May pass 4-5% price hike to consumers in 4 months: Eveready

Eveready industries India recently launched portable smart-phone chargers, which will basically target the youth of today. They are also looking at launching new products in the rechargebale lighting business.

In an interveiw to CNBC-TV18, Amritanshu Khaitan, ED of Eveready India said, they are diversifying into newer products to increase revenue stream. 'We will use this product launch as a strategy to revitalise and reenergise the brand, which has been a very strong pan India brand for the last 100 years," he added. He further added, the volumes for our core category of batteries have been flat this year because of significant price increases in the last six months but the other core category of flashlights has seen 8-10% growth. We have already passed on a 4-5% price hike across our categories and we still need to pass another 4-5% price hike to consumer in 3-4 months, he asserted. Below is the edited transcript of his interview on CNBC-TV18 Q: You are now looking at greater strength of branding rather than a volume game. Can you take us through this brand strategy? A: Eveready Industries India has recently launched a new product range, the portable smart-phone chargers, which will be used for smart phones and tablets. We are coming out with a product range which will be target the youth of today. As the smart phone industry is growing very aggressively in India, and the battery power in these phones are quite low. We will use this product launch as a strategy to revitalise and reenergise the brand, which has been a very strong pan India brand for the last 100 years. Q: How have volumes been doing? A: The volume for our core category of batteries has been flat this year because we have taken significant price increases in the last six months. In our other core category of flashlights, we are seeing 8-10 percent growth. Q: It has been reported in some papers that you will be guiding for a net profit this fiscal. Can you give us a sense in terms of what sort of profitability would you be looking for in FY13? How can you extrapolate that in FY14, what is the trajectory on the profitability front? A: Eveready has posted profit last two quarters and we see similar trend going forward. I would not be able to give quarter guidance because our results are round the corner. However, for a year FY13 we would be back in black and at an EBITDA level we are looking at 40-50 percent growth this year. Last year operating margin was at 4.5 percent and this year we can end at about 7 percent. Q: How is demand looking? How much of a price hike can you pass on to customers at this point in time and what is on the cards at this point? A: Compared to last year, we have already passed on 4-5 percent price increase across our categories. This is primarily because the rupee had depreciated in Q3 last year. We still need to pass on another 4-5 percent in the next three-four months. The last quarter is always a lean season for Eveready because battery consumption is low. We try and pass on maximum price increase in this quarter so that going into next year we would have completed our price increases assuming the rupee being stable at current levels. If the rupee depreciates further in FY13, we will have no option but to pass on further price increase. The battery category per se is stable, the growth is slow but a price increase has to be done by all players, otherwise it is very difficult to sustain at current margins. Q: How did margins pan out in the quarter that just ended? Have margins been under pressure? A: Margins have seen an improvement as compared to last year. Last year we were at 4.5 percent EBITDA margin. This year we should see an expansion of about 200-300 basis point (bps) to around 7-7.5 percent and that will give a 40-50 percent growth at EBITDA level. Going forward, next year we should see further improvement but if we can maintain 7-8 percent margin for FY13-14 and also get back some sales growth, which has been a bit slow this year then we would post better results going forward. Q: You have spoken about becoming a brand driven company, you also have universal charger product that you have launched. So, two questions; (1) how much would this help in terms of an increase in margins assuming that you are going in for some high value added products and (2) what will be your advertising spend in the current year, in FY13 and how much might that tell on margins? A: The product which we are launching is coming with very decent margins. We are importing it. Our carbon zinc battery’s unit value is around Rs 10. These products, which we are launching, are at a value between Rs 1,600 to Rs 3,200. So we would be looking at decent sales growth and profit coming from this category. However, smart phone category per se in India is only 40 million pieces at the moment. It is projected to become 200 million by 2015. I see the benefit of these products launches coming into next year or a year after as the category grows. The brand Eveready is synonymous with battery, so we feel we will have a first move advantage in this category. Eveready is also planning to launch a range of products next year, in the rechargeable lighting base segment due to the power cuts situation in the country. Our guidance going forward is with the new product launches coming in, the company is trying to drive on profitability in the core categories and get growth from these new sectors coming in. I would look at Eveready getting back to a double digit sales growth in FY13-14. I cannot give a particular number on the advertisement spends but we would be looking at increasing our ad spends going forward into next year, backed by the increased contribution profitability of these products. Q: Why are you looking at so much of innovation? Why was the core business stagnating to such an extent? A: The core business has been doing steady business. When you look at the company to grow, the core business does not have to deteriorate. Innovation is always part of the game and it is about brining new technology into the country and giving Indian consumers a new product, which is a need of today’s India. We found that there is a new need and so we came out with this product. It has nothing to do with the core business being non-profitable or weak. It is a new innovation, which we feel will solve a problem which all of us face of mobile battery dying. Our core business of flashlights and torches are going very steady and with the price increases we have taken I am quite sure that it will reflect in quarter results coming forward. Q: Post FY13, would you expect to be consistently in the black on the bottomline? A: Yes, I am quite confident that post FY13, we should be in the black and better operating results will also pare down our debt level so interest cost should also come down.  
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