

Designation

Chairman

Vice Chairman

Managing Director

Whole Time Director &

CFO

Company Secretary

Exhibit 5: Directors

Name

Ramni Nirula

Sanjiv Goenka

Name

S R Dasgupta

Sudipto Sarkar

Source: Capitaline

*Independent

Exhibit 6: Auditors

Name

Deloitte Haskins & Sells

Mani & Co

Type

Statutory

Cost Auditor

Exhibit 7: MOSL forecast v/s consensus

EPS

(INR)

FY17

FY18

FY19

Source: Capitaline

MOSL

forecast

9.2

12.9

16.7

Consensus

forecast

9.1

13.3

17.6

Variation (%)

0.8

-3.1

-5.4

Source: Bloomberg

29 January 2017

Eveready Industries

N OT E S

29 January 2017

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29 January 2017