Eveready Industries India Limited (EVEREADY.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Eveready Industries India Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nishid Solanki from Eveready Industries India. Thank you, and over to you, sir.

Thank you. This is Nishid Solanki from CDR India. Good afternoon, everyone, and welcome to Eveready Industries India's Q2 FY '26 Earnings Conference Call. Today, we are joined by senior members of the management team, including Mr. Anirban Banerjee, CEO; Mr. Bibek Agarwala, Executive Director and Chief Financial Officer; and Mr. Anirban Ghosh, GM, Finance and Head of Investor Relations. Before we commence, let me share a standard disclaimer. Some of the statements that may be made on today's conference call may be forward-looking in nature, and the actual results could vary from these forward-looking statements. A detailed communication in this regard is available in the earnings presentation that has been circulated to you earlier and also available on stock exchange websites. I would now like to invite Mr. Banerjee to share his perspectives with you. Thank you, and over to you, sir.

Thank you, Nishid. Good afternoon, everyone. And thank you for joining us on this earnings call for the second quarter of the present year. I trust you would have had the opportunity to review our results presentation. I shall focus my attention on the key performance perspectives. I will commence by sharing our view on the operating environment during the quarter. Consumer demand stayed resilient throughout the quarter, underpinned by robust services activity, even as discretionary spending remained mixed. Retail inflation was benign. Rural consumption continued to improve on the back of a good monsoon and stronger agri-linked indicators with FMCG data showing rural-led momentum and small town recovery. LME zinc prices were broadly range bound during the quarter. At our end, we continued to hedge requirements in order to support momentum. With the rollout of GST 2 reforms from 22nd September, the expectation is that prices reductions will unlock pent-up demand, particularly in Tier 2, Tier 3 cities, prompting more households to buy and upgrade. As far as Eveready is concerned, there is no change in the GST rate of our major products, except in our rechargeable batteries and solar segment. However, the trade channel witnessed some temporary disruptions in the month of September as the distributors transitioned to the new tax structures. Eveready continues to leverage its heritage of reliability while transforming into a more innovation-driven consumer-centric organization. Our efforts over the past 2 years on distribution, product refresh and digital engagement are now translating into sustainable growth. Our spends on A&P came in just above 10% for the quarter, which is in line with our aspiration. Typically, these come in higher during quarter 2, coinciding with seasonality. During the present quarter, we ran a very popular campaign during the [ T20 ] Asia Cup India-Pakistan Cricket Match, underlining the tempo we associate with targeted communication. Our Ultima Pro and Ultima range of alkaline batteries is performing extremely well, continuing to gain market share to 16.3%. Carbon zinc reported volume traction with market share rising to 55%. Alkaline continue with strong momentum realized in the rechargeable segment, while battery-operated has seen a decline in line with the industry. The broad trend in lighting space remains moderate, although we are seeing underlying volume gains in most lighting subcategories. Our strategic levers, sharper channel segmentation, innovation pipeline in flashlights and lightings and disciplined working capital management continue to underpin performance. Route-to-market operations are now mostly stabilized, ensuring better coverage and faster replenishment, while digital ordering platforms are improving visibility across distributors. I shall now turn my attention to segmental performance. Batteries. In the battery segment, we continue to build on the strong foundation and leadership position. Our carbon zinc portfolio sustained healthy growth in both value and volume terms, underpinned by our extensive distribution reach of nearly 4.5 million outlets and enduring brand equity. Importantly, our leadership position in carbon zinc with close to 59% market share remained intact and even showed incremental strengthening as the rural demand began to recover through the quarter. On the alkaline front, momentum has accelerated further. Quarter 2 saw upwards of 60% growth. Having grown market share to 15.3% in quarter 1, we saw nearly 100 bps of expansion in quarter 2 to 16.3%, aided by sustained consumer awareness campaigns for our Ultima range, product availability across modern and quick commerce platforms and a rising shift towards higher grain devices. Our Jammu greenfield facility, which remains on schedule