Eveready Industries India Limited (531508) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Eveready Industries Limited Q3 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, sir.

Thank you, Emma. Good afternoon, everyone, and welcome to Eveready Industries India Quarter 3 FY '23 Earnings Conference Call. Today, we are joined by senior members of the management team, including Mr. Suvamoy Saha, Managing Director; Mr. Bibek Agarwala, CFO; and Mr. Indranil Roy Chowdhury, Senior VP, Finance and Accounts. Before we comment, let me share a disclaimer, some of the statements made on today's call could be forward-looking in nature, and actual results could vary from these forward-looking statements. A detailed disclosure in this regard is available in the press release document, which has been calculated to you and is also available on the stock exchange website. I would now like to invite Mr. Saha to share his ejective with you. Thank you, and over to you, sir.

Thank you, Siddharth. Good afternoon, and welcome to our Q3 earnings call. I hope all of you have had a good start to the new year. My agenda today shall be to cover the various aspects of our business while touching up on the dynamics of operations for the period ended December 2022. Since we last connected, Eveready has made notable progress in focusing on our core strengths and tapping into niche [ undertuc ] segments. The import activity is visible and every product launch is backed by commensurate activation. Consumers are taking notice and we see evident from the gains we have made in market share in our core business of batteries, where the brand is onesies. Our market share in batteries jumped 170 bps over the preceding quarter to stand at 64.5%, the highest level as per that one can see in the past. The brand remains a huge advantage for us, and the team is steely utilizing its power and potential to find growth across businesses. The ubiquity of our brand is achieved through an expanding reach across 4 million outlets about just under a 1 of which is our direct reach. The segments in which we operate fall for seamless availability of products and our system is one to achieve just that. As we seek to drive penetration in newer categories in each of the segments, our teams are modernizing our approach and infrastructure. We have to be able to respond to consumer requirements and market dynamics in order to maintain our leadership position. The new drive to contemporize our distribution and making it more efficient is being driven through a new out-to-market initiative. The implementation of this is entailing changed work processes involved in internal organization as well as with our channel partners. In order to increase in the new RTM successfully, we consciously moderated our growth target for the quarter, ignoring the discontinued segment of appliances. Value growth during the quarter was at 5.3%, so this was trending at 15% by the end of the first half. Our RPM implementation is now close to completion, and we shall revert to the higher level of growth in the foreseeable future. We are moving levers to back every product initiative with clear communication and requisite revision and collaterals, consistent with sustaining a leading well franchise. There is an emphasis on revitalizing our route to market such that we get no market segment and niche contact. I will turn my attention to the respective segments of the businesses, commencing with that. For battery market remained flat during the third quarter, reflecting sluggishness in demand, particularly in the rural part of the market. We managed to grow by 6%, which was primarily due to premiumization. As already mentioned, our value market stood at 54.5% during quarter 3, a clear evidence to our distinct leadership position in the market. However, we remain under index in geographies as well as in certain segments of the market, which provides us room to grow despite our strong position in the market. Growth during the year-to-date stood at 11.5%. Median flashlight as communicated earlier, the battery-operated segment is still showing decline, though at a lower rate of around 10%. Still we are building on to our market mediation position in this segment. We are roughly under index in the fast-growing market of rechargeable flashlights as the company did not address this market are. From the time we recognize this area as the major good driving opportunity, we have made good progress with building an adequate portfolio of products. Our product launches during the quarter found enthusiastic traction in the market. This segment, which is primarily comprised of Eveready's unbranded products will continue to be an area of interest for growth and building to a leadership position. Simultaneously, we are taking up our efforts in the battery operated category as well so that the portfolio remains contemporary. -- quality and feature functionality is our light motive and the places and that places us favorably to drive this segment upwards and hopefully address any further slide. Turning my attention to lighting now. Our teams are pushing out an extensive lineup of products here, effectively making use a growing presence of the brand in the electrical outlets channel, Eveready lighting products have the dual advantage of being available extensively across the general trade channel and now also in the electrical shops. We are making good inroads across smaller downtown cities. And at the same time, owning our plans to tap into the larger metro locations and modern trade revenues more deeply. This segment will see commensurate impact in a few quarters. Our teams are developing product in-house and getting them produced under stringent operating checks now that we achieve the quality that the brand stands for. I will now briefly cover the development during the quarter ended decent. Revenues from operations aiming for Q3 at INR 330.4 crores, which translates to 5.3% growth for the quarter, ignoring the discontinued business of appliances. For the 9-month period, the revenue from operations was at INR 1,041.6 crores at a growth of 11.7% for continuing businesses. This achievement is on the back of premiumization of product portfolio, combined with steady realization gains, which was tolerated by focused marketing campaign around communication and investment in branding and solution. As consumption gathers momentum, we will see better volume metrics. Our EBITDA came in at INR 24 crores with EBITDA margin of 7.3%, which was mainly impacted by the movement in foreign exchange rates, continued inflation in key raw materials, higher advertising and commission space as well as investments made in consultancy services, we continue to improve our future operations. For the 9-month period, EBITDA stood at INR 109.1 crores at a margin of 10.5%. Towards the end of the quarter, there was a definite softening of key raw material prices, and this will result in margin improvement in the ensuing period.  However, investment initiatives, which I touched upon earlier, we continue at the same pace for the remainder of the financial year. With a clear focus on achievable milestones. Our initiatives to drive a market-relevant portfolio backed by sustained all around communication in our business is beginning to bear returns. And that the consumer demand clients back, we believe Eveready will be a big beneficiary on account of its strong brand and distribution. As the economic growth within the country gradually catches up each also as we operate in segments straddling both urban and visual centers. As I have shared in the past interactions, -- some of the improvement initiatives will have an impact on the margins in the short term. Our teams are harder towards to enhance productivities from the system wherever possible. In the coming years, we'll see a much stronger EIL with extended leadership in its segment of choice underlying by profitable growth. I do start with the close of my remarks and wish to request the moderator to open the forum to queries from the participants.

