Eveready outsmarts market indices

The shareholders of Eveready Industries can look forward to better days ahead. The Kolkata-based manufacturer of dry cell batteries and flashlights seems to have finally put the ghost of the past behind.

In the quarter ended March 2010, the company reported double-digit growth in revenues while net profit jumped by nearly 17 times, thanks to the profit from sale of its land parcel in Navi Mumbai. The cash infusion will help the company deleverage its balance sheet, besides providing it with resources to invest in new business such as rechargeable batteries, lighting products and branded tea business.

The past few years have been financially difficult for the company with years of financial loss, coupled with stagnant or declining revenues. The phase of de-growth seems to be over now, and the company has reported revenue growth of 13% in FY10 to Rs 968 crore — for the first time in many years — while net profit adjusted for other income tripled during the year to Rs 61.44 crore.

The market seems to recognise this and the stock has outperformed the market indices. In the 12 months, Eveready stock price has appreciated by around 52% against 14.5% increase in the Sensex and 34% increase in ET FMCG Index.

Leveraging on its distribution network, the company has diversified into products like packed tea, insect repellents and compact fluorescent lamps (CFL). It has launched products in the alternative lighting space based on the energy-efficient LED (light emitting diode) technology. It expects its diversified product businesses to mature in next two years.

In June 2009, the company acquired an 80% stake in Uniross SA, a French Company engaged in the manufacturing and marketing of rechargeable batteries and allied products and is particularly strong in Europe for about e10 million.

The company sees high potential from Uniross and expects it to break even at net profit level in FY11. Recently, the company suspended operations at its factory in Hyderabad and now plans to sell the factory and use the proceeds to further reduce its debt burden. The market will welcome the move.

The company is currently valued at slightly less than three times its sales. It is trading at a price-to-earning (P/E) multiple of 6.7 and is one of the cheapest stocks in the FMCG industry. It, however, needs to show a few quarters of consistent growth for this discount to vanish.