for completion by end of FY '26 will provide a further flip to the robust alkaline demand trajectory. From a raw material standpoint, zinc prices showed some firmness during the quarter on a year-to-year basis, which we were able to mitigate with disciplined cost management and an optimized product mix, we have been able to absorb commodity volatility while still delivering profitable growth. Flashlights. In our flashlight segment, directionally, we maintained trajectory. However, there was some moderation in momentum in the quarter, owing to lower offtakes in the battery-operated segment. Rechargeable flashlights once again delivered double-digit growth with gain in volumes and premiumization driven sales mix. Demand in this category was supported by broader acceptance in modern trade and institutional channels where the value proposition of durability and convenience has resonated strongly. Our strategy of introducing feature-rich models has further strengthened our position as consumers increasingly prefer premium rechargeable formats. Battery-operated flashlights showed lower traction with volume decline in the quarter. This reflects the natural shift of consumer preference towards rechargeables, which we view positively as it allows us to consolidate share in the fast-growing segment. Importantly, our presence across Tier 2, Tier 3 and rural markets has ensured that the transition is managed smoothly with distribution muscle allowing us to push the upgraded portfolio effectively. The implementation of the mandatory BIS certification regime is expected to add further tailwinds. With larger organized players already in compliance and medium to smaller unorganized players required to transition by year-end, we expect further consolidation in favor of branded offerings like ours. Lighting. In the LED lighting business, we delivered healthy volume growth across key subcategories, such as battens, panels, emergency lamps and luminaires. Consumer adoption of adjacent products like small electrical accessories introduced recently have also gained traction, validating our strategy of leveraging the Eveready across complementary household electrical categories. In the professional lighting space, we continue to work towards deepening relationships with institutional buyers and project clients in the public sector space. Demand is building up in customized luminaires and panel lighting where our ability to offer reliable quality and cost competitiveness has started to gain significance. This segment will remain a focus area for us as infrastructure and commercial investments expand. We remain cognizant of the structural value erosion in the LED category, driven by persistent price compression across the industry. The quarter clocked a 10.6% total revenue growth while delivering a robust volume growth. We continue to work on product differentiation, efficiency in sourcing and disciplined working capital management. Now I shall proceed with the financial highlights. We have seen revenue growth in battery and lighting categories, while a minor degrowth in flashlights for the quarter. The company quarter growth is reported at 6.7%, backed by stable gross margins across segments. Company EBITDA margins stood healthy at 12.7%, reflecting strong underlying operating performance. Your company recognized a charge of INR 15 crores during the quarter in view of settlement with the claimant in a long-drawn arbitration proceeding against the company in which the company has now received a consent award withdrawing and terminating the arbitration proceeding in favor of the company. Your company also incurred a cost for strategic nonrecurring ex-gratia payment to workmen of INR 22.7 crores for separation. As a result of this, the PAT stood at minus INR 7.9 crores. Our robust distribution network of over 4.5 million outlets and strengthened digital RTM backbone continue to enhance market reach and channel efficiency. Prudent working capital discipline and low leverage with a debt equity ratio of around 0.7 reflect our strong balance sheet position and ability to fund growth internally. In essence, the quarter reflects disciplined execution, operational stability and steady progress across our key businesses, reaffirming the strength and the resilience of the Eveready franchise. Our continued focus on innovation, efficiency and consumer engagement positions us strongly to navigate opportunities and deliver steady profitable growth. With that, I would like to hand over to the moderator to continue the proceedings and invite questions from the participants.

[Operator Instructions] The first question is from the line of Arnav Sakhuja from Ambit Capital.

So over the last 2 quarters, correct me if I'm wrong, that the total ex-gratia nonrecurring payment that has been incurred is around INR 29 crores. So are we expecting any more payments for this in the next couple of quarters? Or is it completed?