[Operator Instructions] Our first question is from the line of Dhruv Jain from Ambit Capital.

Two questions. One was that we've seen a sharp jump in other expenses this quarter. So you mentioned that you've taken there has been an impact of consulting services in this quarter. But if you could just quantify the number there and if there are any additional low growth spend that you made, which you think will normalize going forward.

So you said 2 questions. Is that the only question?

No, I have another question...

So you wanted to answer this first?

Yes. Yes. Okay.

So as I highlighted before, our main additional expenses over the quarter in the preceding year has been in advertising. And as I also indicated, on the consultancy services that we have availed of. So basically, between the 2 of them, the total quantum of AMP with the consultancy service would be in the range of close to INR 20 crores.

Okay, sir. That's helpful. And sir, the other question, if you could just give us some -- your opening remarks also, you mentioned that you gained market share in the battery space. So -- but growth has slowed down because we are taking some your -- so growth in the other pieces has not been that encouraging. Or if you would just give the split of the 3 segments, what is in the revenue and the revenue growth?

Okay. So which is like this, as you are aware, in the first half of this year, we were growing at around 15%. So this regards the discontinued business. Now in this quarter, was the time when we started initiating implementation activities on the new route market, which entailed a lot of change, not only internally as well as externally. Now in the organization, both internal and external was undergoing such a massive change, it was necessary for us to sort of slightly slow down on the growth target, so that the implementation would go successfully. The change has to be internalized by all concerned stakeholders. So that is the only reason why we had, however, despite all that, batteries grew by 9%, which was, I think, extremely sort of pleasing given the context of the overall market not having grown, we also sort of arrested the decline of the overall flashlight signal because what we continue to lose on the battery operated one, we made up with the new launches that we beat on the rechargeable side. So I think overall, given all the changes that took place, I would say the quarter went off in a very satisfactory manner. If at all, I would say you are a lighting expert roof, you know the lighting industry has not had a good quarter overall. And the theme was that we see us. We ended with a flat quarter. That flat quarter was [ Palesa ] little more in our case, attributed to the new route to market, the changes that we had initiated. And we do not see any challenge to that, and we would shortly revert to our overall the growth targets that we have taken on for ourselves. For the year, the lighting segment has grown at 24%, and we see no reason why we cannot jump back to that level of growth in the ins quarters.

[Operator Instructions] Our next question is from the line of Darshan Zaveri from Crown Capital.

