BM Khaitan Group flagship, Eveready Industries India, is now not just the country’s largest dry cell battery maker. Lighting (especially LEDs) has emerged as its new profitable vertical.

Amritanshu Khaitan, Managing Director of the 112-year company, is also excited about small appliance segment being its next growth driver.

The company is witnessing increased investor interest with institutions hiking their stake. As on March 2017, institutional holding by mutual funds, alternative investment funds, foreign portfolio investors, financial institutions and insurance companies stands at 35.11 per cent (as against 31.21 per cent last year). The stock has also had its share of rally, hitting a 52-week high on April 20 (at ₹309).

In an interview to BusinessLine , Khaitan talks about what has gone in favour of the company, the packet tea business, growth plans and the GST. Excerpts:

How has the year been for Eveready?

FY17 ended quite satisfactorily and we’ve managed to maintain profitability. We have established our lighting vertical this year with good growth in the LED space. Going forward, the company, which was dependent on batteries and flashlights for profitability, now has lighting as a profitable third vertical. It (lighting) will add substantially to our bottom-line.

Any numbers regarding LED?

The LED turnover is expected to reach about ₹200-odd crore (FY17), which was ₹95 crore the year before. In terms of volume, it has actually quadrupled (400 per cent growth). We sold close to 20 million LEDs and that has established us among the top players in the consumer segment space especially, the bulb segment.

With the brand having a firm footing in the consumer bulb segment, we will, in the next six months, extend the product range and focus on the B2B segments too. The LED business should double in two years time.

With increased demand for LEDs, will you have your own facility?

It’s not required. We already have a dedicated vendor in Hyderabad. We want to remain asset-light and this will help the company focus on return on capital employed and return on investment ratios.

How are the margins for verticals like lighting and small appliances?

In lighting, the gross margins are not low. In LED, they are quite healthy and profitability is also looking good.

On small appliances, yes the margins are a bit low. We really think that we can carve out a small market share in a very large market. Even in a fragmented market, we can create a very profitable business.

For us, appliances are a traded business and our fixed costs are taken care of by the batteries and flash lights. So, once these verticals reach the economies of scale, they will start giving us profitability. Initial feedback says the brand fit is really positive.

You seem excited about the small appliance category ...

The reason is it is a segment that is very large; almost 10 times the size of battery category in terms of value and it is growing at a very quick pace of 15 per cent a year. This is when the unorganised segment is 30 per cent. Now, when the GST comes in, the unorganised segment gets reduced. It gives room for all these new players, including us, to get established.

From Eveready’s perspective, the brand (Eveready) is so well known that I do not need to spend a lot — compared to a new brand — in creating awareness for the (appliance) category. This allows us to keep our margins intact. We believe, the trust that Eveready enjoys will enable trials for the segment.

Are acquisitions on cards?

No. We can grow organically pretty quickly. For acquisitions or joint ventures, we would look to add products that can be leveraged on the FMCG network.

What are the plans regarding your packet tea business?

We are planning to move packet tea into a 100 per cent subsidiary (of Eveready). But, we have not finalised the strategy. The whole thing should be ready by the time our full-year results come out by the end of May. The business model remains the same — asset light; invest two-to-three years behind the brand and scale up.

Is it a business you want to scale up?

We do want to scale up the packet tea business. It is the first product, apart from battery and torches, that we were able to distribute through our (distribution) network. We were able to scale it up ₹75-80 crore. However, it plateaued in the last few years. It requires a longer term strategy in terms of brand building.

But, why a separate subsidiary?

The cash flows of Eveready are being committed to the two large categories of lighting and appliances. So, the board felt that it better to put tea into a separate company and then look at a strategic investment. Strategic investments could mean PE or any other party interested in the business. But, we will look at all options once the subsidiary gets formed.

Will GST be beneficial?

We are very excited about GST coming in. I think, it will really benefit Eveready as a whole because of the various unorganised segment the brand is present in. GST will also be beneficial and help reduce unorganised segments which have poor quality products. And also Chinese imports.

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