So this is Bibek Agarwala, CFO. So we are very cautiously going for that. As we are saying this is strategic. So at this moment, it looks like for the next 2 quarters, we don't see anything coming up right now. But if we see some opportunities there, then we can look for. But apparently, there is nothing on the plate at this point.

And could you give a bit more detail into this payment, like what exactly is it for?

Arnav, your voice is breaking actually, not clearly audible to us. If you can pick up the handset...

Is this better?

Much better.

Yes, sure. So my question was if you could just give us a little more detail into what exactly this payment is for.

Yes. So actually, as you know that we are a legacy organization, we have multiple factories, locations. So now we are looking for that because of the change in the demand of the zinc batteries and we have the upcoming alkaline factories in Jammu, we are also realigning our manufacturing capacities. We are trying to see where we have the legacy worker, can we consolidate some of the manufacturing at one location. And because of that, two locations, one majorly for our Noida locations, we have done the separation of 150 workers and around [ 10 ] workers we have done our Kolkata plant. So this is purely to optimize -- reduce the inefficiency and overburden cost structure.

And so I just have one more question. So with regards to the arbitration proceeding, so we recognized INR 15 crore payment this quarter. So now I mean, does that mean that the case is over and we have no restrictions on capital raise and I mean all the other restrictions that we had earlier?

Yes, you are right. You're ready. So we have got the arbitration of the order on 1st of October, which we have duly filed exchange that we have been now released from the list of the parties. So for us, Eveready now free from handling our own assets managing our capital structure, so there is no embargo.

And there's no other payment required for the arbitration, right? It's complete?

Yes, it's complete.

[Operator Instructions] The next question comes from the line of Vikas Shrivastav from RBC Financial.

My first question was, I just heard 2 things, the previous question. Number one, that you will grow with internal -- enough funding for internal funding for growth. The other thing I heard was that the Noida factory, you've got -- you reduced 150 employees. My question is, therefore, are we in the process? Is the Noida factory still operational? Are there more workers there? Or I've been asking this question for the last 2 quarters. With so many factories and the alkaline factory going to Jammu, are we in the near future, thinking of selling some properties, specifically the Noida factory? And have we had any internal assessment of what we sell and what is the market value? That's my first question.

Thank you, Vikas ji, and I really doubt that last 2 quarters, you have keep asking this question. So first of all, you know that any capital structure, any relooking is only possible after the embargo is over, right? So thankfully, we have as a management, as a Board have taken a very prudent decision to settle with the Real Touch was the claimant, and we are now out of this. And as I told to the previous person that now we are looking into realignment of our manufacturing capacity because as a management, we are committed that we let any inefficiencies to build up. And that is the strategy for us. Let's first -- for anything you want to do first you need to understand that you are cost neutral, cost zero. So we have done it. Maybe a matter of a couple of quarters, 1 or 2 quarters, you will get an update from us. We are in the process of just consolidating because we have a multiple size of batteries whether AA, AAA, metal jacket, plastic pack. So these are a lot of things. So we have already started, and this is the testimonial for our -- at least those are ideal costs. Let's get -- those some costs, let's remove and probably our next activity what I said that we have to work to ensure that we do right alignment of our manufacturing assets. And if we found something surplus, definitely we'll come to you.

Okay. My second question was that with our -- the cost we have -- these one-time costs we have paid specifically on the ex-gratia, that is one -- that should give us some ticker on the EBITDA going forward. We should -- with the BIS and implementation, which I hear should happen from the first week of -- first part of the calendar year, that should give a flip on sales as well as EBITDA. And the third is the alkaline battery in Jammu plant. Any general guideline in terms of what we as shareholders can expect in this financial year in terms of growth and a 2-, 3-year perspective in terms of growth. And I'm not talking about inorganic growth, I'm talking about organic growth here.