Sir, I had one question I would have regarding all our 3 divisions. So a breakup of our revenue and EBITDA for the quarter 3 would be very helpful. And the other thing I wanted to ask you for Q4, we are still having a consistency in marketing expenses. So for what is the outlook that you would have for FY '24 and beyond like our growth trajectory as well as our margin profile, what have we seen? Those will be the 2 questions from me.

So Darshan, it will take your last part first, and then I'll come back to your initial part of the question. So as I said that for the year-to-date, our growth is at 1.7%. -- that we -- on the back of a much lower growth in quarter 3, which were for assignable reasons, which I explained just a little while back. We hope to end the year in, I would say, higher than our current year-to-date growth of 12%. So that is where we are sort of talking about. And in the foreseeable future, we should be able to push that up to a mid- to late '18 level of growth, and that is where we stand currently. Right? And I would say that this quarter's moderation on the growth target was something that we consciously did and it was not sort of brought up on to us kind of in a default situation. With regard to the category-wise sweeter -- the total fallover for the quarter was INR 330-odd crores, of which battery was about INR 220 crores. I'm giving you a very broad number -- so it was about INR 230 crores to be sort of more precise. The flashlight segment was about INR 5-odd crores and flat year '19 was 70%.

Okay, sir. And sir, how does your margin profile differ in each segment? I think batteries have...

I got you. Sorry. I start answering this question. So at the end of these 3 quarters, we stand at around 1.5% EBITDA percentage, right? And we think we will be slightly short of 10% because as I mentioned, we will continue to invest in communication, and we will continue to invest for the remainder of the period during the constituency excess that we have already -- we have undertaken. So given that these expenses will continue. We have, I would say, somewhat of an ambitious target in terms of communication for the quarter. So we would be perhaps go up a little short of 10%.

Yes, sir. So I understand that we are investing in our growth in Q3 and Q4, that's already contenting. So how would that -- when would that -- all our efforts get reflected like from FY '24, we'll start seeing our margins and growth? Or it might be a bit longer process some of time line that we are envisioning for us or any other target for FY '25 or something like that, that would help, sir.

So Russia, it is like this. There are 2 absolutely well-articulated initiatives we have taken. One is engaging the consumer. And number 2 is sort of improving our distribution efficiency by designing our new group to market. Now that route to market has explained the [ bitiba ] impacted changes internally as well as in our external channel partners. Now that entire activity is going to be completed and totally concluded by end of this financial year. So by March, the distribution is going to be completely ready, and so we will be ready to fire on all cylinders from 1st of April, okay? Now see, we have also engaged in consumer engagement program. Now that is something we are doing our bit. So when that would kick in, in terms of more application from the consumer side is something that it takes time. It is not that high pen advertising out today and tomorrow to start taking that result. But I would say that I just go by my immediate history. We started our consumer activation from the last quarter. And we have immediately seen our market share jump. So each liter and definitely a market which did not grow was stagnant. And despite having shares above 50%, we managed to improve our market share by nearly 2 percent points. So if I go by that, I don't know whether that would be replicated. But you would say that next year onwards, we should get the full benefit of distribution as well as a very significant part of the consumer acquisition program.

Okay. Sir, over that helps a lot. So just a question, so that I think previously, we had stated that we can go from figure double our revenue in the next 3 years. So that would largely be our major goal, right, sir?

What we have articulated is that based on our FY '22 turnover, our ambition which was about INR 170-odd crores to ignore the discontinued business. Our ambition was to grow from there in 4 years' time to a double of that size. We still would try to achieve the target and digital are happen. And I would say that the team is quite confident about that.

The next question is from the line of Aditi Makura from AMC Securities.

I just wanted to know, there was a filing done by you that the proceedings with KKR, if I understand correctly earlier, you all want a related party, but now they have said the arbitrator has proved that we are a related party along with the Williams and [ MagaGroup. ] So just can you give us a broad sense that is this something which is a new development? And how does that going forward impact our -- any plans for capital raising?

