Eveready's lighting-to-candies play raises eyebrows

Eveready Industries, known mostly for its dominant position in the low margin dry-cell batteries market, is diversifying at a frantic pace, leaving some analysts tracking the company baffled.

From household electric appliances, the BM Khaitan-group flagship is now venturing into professional lighting segment and even into confectioneries, and has been spending heavily on marketing and advertisements, hiring talents and on distribution networks, all of which is straining its bottomline.

The management, headed by the young scion of the family, Amritanshu Khaitan, however, is of the view that these diversifications are needed to keep the brand Eveready relevant and alive, and even hopes that its foray into appliances would turn profitable by fiscal 2020.

But does the company have enough management bandwidth to handle all these diversifications?

The analysts asked several times, to which Khaitan said the full management team and domain experts are being hired.

"Operationally, significant investments have been made in terms of people hiring, distribution as well as advertisements and promotions to get desired growth in new segments of lighting and appliances. A lot of investments that the company had done got bunched up in the second half of the year. This, coupled with lean season for batteries, pushed Eveready into the negative margin," Khaitan has told analysts.

Employee costs increased 18% to Rs 24.43 crore in the last fiscal and Rs 6.95 crore during the March quarter as Eveready hired professionals with knowledge of the B2B professional lighting business and also of FMCG business to launch its 'Jollies' brand of candies.

"The distribution cost increase was also relatively much higher as the company grew in segments of appliances and lighting where distribution costs are higher that the company's traditional products," Eveready said in a post earnings release.

The investments into these different businesses would start paying off soon, Khaitan assured analysts.

"Appliances have reached Rs 100 crore of revenues in first 18 months. It would give a 30-40% CAGR growth in FY19 and FY20. We believe the front ended investments made in the segment should yield positive results and the losses in this category would significantly come down this year and would go into positive mode in FY20."

While about Rs 50 crore of revenues would come from professional and industrial lighting space in the current fiscal, candies would add Rs 30-40 crore in the current year and about Rs 100 crore in fiscal 2020, he said.

CHARGING OTHER BUSINESSES

• While about Rs 50 crore of revenues would come from professional and industrial lighting space in the current fiscal, candies would add Rs 30-40 crore in the current year and about Rs 100 crore in fiscal 2020
   
• Employee costs increased 18% to Rs 24.43 crore in the last fiscal as Eveready hired professionals for the lighting and confectionaries' business