Eveready Industries
BSE SENSEX
27,253
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
8,432
EVRIN IN
72.7
18.3 / 0.3
318 / 192
-2/-4/-16
57
56.0
9 November 2016
2QFY17 Results Update | Sector: Others
CMP: INR243
TP: INR332(+37%)
Buy
PAT growth healthy; new product category growth key trigger
Healthy margin expansion:
Eveready Industries’
(EVRIN)
2QFY17 revenue was
flattish at INR3,666m (est. of INR3,751m) due to weak rural demand and
flattish growth across battery/flashlights businesses. LED business grew 92%
YoY, offset by 55% YoY decline in CFL business, leading to small blended growth
in the electrical segment. EBITDA margin expanded 274bp YoY to 11.6% (est. of
+10.2%) in 2QFY17. EBITDA grew 30% YoY to INR426m (est. of INR382m) due to
favorable product mix, overall cost conservation and improved lighting
category margins. Adjusted PAT grew 40% YoY to INR256m (est. of INR222m).
Healthy LED sales growth:
Total LED sales grew 92% YoY to INR506m from
INR263m in 2QFY16. Volume-wise, 6m pieces were sold (+3x YoY), of which
~50% were government orders. It won EESL orders for LED tube lights worth
INR180m, which would be executed in 3Q/4Q and thus drive growth in 2HFY17
New product categories to drive growth:
EVRIN has launched a range of
products in the small appliances segment (value for money positioning). The
company expects to clock revenues of INR1b in FY18 from the category. It is
appointing new distributors/dealers in northern/eastern markets. In
luminaries, it intends to launch new products from 3QFY17 and ramp-up sales
in FY18. Luminaries is expected to be a high-margin business.
Valuation and view:
We expect the government’s move to ban certain
denomination notes to cause liquidity crunch for dealers for a month or so, but
not impact demand (small-ticket item). We keep estimates unchanged: 6%
revenue CAGR and 190bp EBITDA margin expansion over FY16-18, driving 25%
PAT CAGR. We value the stock at 23x (50% premium over 5year median P/E led
by increase in return ratios and entry into newer product categories) FY18E;
maintain
Buy
with TP of INR332.
Financials & Valuation (INR b)
Y/E Mar
2016 2017E 2018E
Net Sales
13.2
13.4
15.0
EBITDA
1.2
1.4
1.6
PAT
0.7
0.8
1.1
EPS (INR)
9.2
10.7
14.5
Gr. (%)
8.3
16.2
34.9
BV/Sh (INR)
28.4
35.6
45.4
RoE (%)
16.2
33.5
35.7
RoCE (%)
15.2
23.8
26.3
P/E (x)
26.1
22.5
16.7
P/BV (x)
8.5
6.8
5.3
Estimate change
TP change
Rating change
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Chintan Modi
(Chintan.Modi@MotilalOswal.com); +912239825422/Chitvan
Oza
(chitvan.oza@MotilalOswal.com); +912230102415
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Eveready Industries
Healthy Margin expansion
Eveready reported overall revenue of INR3,666m in 2QFY17 (est. INR3,751m) as
against INR3,678m in 2QFY16 marking a flattish growth YoY, mainly as there was
not much pickup in demand.
Turnover in battery business was flat as part of market continued to be
disturbed by dumped imports from China. The de-growth trend in flashlights
was fully arrested in the quarter with flattish growth. LED products achieved a
turnover of INR506m with a growth of 92% which offset a de-growth of 55% in
CFL lamps in 2QFY17.
EBITDA margins increased 274bp YoY to 11.6% in 2QFY17 (est. 10.2%) compared
to 8.9% in 2QFY16, EBITDA stood at INR426m (est. INR382) as against INR327m
in 2QFY16, growth of 30%. Margin increase was led by better margins in
batteries due to higher manufacturing efficiencies & favorable product mix,
overall cost conservation and improved margins in lighting category on account
of lower margin CFLs being replaced by higher margin LED lamps in trade
channels.
Also, Interest expense came at INR59m in 2QFY17 vs 77m.
Consequently, adjusted PAT grew from INR183m in 2QFY16 to INR256m (est.
INR222m) in 2QFY17 marking a growth of 40% YoY.