Thanks, Aditi. So I will really give you only a broad response because I'm not a sale. -- the position is like this that when that cleanup on us, I mean that embargo of restricting us from tactical raise and the sale of [ noncore ] assets, et cetera, again. We had thought the pace on the basis that we were not parting any of that. We will not participate the agreement we cannot [ auctioning ], right? So it went into arbitration as per the terms of the facility as we went and we also sort of objective to the diction being applied to us. So the additions have come to the conclusion or with decision that we are part of that arbitration and we are part of the case. So we have to see it to the end of the situation. So we have to go through with this process of arbitration until the method is concluded. In the meanwhile, the modeling part is, let me say that it's a time frame. I think the time even formally is January 2024. So in the time frame, what happens to the company with regard to its whole operation. As I had integrated earlier that the company has sufficient operating cash flow to take care of its all day-to-day needs. It has the cash flow to honor its commitments towards banks. So there is no immediate crisis that the company has to immediately go for a capital base or has to see a noncore asset to unit operations. The operations are self-sustaining. And so we don't see any concern in this regard. And in any case, with the company now having gone through a new promoter, the banks are only all the more willing to sort of gain support to us. So even if there is -- there are some temporary needs, there are a number of people who are willing to sort of partner are in that requirement. I hope I have been able to answer your query.

Yes, sir, just one more small follow-up. So I believe that there's a gain of INR 100 crores or INR 150-odd crores something to that amount, which KKR has put on us. So have we shown that as a contingent liability or we are not providing for that amount as of now?

Obviously, that I think you're missing form, there has been no claim on the company so far. So basically, there is, of course, an amount which the Arstil holding company as to KKR. But so far, there has been no claim on the company. Nothing has been quantified. We have just been made a party, whereby we have been restricted to raise capital or sale of noncore assets, toughing beyond this. Okay. Got it. I wish you all the best.

Our next question is from the line of Ritesh Poladia from Girik Capital.

Sir, bare revenue is approximately 20% of our business. Is you're getting a little trouble -- could you come closer to your phone or something... I Yes. Sir, as I was saying, battery is about 70% of our business. And definitely, there is some market share gain. But it would neither more on an industry growth. Can you give us some idea of how the industry is going and which part of the industry is showing higher growth...

So we are talking about batteries. As I have highlighted earlier in my opening remarks, the market did not grow during this quarter. In fact, volumes had some BP decline, value growth was stabilized. We grew by about 9% during the quarter because we did better than the market. And it was on the back of some premiumization efforts that we could sort of succeed will do. So the market is not cost make a very tail answer to you corral the market did not grow during the quarter. But we hope that only indicates the sluggishness only indicates the inflationary impact that consumer sale, particularly in the real segment. And we feel that our things are easing out, the market should regard to its normal level of growth. [ Sisa ], market grows like 10%, your growth would be 50% higher than that? It's very difficult to put a mathematics like that. When the market was 0 crores, we grew nearly 10%, right? Let me just put that as a historical perspective. And our [ in ] will always be there to grow faster than the market.

Okay. Regarding from the side and specifically on rechargeable battery side. As you said, you are underpenetrated. So what's the status over there? And by when you think that your product profile will match the consumer needs.

So at this point of time, Ritesh, we already have over the last couple of quarters and which I have been also highlighting during the earnings call, we have been working on completely revamping that product portfolio. And I'm happy to say that we are really there. I would say 90% of the portfolio is complete. The balance 10%, 15% we get complete in this quarter. So I would say, effective 1st of April, we need to hire on all cylinders. We have ended product. And in this category, our brand is the strongest. Our distribution is it a female post but is the best in this segment. So nothing is going to stop us.

Sure, sir. On lighting, the revenue is about INR 70 crores. Sir, if you can give us some idea how much would it be on manufacturing and how much would be trading in this?

It is roughly 30% of that came from our own manufacture. We see old manufacturer, it is a contracted manufacturer who only exclusively does it for us under our supervision. Balance, we outsource from the likes of Dick, Mark, et cetera, but the big manufacturer is of the lighting industry.

Okay. Sir, you would be more on a contract manufacturing in lighting and even in Flashlight also, that assumption roll-through?

For flashlight, we manufacture 100% of our cash price. We see for some odd models here and there. We are 100% manufacturing at our -- with regard to the Lighting segment, is 30% is contracted manufacturers, exclusively exclusive to us. In the future, we will have to review whether we want to carry on the situation or we want to get into our -- but that is an...

