Eveready Industries
BSE SENSEX
24,486
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
7,436
EVRIN IN
72.7
18.3 / 0.3
375 / 186
-10/-16/33
102
56.0
25 January 2016
3QFY16 Results Update | Sector: Others
CMP: INR252
TP: INR387(+54%)
Buy
LED business shines; margins expand due to operating leverage
Financials & Valuation (INR b)
Y/E Mar
2016E 2017E 2018E
13.4
16.0
18.7
Net Sales
1.3
1.8
2.2
EBITDA
0.7
1.1
1.4
PAT
9.3
14.7
19.5
EPS (INR)
8.7
58.1
33.2
Gr. (%)
90.9 100.4 113.7
BV/Sh (INR)
10.5
15.3
18.2
RoE (%)
14.7
19.9
24.5
RoCE (%)
28.5
18.0
13.5
P/E (x)
2.9
2.6
2.3
P/BV (x)
Estimate change
TP change
Rating change
Higher margins offset revenue miss:
EVRIN’s 3QFY16 revenue remained flat at
-0.4% and was INR3,241m (est. of INR3,726m) on the back of flattish growth in
battery business and sharp decline in flashlights—compensated by healthy
growth in LED business, which recorded INR250m worth of sales in 3QFY16.
EBITDA grew 8.6% to INR371m (est. of INR376m); EBITDA margin expanded
90bp to 11.4% (est. of 10.1%) due to lower raw material cost and benefits of
operating leverage. Adjusted PAT grew 7.7% to INR201m (est. of INR194m).
Participation in government LED projects to boost LED sales:
Eveready
recently bid for Madhya Pradesh government’s LED bulb tender—its first for a
government order. The company has been declared L2 and expects order of
7m bulbs to be executed over the next six months. The bid price is INR64.6 per
LED bulb and its impact on revenue is expected to reflect in 1Q and 2QFY17. As
per industry sources, the total LED tender opportunity available in the next 12
months stands at 150m bulbs, which will be either in 7W or 9W category. The
company intends to participate in more such orders during FY17. Driven by
government LED orders and retail sales, we expect the revenue CAGR of 180%
in LED business over FY15-18.
Flashlights growth impacted due to poor monsoon:
Flashlights witnessed
~13% volume decline in 3QFY16 as it is a largely rural-driven business adversely
impacted by poor monsoon. The company has also launched economy range
flashlights, which are expected to gradually pick up in terms of growth in FY17.
Valuation and view:
We expect 13.5% revenue CAGR along with 190bp EBITDA
margin expansion over FY15-18, driving 32% PAT CAGR. Although we cut our
FY16 PAT estimates by 9%, we maintain FY17 and FY18 estimates as
participation in government LED business is expected to provide operating
leverage benefits. We like the company because of its leadership in the battery
segment, robust growth in the LED business, margin expansion and high RoCE,
which we believe justifies a target PE valuation of 20x on FY18E EPS. We
maintain
Buy
with a target price of INR387 (54% upside).
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 39825000
Chintan Modi
(chintan.modi@motilaloswal.com); +91 22 3982 5422

Eveready Industries
Higher margins offset revenue miss
EVRIN’s 3QFY16 revenue remained flat at -0.4% to INR3,241m (est. INR3,726m)
on the back of flattish growth in battery business, sharp decline in flashlights
compensated by healthy growth in LED business.
The LED business recorded INR250m worth of sales in 3QFY16. EBITDA grew
8.6% to INR371m (est. INR376m); EBITDA margin expanded 90bp to 11.4% (est.
10.1%) due to lower raw material cost and benefits of operating leverage.
Adjusted PAT grew 7.7% to INR201m (our estimate: INR194m).
Exhibit 1: Revenue trend
Revenue (INRm)
Growth YoY (%)
8.9%
2,796
11.5%
12.4%
13.0%
15.7%
11.0%
9.7%
6.9%
7.6%
2,751
3,482
3.7%
3,678
3,241
3,198
2,966
2,574
3,236
3,548
3,254
-0.4%
1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16
Source: MOSL, Company
Exhibit 2: EBITDA margins expanded 90bp YoY
EBITDA (INRm)
EBITDA Margins (%)
10.7%
7.0%
11.4%
8.8%
Exhibit 3: PAT posted a growth of 7.7% YoY
PAT (INRm)
4.4%
1.5% 1.2% 1.5%
0.5%
41 37 45 12 143 211 187
PAT Margin (%)
5.9% 5.8%
3.6%
5.5%
6.2%
4.6%
8.7% 8.0% 8.4%
10.3%10.4%10.5%
6.1%
243 257 250 156 332 370 342 193 373 323 371
99
191 170 201
Source: MOSL, Company
Source: MOSL, Company
Participation in government LED projects to boost LED sales
Eveready recently bid for Madhya Pradesh government LED bulb tender which is
its first tender in government order. It has been declared L2 and expects order
of 7m bulb pcs to be executed over 6months.
The bid price is INR64.6 per LED bulb and its impact in revenue is expected to be
seen in 1Q and 2QFY17.
As per industry sources, the total LED tender opportunity available in next
12months stands at 150m pcs of bulb which will be either in 7W or 9W category.
The company intends to participate in more such orders during FY17.
Driven by Government LED orders and retail sales, we expect the revenue CAGR
of 180% in LED business over FY15-18E.
25 January 2016
2