Exhibit 1: Revenue trend
Revenue (INRm)
11.5% 12.4% 13.0%
15.7%
11.0% 9.7%
Growth YoY (%)
3,482 3,678 3,241
6.9% 7.6%
3.7%
3,544 3,666
2,833
2.9% 1.8%
8.9%
2,796 3,198 2,966 2,574 3,236 3,548 3,254 2,751
-0.4%
-0.3%
Source: MOSL, Company
Exhibit 2: EBITDA trend
EBITDA (INRm)
EBITDA Margins (%)
11.6%
10.6%
Exhibit 3: PAT trend
PAT (INRm)
5.9%5.8%
4.4%
PAT Margin (%)
5.5%
5.0%
6.2%
7.0%
6.3%
10.7% 11.4%
10.4%
10.3%
10.5%
8.9%
8.7%8.0%8.4%
7.0%
6.1%
3.6%
4.8%
243 257 250 156 332 370 342 193 373 327 371 137 376 426
4.0%
1.5%1.2%1.5%
0.5%
41 37 45 12 143 211 187 99 191 183 201 113 224 255
Source: MOSL, Company
Source: MOSL, Company
8 November 2016
2

Eveready Industries
Chinese battery continues to impact Battery business
Battery business which contributed 57% to the revenue in FY16 remained flat
during the 2QFY17 due to continued inflow of cheap Chinese batteries. .
AAA type batteries as a segment is growing well. Some price hike was taken in D
size segment (contributes ~12% of revenue) in this quarter.
Healthy growth in LED retail sales
LED recorded a healthy 92% YoY growth during the quarter from INR263m to
INR506m in 2QFY17 and now contributes ~60% to lighting segment.
Volume-wise 6m pieces were sold (3x volume on a YoY basis) in 2QFY17 of
which ~50% (3m) were government orders (Intends to clock a turnover of
INR600m-INR700m range in FY17).
Also, it has got EESL orders worth INR180m in 2QFY17 which would be executed
in 3QFY17 and 4QFY17.
New product categories to drive growth ahead
EVRIN has a range of products catering to wide varieties of applications like
cooking, garment care, water heaters, fans, toasters, brewing. It intends to
achieve INR1b in revenues by FY18 and has appointed new distributors and
dealers in Northern and eastern markets for penetration and has already done a
soft launch of its products. Price range would be in mid segment catering to
value for money segment.
In luminaries space, it intends launch new products from 3QFY17 and ramp up
its sales in FY18. Luminaries is expected to be high margin business.
We expect these categories to drive further growth for company.
Conference Call Takeaways:
LED segment:
This segment contributes ~60% to lighting segment. Volume-wise
6m pieces were sold (3x YoY) in 2QFY17 of which ~50% would be government
orders (Intends to clock a turnover of INR600m-INR700m range in FY17).
Overall, lighting segment has seen higher single digit growth in 1HFY17.Eveready
got EESL orders worth INR180m in 2QFY17 which would be executed in 3QFY17
and 4QFY17.
Battery segment:
This segment had flat volumes flat due to dumping by Chinese
players. The management had anticipated Anti-dumping duty on AA type
batteries which hasn’t happened yet. AAA type batteries as a segment is
growing well. Some price hike was taken in D size segment (contributes ~12% of
revenue) in this quarter.
Flashlight segment:
This segment has ~50% unorganized market. There was
volume growth though lower realizations have led to overall flattish growth in
2QFY17 (last two year trends being negative).
Advertisement spends:
Targeting 5% of ad spends as a % of revenues with 1Q
having higher ad spends compared to Q2.
Outlook:
There is expected to be some disruption for a month on distributors
and dealers side for liquidity purposes due to government’s move to curb black
money. Overall, the government’s move is not expected to impact demand in
lower ticket item products of company. Effects of monsoon, GST rollout impact
8 November 2016
3

Eveready Industries
shall lead to demand pickup in FY18. Gross margin expansion of 200bp is likely
YoY in FY17.
Appliances segment:
Company wants to achieve INR1b in revenues by FY18. It
has appointed new distributors and dealers in Northern and eastern markets for
penetration and has already done a soft launch of its products Price range would
be in mid segment catering to value for money segment.
Valuation and view
Over FY16-18, we expect EIIL’s revenue to grow at 6% CAGR (to INR14.96b), EBITDA
margin to expand 190bp (to 11%) and adj. PAT to grow at 25% CAGR and return
ratios to improve (adj. RoCE to improve 26% over FY16-18).
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 23x on FY18E
EPS. The stock trades at 22x FY17E and 17x FY18E adj. earnings. We maintain Buy
valuing the stock at 23x (50% premium over 5year median P/E led by increase in
return ratios and entry into newer product categories) FY18E EPS with a PT of
INR332.