So sir, a good point. I think 3 points you have touched upon that, of course, if we have settled the Noida worker upcoming time, this will be giving us some benefit. Of course, it will give us some benefit. Coming to BIS on flashlight, we can only see the benefit because as you know, we are largely unorganized in this part. So the January '26 is the time where the cooling period ends and our season starts from April next year. So we are keeping finger crossed that this should have a positive and that is why Anirban Banerjee speech has really highlighted that it will definitely the consolidation will go in favor of branded player. Third, coming to that our alkaline factory, as we are committed that it will come at the end of the financial year, we are on track at this point of time. We are monitoring our progress in terms of the construction, in terms of the installations very regularly. So this is on track at this point of time. Only thing I can say that as your company, if you see last 4 quarters, we have shown continuously steady growth. There are a lot of things keep coming. In the month of September, you have seen [indiscernible] has come. While our CapEx, there is no GST change, but the market sentiment has got changed. Despite we have grew 6.7%. We are all poised to ensure because in FMCG company, one of the important levers to grow. So we are keeping all antennas up to grow. And so only I can say the testimonial is in front of you. We are growing profitable, we are growing cash flow rich and also we are growing revenue momentum. Anirban, if you would like to add anything on this.

So I think our H1 directionally sets the tone for our H2 as well. As Bibek rightly said that while September had no impact on our categories per se, but general confusion in the trade stopped our momentum a little bit in the month of September. But that being said, in spite of that, I think between quarter 1 and quarter 2, we've fared reasonably as planned. And our estimate is that even the second half of the year should be as buoyant as the first half of the year.

So when you say buoyant, we are talking about a 6%, 7% growth year-on-year for the second half? Is that your definition of buoyancy?

Vikas ji, as you know that the 6%, 7% growth is what we are maintaining. At this point of time, at least as a management, we should be looking forward that type of percentage growth. And that is the way we are working out that at least because if we don't give -- and the commodity prices, as you know, metal prices are on the top at this point of time, ForEx is on the top of the price because then it will be very difficult for us to maintain the sustained profitability because if you see we are -- despite of the dollar has gone up and the zinc has gone up, we are ensuring that at least that the bottom line, the judicious cost management is going up. So as we said that at least it should be there towards the first half and second half should be in line with that.

The next question is from the line of Bhargav from Ambit Asset Management.

Now that the alkaline factory is likely to kick start maybe by the start of the next financial year. Any sort of sense in terms of what is the plan to breakeven or what could be the capacity utilization in the first and the second year, which you would have worked out?

So sir, currently, if you see that we have taken a very bold call and we have gone for 360 million capacity plant, right, AA and AAA put together. Currently, we are sitting around 60 million, 65 million numbers. We are very hopeful that next year, we'll have a good growth. If you see last 2 years, we are doing almost 50% plus growth in this category. And while the zinc carbon zinc as a volume is very flat to marginal growth, but this category is showing a very high strong double-digit growth. So first of all, we are very confident that, of course, there will be a substantial jump in the next year volume. And second, in terms when you do the local manufacturing, we get some edge. So that will also add to our momentum, growth momentum.

So right now, is it fair to say that the margins in alkaline will be lesser versus the carbon zinc? And by when can the margins for alkaline be at par with carbon zinc at what utilization levels on an approximate basis?

Sir, your observation is right at this point, yes, the alkaline margins are lower than that. And both product has their own way of working. We would love to get alkaline better margin. But at this point that how do we do inch by inch up. So first, our local manufacturing will give us some boost. And still may not be same as that. But in the next 2 to 3 years because today, we are not market leader as we are in zinc, we have in the last 8 quarters got substantial market share from low single-digit to now 16.3%. And our continuous effort by -- through our marketing, through our deep rooted penetration on our distribution. So the consumer is looking to that. So at this point of time, I think at least 2 to 3 years time frame will require at least to get a very sizable gross margin and respectable gross margin in this particular alkaline category.