Eveready Industries
Flashlights growth impacted due to poor monsoon
Flashlights witnessed ~13% volume decline in 3QFY16 as it is largely rural driven
business adversely impacted by poor monsoon.
The company has also launched economy range flashlights which are expected
to gradually pick up in terms of growth in FY17.
Plans new launches in appliances segment
Eveready currently is present in appliances segment through products like
rechargeable fans and lanterns.
Management plans new launches in the segment like ceiling fans and kitchen
appliances. The products offered will be comparable with the likes of Bajaj
Electricals and Havells.
The products will have a soft launch in March 2016 through ecommerce and
modern retail, which management believes is an effective way of reaching
consumers, given the already strong brand equity of EVRIN.
25 January 2016
3

Eveready Industries
Valuation and view
Over FY15-18, we expect EIIL’s revenue to grow at 14% CAGR (to INR19b), EBITDA
margin to expand 190bp (to 11.6%) and adj. PAT to grow at 32% CAGR. We also
expect strong FCF generation (INR1.2b in FY16, INR1b in FY17 and INR1.4b in FY18)
and significant improvement in return ratios (adj. RoCE to improve from 32% to 52%
over FY15-18).
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 20x on FY18E
EPS. The stock trades at 29x FY16E, 18x FY17E and 13.5x FY18E adj. earnings
(adjusted for amortization of brand).
We maintain Buy valuing the stock at 20x FY18E EPS with a PT of INR390.
Exhibit 4: Price to earnings (one year forward)
80
60
40
20
0
Negative
Earnings
Cycle
15.7
14.6
13.7
18.9
0.0
P/E (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
Exhibit 5: Price to book (one year forward)
4.0
3.0
2.7
2.0
1.0
1.0
0.9
0.8
P/B (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
Source: MOSL, Company
Source: MOSL, Company
25 January 2016
4

Eveready Industries
Story in charts
Exhibit 6: Chinese players dominate unorg. Battery market
Unorganise
d, 9
Exhibit 7: EIIL has consistently led the organized market
Panasoni
c , 18
Others, 2
Eveready
, 52
Nippo,
28
Organised,
91
Source: MOSL, Company
Source: MOSL, Company
Exhibit 8: Consistent spends lead to top of the mind recall
Advt & Sales promo exp (INR m)
6.3
4.6
4.4
4.1
% of revenue
Exhibit 9: Distribution strength matches top FMCG players
8.0
5.2
5.6
5.8
3.5
365
362
3.1
647
5.1
4.8
3.6
3.2
380
432
386
378
694
445
635
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Source: MOSL, Company
HUL
Colgate
Marico
Eveready
Source: MOSL, Company
Exhibit 10: RoCE to double over FY15-18
RoCE (%)
20
13
7
3
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
9
15
25
Exhibit 11: Expected to be debt-free by FY18
Net Debt to Equity (x)
0.72
0.46
0.38
0.35
0.22
0.13
FY17E
(0.01)
FY12
FY13
FY14
FY15
FY16E
FY18E
Source: MOSL, Company
Source: MOSL, Company
25 January 2016
5

