Aim at doubling LED sales to Rs 250 cr in FY17: Eveready Ind

According to him around 10 percent of the Indian market has shifted to cheap Chinese batteries and although the industry has been growing at 8-10%, the organized industry has missed out on this growth. The organised industry is hopeful that in a month or two, the government would impose anti dumping duty on batteries. So, as of now, the Q1FY17 could see a muted growth in terms of battery volumes but strong monsoons and government measures could see a strong second half in FY17, he said.

Chinese batteries are duped anywhere between Rs 0.75 to Rs 1.25, which is below cost of raw materials whereas, said Khaitan.

With regards to capex plans, he said they are not looking at capex for LED segmengt and would continue with the asset-like model. However, the company is planning a large capex for the battery business to the tune of Rs 100 crore and plan to set up a 400-million plant in Assam.

LED prices have come down in last few months by around 35-40 percent, said Khaitan.

Talking on the outlook for margins, he said they aim to clock around 9.5-10 percent margins in FY17.

Below is the verbatim transcript of Amritanshu Khaitan's interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.

Nigel: Let us talk about the area that is worrying you. What exactly is the percentage of Chinese batteries that have been coming in. Could you give a breakup in terms percentage and the way it has been increasing over the last few quarters and also what kind of an impact it is having on your sales. How much of sales impact is because of these imports?

A: About 10 percent of the Indian battery market has shifted to cheap Chinese batteries. However, from volume growth angle the company's volume for the whole of FY16 in batteries has remained flat. The category has been growing at 8-10 percent but the organised industry which comprises of Eveready, Nippon and Panasonic has missed out on this growth. We have applied for antidumping duties with the Indian government, which is in advance stages of review and we are hopeful that in the coming one or two months there should be some action taken to protect the domestic industry. As we have had protection for ten years since 2003 to 2013. We believe that the case is strong enough for them to re-impose anti dumping duties on batteries.

Reema: In case there is no anti dumping duty then should we expect FY17 volumes to be similar to FY16 volumes which are rather flat and underperforming the industry growth?

A: I would think that the first half of FY17 would be muted because the industry is also making bureau of Indian standards mandatory on batteries which should get implemented by July-August and that also will help mitigate the dumping from China. So even if demand is strong, volumes maybe a bit flattish for the first quarter but if you have strong monsoon and these measures do get implemented, we are looking at a very strong second half of FY17.

Nigel: You are talking about anti dumping duty that has to be levied. What is the percentage that you are looking at that will help you all in terms of these cheap imports. What is the percentage?

A: Since the battery value itself is very low, we are not looking at a percentage. What has happened in the past is that they have seen the cost of production of Indian manufacturers and then they impose the difference between what has been imported and the cost of production in India.

Nigel: It will be something like what has happened for the steel sector. It will be like minimum import price or something like that?

A: We hope that that is what will happen.

Reema: What is the current difference between the imported Chinese prices as well as what the Indian cost of production is?

A: Chinese batteries have been dumped at anywhere between 75 paise to Re 1.25 which is below cost of raw material, so the difference is pretty large.

Reema: Could you tell us in absolute terms. If 75 paise to Re 1.25 is Chinese battery, what would be the Indian Batteries?

A: It would be double of that.

Nigel: Let's talk about the goods things going on. The light-emitting diode (LED) segment is doing quite well. You were sounding optimistic few months ago when you were on the channel. Tell us what has been the growth over there. How much is it currently contributing to your revenues and you has briefly touched upon that you expect it to go around 15-20 percent. Is that on line? Any capex involved over there?

A: The LED business has been a great success story for the company last year and with our flashlight business being in a declining mode and batteries being flattish, the LED business helped us give a modest topline growth and even protect profitability. We clocked about Rs 92 crore last year in LEDs. We have bagged an order from the Madhya Pradesh government of Rs 50 crore which is getting executed in the first two quarters. The total lighting business for the company grew at about 45 percent in the quarter which just got completed. So going forward LED business will be a big growth driver in the coming year. I think we should be looking at more than doubling our sales in terms of value and in terms of volumes since LED prices have come down, it could go about 4x from where we were last year.

Reema: What are the numbers for LED business that we could expect in FY17?

A: We are hoping to clock about 10 million pieces of LEDs through the trade channel and bag about 15-20 million pieces through the government initiative of Energy Efficiency Services Limited (EESL), so we could be looking at 25-30 million piece sale which could give a value turnover of about Rs 250 crore odd.

Nigel: Are you looking at any kind of capex for your LED business. Are you looking to scale down that? Is that on cards and also what the price cuts you have taken are? Have you taken any price cuts in the last three months or so?

A: The LED prices have come down sharply in the last three months. It would have dropped by about 35-40 percent. When you look at capex, except for our battery business we are working on an asset like model. It's an outsourced model for LEDs but the company is planning a large capex in our battery business due to the fiscal benefits available in north east of India. So we are going to be putting up 400 million battery plant in the state of Assam which will come with a capex of about Rs 100 crore odd. This will have a quick payback of two-two-and-a-half years due to the income tax and excise duty benefits we will get.

Reema: What is the outlook on margin in Q4 as well as for the full year?

A: We should be able to maintain current margins of around 9.5-10 percent at EBITDA level full year and we would work on improving it provided the country has good monsoon and if anti dumping duties do get imposed. The company's overall growth rates which earlier was clocking double digit and dipped last fiscal, should go back to 14-15 percent level in FY17 and we will see a larger margin expansion in FY18 due to the capex programme which the company has in batteries - that will help us improve the margin in FY18 because our income tax rate will drop very sharply by then.

Nigel: Could you give us like to like comparison. What is the current income tax rate? What will it be and the capex that you are talking about and how will you fund it?

A: Our current income tax rate for the year ended '16 was 25 percent. In FY17 we should be at full tax rate and in FY18 we should go down to minimum alternate tax (MAT) and that is our internal estimates. The capex would be mostly funded through internal accruals and we have also tied up partly debt at attractive level.