In terms of flashlights, the mix of rechargeable is at about 57%-odd. Now that BIS is getting out next year, is it fair to say that this can maybe in the next 2 years become almost 80%, 85% and our margins in rechargeable better versus, say, battery operated?

So our current -- if you look at the end of H1, both of them will be close to about half-half, right, 51%, 49% kind of a situation. And you're right, I mean, the rechargeables are poised to grow. And you're also right that as -- when the BIS comes through with the smaller operators, essentially, the cost of compliance, hopefully, a lot of the fundamental small operators should go up, reducing the price gap which are offered to the market for some of the more quality credible products like the Eveready brand. And that should kind of propel the category further. Now that being said, the rechargeables today are, yes, a shade lower in their margin structures than the battery operators. But with the implementation of BIS, some of these -- the battery operated also should possibly not reduce as much as it should be because a lot of the unorganized sector will then try to move towards the organized sector, and it could be in both fashions. So even out there in the market, while in the battery operated more than 75% would be branded play, there would be a good 25% to 30% unbranded play, a part of it would also move towards the branded side. But you're right, there will be acceleration in the rechargeable portfolio, and that should see us having a slide towards rechargeable maybe at a sort of a 60-40 level, but I don't see that any one of them sliding exceptionally ahead of the other.

And lastly, sir, if you look at our P&L optics, gross margins are at close to [Technical Difficulty] and EBITDA margin is about 10%. So there is a significant fixed cost kind of an element, which is as of now in play. Now that we've taken a lot of steps in the last 2, 3 years to accelerate revenue growth, maybe next year could be the year where we could see strong double-digit revenue growth. Is it fair to assume that once the revenue growth is into the double-digit territory, there could be benefits of operating leverage? Or you think you'll invest in ad spend and neutralize that?

So the sense is that -- yes, you're absolutely right. I mean at the structures of fixed costs that we have, I mean, we are quite solidified for garnering revenues for the next 2, 3 years. And thus, logically, it should as a percentage move down as the scale goes up. Now that being said, there could be opportunities of acceleration that we might look into from investments maybe in different technologies or channel bifurcations that are coming up from a new trend point of view, right? But at an overall level, we will at least keep it steady or healthier.

The next question is from the line of Sled Alexander from Artha India Ventures.

Can you hear me fine?

Yes.

Okay. So I just had a couple of questions following up on what was already discussed earlier, but if you all could please elaborate. So firstly, with regards to the cost of goods sold and the revenue, my observation is that the costs have been rising roughly about -- the rate is like twice as much as the revenue. So the revenue seems to be a bit slower and the costs are going up higher and higher, both quarter-on-quarter and year-on-year basis this time. So can you please tell me how are you all planning to manage these costs, whatever it may be input cost, inflation? So are you all planning on passing it on to the customers or keeping it low so that you all don't lose the market share? Or how will you all be tackling this so as to maintain the margins? That is the first one. And second one was just a follow-up on the any fundraising plans like a rights issue or anything now that the issue that was there with Real Touch has been resolved? These are my 2 questions.

So I think what you are talking about in terms of margins, definitely, if we see something abnormal price increase -- cost increase in terms of like our major raw material zinc or [indiscernible] product. Definitely objective would be to recover from the market cost pass on because these are uncontrollable cost. But on the time and MRP given market which we hide our competitor is not possible. So we use tactically, do you see where our strengths are in the market. And if there is an opportunity, definitely we're going for a price hike or one of the case if you see we are a hyper company, then you also look for how do you leverage our cost, how do we do our most cost competitive. And that is why you see despite the material prices has moved to a very high rocket place and the ForEx has gone up, still our operating margin levels we are holding very steady at a 13% level. So that is a very strong things we are doing. And if you see with respect to the fundraising at this point of time, we are not considering anything. But you are right. Now we don't have any barrier. We don't have any embargo. If we require fund, we can look for that in future.