Eveready Industries
Exhibit 12: Key assumptions (INR m)
Y/E March
Income from Operations
Volumes Sold (Unit)
Battery
Flashlight
Tea
CFL
GLS
Led Lamp
Volumes Sold Growth %
Battery
Flashlight
Tea
CFL
GLS
Led Lamp
Average Realization (INR/Unit)
Battery
Flashlight
Tea
CFL
GLS
Led Lamp
Average Realization Growth %
Battery
Flashlight
Tea
CFL
GLS
Led Lamp
Sales Value (INR Million)
Battery
Flashlight
Tea
Electrical & Lightings
CFL
GLS
Led Lamp
Total Sales Value
Sales Value Growth %
Battery
Flashlight
Tea
Electrical & Lightings
CFL
GLS
Led Lamp
Total Growth %
Notes
FY11
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
MN
MN
Ton
MN
MN
MN
MN
MN
Ton
MN
MN
MN
unit
unit
unit
unit
unit
unit
MN
MN
Ton
MN
MN
MN
1,256
25
4,615
7
28
-
1,274
26
4,577
7
41
-
1%
4%
-1%
-5%
48%
-
1,292
27
4,357
6
38
-
1%
2%
-5%
-11%
-9%
-
4.7
93.9
0.2
114.8
8.4
1,348
25
4,386
8
44
0
4%
-6%
1%
37%
18%
-
5.1
97.2
0.2
111.7
8.7
43.7
9%
4%
2%
-3%
3%
1,351
24
4,375
10
49
1
0%
-4%
0%
18%
10%
272%
5.7
100.0
0.2
113.7
8.9
156.3
12%
3%
-1%
2%
2%
258%
7,700
2,417
762
1,898
1,121
431
182
12,778
12%
-1%
-1%
31%
20%
12%
1229%
11%
1297
21
4156
11
51
5
-4%
-13%
-5%
12%
5%
330%
6.0
100.0
0.2
113.7
8.9
179.7
5%
0%
0%
0%
0%
15%
1323
22
4239
12
53
19
2%
4%
2%
10%
3%
275%
6.3
103.0
0.2
113.7
8.9
134.8
5%
3%
3%
0%
0%
-25%
1350
23
4324
13
54
33
2%
4%
2%
10%
2%
75%
6.6
106.1
0.2
113.7
8.9
121.3
5%
3%
3%
0%
0%
-10%
4.6
81.1
0.2
100.7
6.8
4.6
82.1
0.2
103.8
7.7
0%
1%
0%
3%
13%
2%
14%
8%
11%
10%
5,749
2,048
733
974
724
190
-
9,504
5,854
2,151
724
1,033
707
317
-
9,762
2%
5%
-1%
6%
-2%
67%
-
3%
6,038
2,516
745
1,044
699
317
-
10,343
3%
17%
3%
1%
-1%
0%
-
6%
6,870
2,441
768
1,444
934
385
14
11,523
14%
-3%
3%
38%
34%
21%
-
11%
7,762
8,313
8,903
2,103
2,253
2,413
724
761
799
2,833
4,689
6,575
1,256
1,381
1,519
452
466
475
898
2,526
3,979
13,421
16,015
18,691
1%
-13%
-5%
49%
12%
5%
395%
5%
7%
7%
5%
66%
10%
3%
100%
19%
7%
7%
5%
40%
10%
2%
50%
17%
25 January 2016
6

Eveready Industries
Financials and Valuation
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 (%)
FY11
10,739
-2.7
699
6.5
333
366
353
104
117
-183
-66
98
-25
-111.4
-140
248
-44.4
2.3
FY12
11,001
2.4
424
3.9
292
132
383
150
-101
-773
-874
0
6
-0.8
-881
-102
-141.1
-0.9
FY13
10,353
-5.9
654
6.3
170
484
405
94
173
-181
-8
-49
-10
753.5
51
139
-235.9
1.3
FY14
11,534
11.4
907
7.9
253
654
411
87
330
-165
165
6
23
17.5
136
272
96.4
2.4
FY15
12,789
10.9
1,240
9.7
155
1,085
340
39
784
-165
619
128
1
21.0
489
620
127.7
4.8
FY16E
13,421
4.9
1,342
10.0
157
1,185
297
47
936
-165
771
216
0
28.0
555
674
8.7
5.0
(INR Million)
FY17E
16,015
19.3
1,762
11.0
160
1,602
179
56
1,479
-165
1,314
368
0
28.0
946
1,065
58.1
6.7
FY18E
18,691
16.7
2,168
11.6
193
1,975
72
68
1,971
-165
1,806
506
0
28.0
1,300
1,419
33.2
7.6
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
Misc Expenditure
Appl. of Funds
FY11
363
5,740
6,103
139
3,429
9,655
13,548
5,485
8,063
137
3,769
2,111
682
150
828
3,020
2,725
295
749
61
0
9,655
FY12
363
4,711
5,075
147
3,720
8,917
13,517
5,562
7,955
111
3,635
2,321
619
72
623
2,846
2,615
231
789
63
0
8,917
FY13
363
5,478
5,841
134
2,761
8,736
13,296
5,659
7,637
89
3,317
2,210
442
46
620
2,357
2,187
170
961
50
0
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
11
559
2,785
2,566
219
845
43
0
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
71
559
2,344
2,169
175
1,371
59
0
8,671
FY16E
363
6,246
6,610
148
1,678
8,435
13,505
6,613
6,892
198
4,224
2,695
662
196
671
2,938
2,536
401
1,286
59
0
8,435
(INR Million)
FY17E
363
6,937
7,301
148
1,078
8,526
13,755
6,938
6,817
124
5,049
3,205
878
161
806
3,524
3,016
507
1,526
59
0
8,526
FY18E
363
7,897
8,261
148
28
8,436
14,005
7,296
6,709
14
5,806
3,729
1,024
86
967
4,152
3,509
643
1,654
59
0
8,436
25 January 2016
7