Again, on Lighting business, so clearly, your -- you are not present in the entire market spectrum. And it's a long hole. So by when we can have a good presence in lighting or say double-digit market share. Is, can you just help me understand your question a little better, but what do you mean by or not be present in the interest sector? Sir, I believe you would be present in tubules and bits, but not in human are side.

Okay. From the -- so let me tell you, just like we did our portfolio results on flashlight, we have done the same for -- we have now a payer reasonable and adequate range addressing more lands as gated [ Lilian ]. Now of course, historically, we had been a lamp selling company. So our time over is regularly stream towards lamps. But with the new portfolio having come in place, it will be our endeavor to skirt the skew. So in the coming year, we are going to take targets whereby the emphasis of our sales would be more on the [ denim ] side to bring up appropriate balance like any other lighting established lighting care.

Sure, sir. And on market share, what can be a reasonable expectation?

For lighting? I think we are 2 small tech. We are about INR 300-plus crores in a market which is INR 10,000 crores we are very, very small. So at this point of time, instead of market share, we are looking at by what percentage we can grow our business.

Can you have this business growing, say, 2 and 2 years...

In 2 years... Yes. So I don't know whether the 2 years, it is going to be 12.5 years, but certainly, the PSC is something which is extremely tangible as a target for us.

Is there any differential in the lighting business for ready as a brand? Or we are banking more as a product or whether we are banking more on a brand?

So Listen, ultimately, most of the products are pretty similar. I mean that is a fact of life. It is a play of brand and distribution, whether you are available when the consumer goes, whether he accepts your plan, whether your pricing is right. So that is the market end. But on the back end, we are to this product. That is the promise of our brand, dependability, reliability, power these are some of our key values that we stand for. So the backend year, we work very hard to make sure that those things are given to the consumer. Now obviously, we are a small player, but we have advantage of having access to general trade. We have now started putting our footprint in the electrical outlets. So we are confident that when the consumer goes, we -- and we would also communicate like we have started communicating on batteries, we will also come in at once. So when the consumer goes to the shop, we aspire to be the product of his choice.

Sure, sir. This is very helpful. Sir, last on lighting, of this are INR 300 crores business. Any color on reason why where you will be more stronger than the other regions?

No, Ritesh. I mean we are uniform. I mean, our footprint is all across -- and it follows the demographic pattern of the country. So I would be say that we are sort of wanted No, of course, there will be pockets where you would be asked on a rise. But overall, I would say that we are unique on the state. It's good to hear Thank you, Ritesh. Thanks for your interest.

Our next question is from the line of Mithun Aswath from Kivah Advisors.

I just wanted to understand this new distribution strategy that you're working on. I just wanted to understand what it would entail. And at the end of the strategy, would this help you in terms of improve your working capital? Or is it also to drive sales better. So I just wanted to understand, is it only for the batteries? Or would it entail...

This is for all our categories. This is not something which is only specific to any particular category. And basic focus is that we would like to work to see the company have growth aspirations. Now that growth aspiration can be actualized if my channel partner also participates in that growth, which means you have to bring additional capital, et cetera, et cetera. He should be able to earn good profit, he should be able to rotate goods peak. So the entire emphasis on our retort to market is hinging on these few factors that whether he is being able to bring the additional capital that is necessary to see bill growth. Can we rotate an easy smart in supply chain, something that while we view from the company side, whether we can also supply to the market in equities and efficient manner so that you can rotate things faster, the secondaries get tracked, better, et cetera, et cetera. So it is really sort of really looking at the whole process of how do we make this efficient. The accident is not so much on cost savings. The activities more on how we can make this distribution really the engine for our growth that we aspired for.

I understand. But at the same time, do you think this will become -- is it the distribution to read out? Or would there be... I have understood your question.

Let me answer. So basically, we have a footprint of our products in 4 million out years, of which short-term million we service directly... Correct. Now we have today no aspiration at this point, as I speak, to increase that outlet reach. Only thing is that what we are trying to do is that we think for the size of our business today and for the next year, at least, that outlet reaches adequate. What we want to do is that, that outlet reach should happen in a more efficient manner and should happen in a growth accretive manner.