Exhibit 4: Price to earnings (one year forward)
80
60
40
20
0
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
P/B (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
8.0
Negative
Earnings
Cycle
3.3
2.0
0.0
1.5
6.1
16.5
15.1
16.0
19.7
4.0
Source: MOSL, Company
Source: MOSL, Company
8 November 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
3.1
5.1 5.0
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 36%
RoE (%)
34
36
Exhibit 11: Net debt to equity to reduce to 0.48x
Net Debt to Equity (x)
0.72
0.46
0.70
0.74
0.48
16
10
5
FY14
FY15
FY16E
FY17E
FY18E
FY12
0.38
0.35
FY13
FY14
FY15
FY16E
FY17E
FY18E
*FY17 and FY18 adjusted for goodwill INR4,785m inline with IndAS
Source: MOSL, Company
Source: MOSL, Company
8 November 2016
5

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
FY11
5,749
2,048
733
974
724
190
-
FY12
5,854
2,151
724
1,033
707
317
-
-
-
-
10
-
9,762
2%
5%
-1%
6%
-2%
67%
-
3%
FY13
6,038
2,516
745
1,044
699
317
-
7
-
-
21
-
10,343
3%
17%
3%
1%
-1%
0%
-
6%
FY14
6,870
2,441
768
1,444
934
385
14
31
50
20
11
-
11,523
14%
-3%
3%
38%
34%
21%
-
11%
FY15
7,700
2,417
762
1,898
1,121
431
182
47
78
35
5
-
12,778
12%
-1%
-1%
31%
20%
12%
1229%
11%
FY16
7,641
2,006
724
2,833
1,256
452
898
74
102
45
5
-
13,203
-1%
-17%
-5%
49%
12%
5%
395%
3%
FY17E
7,862
2,066
761
2,656
377
466
1,078
420
116
140
54
6
100
13,445
3%
3%
5%
-6%
-70%
3%
67%
2%
FY18E
8,338
2,192
799
3,283
188
475
1,557
399
304
293
60
6
350
14,962
6%
6%
5%
24%
-50%
2%
45%
11%
9,504
8 November 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 (%)
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
FY16
13,233
3.5
1,209
9.1
141
1,068
310
81
840
0
840
147
21
20.1
671
671
8.3
5.1
FY17E
13,445
1.6
1,385
10.3
104
1,281
261
63
1,083
0
1,083
303
0
28.0
780
780
16.2
5.8
(INR Million)
FY18E
14,962
11.3
1,646
11.0
108
1,538
251
79
1,366
0
1,366
314
0
23.0
1,052
1,052
34.9
7.0
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
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
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
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
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
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
72
936
2,951
2,787
164
1,142
0
3,691
FY17E
363
2,224
2,588
110
1,968
4,667
7,914
4,690
3,225
0
4,155
2,288
700
44
1,123
2,713
2,516
197
1,442
0
4,667
(INR Million)
FY18E
363
2,936
3,299
110
1,618
5,029
8,214
4,798
3,417
0
4,678
2,550
738
43
1,347
3,066
2,830
236
1,611
0
5,028
8 November 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
RoIC
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
FY12
-1.4
2.6
69.8
0.0
0.0
FY13
1.9
4.2
80.4
0.0
0.0
126.4
3.0
32.5
0.0
7.5
2.5
-43.4
-36.5
1.2
117
15
116
32
1.4
1
0.5
FY14
3.7
7.2
81.7
0.5
31.0
64.3
33.3
3.0
1.8
22.9
0.2
11.9
4.6
7.3
6.4
1.4
122
15
122
26
1.3
2
0.4
FY15
8.5
10.7
85.9
0.0
0.0
28.3
22.6
2.8
1.6
16.7
0.0
5.4
10.2
10.6
10.4
1.5
117
13
98
37
1.6
3
0.4
FY16
9.2
11.2
28.4
2.3
28.5
26.1
21.6
8.5
1.5
16.5
0.9
16.5
16.2
15.2
14.6
3.6
105
18
123
30
1.4
3
0.7
FY17E
10.7
12.2
35.6
3.0
32.7
22.5
19.8
6.8
1.5
14.8
1.2
0.5
33.5
23.8
23.0
2.9
100
18
110
38
1.5
5
0.8
FY18E
14.5
16.0
45.4
4.0
32.3
16.7
15.1
5.3
1.3
12.2
1.7
12.9
35.7
26.3
24.6
3.0
100
17
111
38
1.5
6
0.5
0.0
1.9
-1.8
3.1
1.5
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
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
FY16
840
141
310
-147
316
1,460
0
1,460
-259
1,201
0
-259
-759
-310
-191
-1,200
1
71
72
FY17E
1,083
104
261
-303
-327
818
0
818
-779
39
0
-779
450
-261
-255
-67
-28
72
44
(INR Million)
FY18E
1,366
108
251
-314
-171
1,239
0
1,239
-300
939
0
-300
-350
-251
-340
-941
-2
44
42
8 November 2016
8

Eveready Industries
Corporate profile
Company description
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 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Promoter
DII
FII
Others
Sep-16
44.0
10.5
22.9
22.6
Jun-16
44.0
9.1
21.5
25.4
Sep-15
44.0
7.5
16.9
31.6
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
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)
FY17
FY18
MOSL
forecast
10.7
14.5
Consensus
forecast
11.2
16.5
Variation (%)
-4.6
-12.0
Source: Bloomberg
Source: Capitaline
8 November 2016
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