Eveready Industries
Financials and Valuation
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
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Working Cap. Turnover (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Debt/Equity
FY11
3.4
8.0
84.0
0.5
-30.2
FY12
-1.4
2.6
69.8
0.0
0.0
FY13
1.9
4.2
80.4
0.0
0.0
138.4
3.3
36.5
0.0
7.5
2.5
6.6
1.2
117
15
116
32
1.4
1
0.5
FY14
3.7
7.2
81.7
0.5
31.0
70.5
36.5
3.2
2.0
25.8
0.2
11.9
4.6
8.8
1.4
122
15
122
26
1.3
2
0.4
FY15
8.5
10.7
85.9
0.0
0.0
31.0
24.8
3.1
1.8
18.8
0.0
5.4
10.2
13.5
1.5
117
13
98
37
1.6
3
0.4
FY16E
9.3
11.4
90.9
2.3
34.5
28.5
23.1
2.9
1.7
16.9
0.9
16.7
10.5
14.7
1.6
117
17
110
30
1.4
4
0.3
FY17E
14.7
16.9
100.4
3.0
27.0
18.0
15.7
2.6
1.4
12.5
1.1
13.8
15.3
19.9
1.9
117
19
110
31
1.4
9
0.1
FY18E
19.5
22.2
113.7
4.0
26.2
13.5
11.9
2.3
1.1
9.7
1.5
19.1
18.2
24.5
2.2
117
19
110
31
1.4
27
0.0
0.2
6.6
3.9
4.8
1.1
111
22
143
20
1.2
1
0.6
0.0
1.9
-1.8
3.1
1.2
118
20
133
24
1.3
0
0.7
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
Others
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
FY11
-66
333
284
-284
210
475
172
647
-170
477
-17
-187
-186
-336
-42
-564
-104
254
150
FY12
-874
292
353
49
-119
-300
693
393
-257
135
58
-199
138
-367
-42
-271
-78
150
72
FY13
-8
351
336
76
-134
621
23
644
-101
543
-55
-156
-97
-417
0
-514
-26
72
46
FY14
165
418
408
3
7
1,000
-69
931
-66
865
3
-63
-499
-398
-5
-902
-35
46
11
FY15
619
320
314
-103
-440
710
7
717
-323
394
33
-290
36
-362
-42
-368
60
11
71
FY16E
936
157
297
-216
209
1,383
0
1,383
-170
1,213
0
-170
-600
-297
-191
-1,088
125
71
196
(INR Million)
FY17E
1,479
160
179
-368
-274
1,176
0
1,176
-176
1,000
0
-176
-600
-179
-255
-1,034
-34
196
161
FY18E
1,971
193
72
-506
-203
1,527
0
1,527
-140
1,387
0
-140
-1,050
-72
-340
-1,462
-75
161
86
25 January 2016
8

Eveready Industries
Corporate profile
Company description
Exhibit 1: Sensex rebased
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.
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Promoter
DII
FII
Others
Sep-15
44.0
7.5
16.9
31.6
Jun-15
43.9
7.8
16.3
31.9
Sep-14
43.4
10.5
3.4
42.8
Exhibit 3: Top holders
Holder Name
Goldman Sachs India Fund Limited
DSP Blackrock Micro Cap Fund
Citigroup Global Market Mauritius Pvt Ltd
Ashish Kacholia
Nomura India Investment Fund Mother Fund
% Holding
5.0
3.2
2.4
2.1
1.7
Source: Capitaline
Note: FII Includes depository receipts
Source: Capitaline
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
Delloite Haskins & Sells
Mani & Co
MKB & Associates
Type
Statutory
Cost Auditor
Secretarial Audit
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
FY18
MOSL
forecast
12.4
17.1
21.6
Consensus
forecast
8.6
13.0
18.8
Variation (%)
44.9
31.8
15.3
Source: Bloomberg
Source: Capitaline
25 January 2016
9

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Eveready Industries
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EVEREADY INDUSTRIES IN
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