Eveready Industries posted a strong set of earnings with profits jumping nearly five times. Operational improvement continues despite a slowdown in volumes in the bread and butter battery business.
The company expects a topline growth of 10-15 percent for FY15. Speaking to CNBC-TV18, ED Amritanshu Khaitan says the margins of the company are likely to remain at 9.5-10 percent by for the full year.
The small cap company is expecting its sales growth to increase to 13-15 percent in H2 FY15. Khaitan believes the growth is stable in battery segment with the AAA segment growing at 15-20 percent.
Eveready aims to cut down its debt by Rs 25-40 crore this year and bring it down to Rs 200 crore.Below is verbatim transcript of the interview:
Q: Once again a good set of numbers posted by the company. Can you tell us whether you have changed your guidance for the end of FY15, what does it stand at now in terms of revenues, profits?
A: Yes, Eveready has posted a decent Q2 and we are looking at this trend continuing in the remaining quarters. We believe that for the year the company’s topline should grow between 10-15 percent as started earlier.
The EBITDA margins should also remain stable between 9.5 and 10 percent annually. That would result in a very strong growth in the bottomline which is a continuing trend since the last two quarters.
Q: How are you looking at sales itself panning out, what kind of a run rate can we expect in the second half and the coming year?
A: The second half should see the sales growth increasing to around 13-15 percent as compared to 11 percent in Q2 because Q2 has a seasonal dependence on the monsoon where one of our key categories flash lights does get impacted either positively or negatively.
This year with the monsoons being chequered in various regions of the country, our flash light sales remain flat. So the sales growth compared to Q1 of 16 percent dropped to around 11 percent.
Coming to batteries the growth is stable, we are seeing some volume growth in AA batteries while the AAA category is still continuing to grow between 15-20 percent. So I think this trend will continue for the remaining half of the year.
Third category which is the lighting category has grown by 28 percent in Q2. This growth rate could increase to over 40-50 percent in the second half due to new products being launched by the company starting January in the LED segment which estimates are saying that the category per se in the lighting would start moving very dramatically. So we are looking at a very healthy growth rate going forward.
Q: Won’t that help you in improving your margins because on one hand you have already taken many price hikes that translated into better margins and now new products as well? Do you think you can do much better than 10-15 percent in FY16?
A: The EBITDA margin that we have clocked in the first half of the year will always be a bit stronger because 60 percent of the business is still batteries for the company which goes into a bit of a lean season in Q4.
We should remain at the current EBITDA levels. If lighting business does generate higher revenue, we will also have to put investment behind the brand and distribution. Therefore, any increase in contribution would also go into certain investments which is required to sustain this kind of growth rate.
Q: How will your cash flow improve, it looks like from the numbers you are giving that your free cash flow is going to improve considerably. Will that help you bring down your debt, what is it now, what might it be a year from now?
A: Our debt beginning April was around Rs 225 crore. We are targeting to bring that to below Rs 200 crore in the current fiscal.
Free cash flows are much higher but we are using part of our free cash flows to pay our suppliers on cash so that we can reduce our financing cost which we have in credit terms with our suppliers.
This year we are looking at a debt repayment of anywhere between Rs 25-40 crore but in the following year I see that repayment cycle increasing to around Rs 70-75 crore. So in about a year and a half we should be at about Rs 100 crore of debt which is fairly negligible when it comes to our EBITDA levels.
Q: What did you spend on marketing, what will you spend in H2 and next year?
A: Advertising and promotions (A&P) spends historically has been around 3 percent of top line. This year we should be around 4-4.5 percent and we plan to increase this to over 5 percent in the next fiscal but we would continue to focus on keeping the operating margins at double digit.
This is due to the increase in revenue from the new product and part of the battery price increase profitability going into increasing visibility for the brand.
Q: Any more price hikes that you have planned?
A: We have taken a round of price increases in our flashlight starting November that is to the tune of 5-10 percent. In our premium batteries that we stated earlier we plan to take up another 5 percent price increase. Apart from this we would review the pricing scenario beginning April which is before the next monsoon season to take a decision whether we could take another round of prices across batteries.
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