The change in ownership is expected to give a fresh lease of life to the company that has often been dragged by financial stress in its close to three-decade journey under the Khaitans, reports Ishita Ayan Dutt.
The suspense around "will they, won't they" has ended. On February 28, the Burman family -- promoters of Dabur India -- informed the board of the country's largest dry cell battery maker, Eveready Industries India, that it proposes to acquire control of the company and had launched an open offer for 26 per cent of the shareholding.
The event had two immediate outcomes: It put to rest months of speculation about a possible takeover by the Burmans and marked the end of the road for the storied Brij Mohan Khaitan family in the company.
Burman group entities had been buying into Eveready since March 2019. In July 2020, it became the largest shareholder in Eveready with a 19.84 per cent stake after acquiring 8.48 per cent shares (the promoter holding of the Khaitan family had then slipped to 15.07 per cent). But till they announced the open offer for an additional 26 per cent last month, Eveready was but a "financial investment" for the Burmans.
Things had moved slowly in the last 18 months, but the open offer announcement had ripple effects.
Khaitan family members -- Amritanshu Khaitan (grandson of the late Brij Mohan Khaitan) stepped down as managing director and Aditya Khaitan (younger son of Brij Mohan Khaitan) as chairman and non-executive director of Eveready, days later (the Burmans have sought three seats on the board and will be appointing the chairman). Suvamoy Saha, an Eveready old-timer, has been appointed managing director for three years. And a public statement for the Burman group open offer has been made (the offer opening date is April 26).
The Burman group on acquiring control intends to be a "promoter" of Eveready. The change is expected to give a fresh lease of life to the company that has often been dragged by financial stress in its close to three-decade journey under the Khaitans. But what's in it for the Burmans? A more than 100-year-old brand and a leader in its segment, say sources.
"It's a brand that touches 700 million Indians -- cutting across rural, urban, rich and the poor. Everyone uses batteries, everyone uses torches," they point out.
That's visible from the market share that Eveready enjoys -- according to the company's FY21 annual report, it has a 50 per cent market share in batteries and 70 per cent in organised flashlights.
Apart from the strength of the brand, the market share is powered by a well-oiled distribution network. Eveready reaches about 4 million outlets and more than 0.8 million are serviced directly through dealers. Yet, the company stopped short of delivering to its full potential.
Eveready came into the Khaitan fold in 1993 when Brij Mohan Khaitan snapped up Union Carbide India (later renamed Eveready Industries India) pipping the Wadias of Bombay Dyeing in a $96.5-million or about Rs 300-crore deal, the biggest corporate takeover in India at that time.
Net sales for March ended 1993 was at about Rs 250 crore and grew five times till FY21. But over the past decade, the top line increased by just over 13 per cent.
"There are two things that pulled down Eveready. The core business faced headwinds when the market shifted from "D" size batteries to "AA" and "AAA". And then there were promoter issues and financial stress, explain sources.
The shift from "D" size batteries played out between 2007 and 2011 as consumers lowered usage of appliances powered by it — radios and brass torches went out of fashion. That impacted the industry and the company.
But financial stress has been an on-and-off thing for Eveready, principally because of weaknesses in the group.
In 2000, Eveready ran up a debt of more than Rs 800 crore when all Khaitan group tea gardens were merged into it; the turnover then was a little more than Rs 1,000 crore.
The tea business had a debt of about Rs 1,000 crore. When it was demerged in 2004, Eveready took close to Rs 800 crore of debt and McLeod Russel India -- the group's bulk tea producer and one of the world's largest -- Rs 200 crore.
Eveready then sold non-core assets to bring its debt down to below Rs 300 crore. But a different problem started brewing for the battery maker as it began extending support to McNally Bharat Engineering, the group's engineering, procurement and construction company.
Loans and advances were made to support McNally. Borrower companies were given time till February 28, 2021, to repay, after which the company marked them down as losses.
In Q4FY21, Eveready cleaned up its balance-sheet and made a provision of Rs 629.70 crore for inter-corporate deposits (ICDs) and corporate guarantees given to promoter group companies. The result: Eveready ended the year with a net loss of Rs 311.5 crore even as the company reported its highest ever operating profit.
Ironically, the company's best financial performance came at the peak of trouble at the promoter-level. Support to McNally was not limited to the loans and advances, though. Promoter shares in Eveready and McLeod were pledged and the pledge holders sold shares. And the Khaitan holding in the company kept slipping (at the end of December 2021, it stood at 4.84 per cent).
The company managed to bury the ghost of ICDs eventually, but it still faces the overhang of a court order -- a case filed by KKR India against the Williamson Magor group to recover a Rs 200-crore loan -- that prevents a change in the capital structure, sale of assets, or any corporate or debt restructuring.
"Eveready got impacted being part of the Williamson Magor group. The company cannot raise capital at this point in time or sell assets," said sources. Whether change in management control makes a difference remains to be seen.
But capital infusion may be required if the company pursues new verticals for growth. In January, the company roped in consultancy firm Bain & Company to help identify profitable business strategy and its execution.
Eveready has tried its hand at diversification earlier -- ranging from packet tea to insect repellents, lighting and small home appliances -- to leverage its distribution network. But apart from a partial success with consumer lighting, none of these diversifications made a mark.
So, in 2019, the company sold its packet tea business to cut losses; now, the appliances business is being wound down.
Eveready has also decided to disengage from a joint venture with Indonesia-based Universal Wellbeing which was test-marketing a detergent, sources indicated (Eveready had a 30 per cent stake).
The current focus is on batteries, flashlights and lighting, sources said. And this time if the company gets into other lines, it will be with resources, they added.
The "black cat" -- Eveready's iconic logo that signifies the proverbial "nine lives" -- could well be set for another lifeline.
