Eveready Industries India LtdQ1 FY23

Eveready Industries India Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 1

Fundraise

Order

N/A

Capex

Yes

2 of 4 growth signals are positive.

Full analysis

Revenue guidance

Category 3

→The company achieved 14% revenue growth in FY23, which is above the market average, and aims to surpass this growth rate going forward.
→Growth is expected to be primarily driven by premiumization rather than volume increase, as the battery market is mature and largely flat.
→The focus is on profitable and cash flow-generative growth while maintaining or expanding market share in under-indexed segments.
→Lighting and LED segments show strong potential, having grown 24%-26%, with efforts to expand presence in retail and professional categories.
→Distribution strategy consolidation aims to sustain a reach of about 4 million outlets without losing footprint.
→The company expects gross margin expansion and aims for EBITDA margins of around 10% in the near term.
→Sustained marketing and consumer communication investments will support growth across batteries, lighting, and flashlights.

Margin guidance

Category 1

- The company aspires to achieve at least a 5% EBITDA margin in the upcoming financial year (FY24), moving from a slight negative breakeven in lighting segments this year. (Page 19) - They are targeting double-digit EBITDA margin starting with at least 10% for the whole company in FY24, with aspirations of moving to mid-teens in the medium term. (Pages 7-9) - Revenue growth exceeded 14% in the last year, with expectations to surpass this rate in the coming year, driven largely by premiumization rather than volume growth. (Pages 6, 14) - The company expects gross margins to expand, with Q4 showing 150 basis points improvement, and material cost easing supports margin growth. (Pages 7, 22) - One-time costs affecting current profit levels are largely nonrecurring, suggesting improved profitability going forward. (Pages 6, 8) - The internal team targets profitable, cash flow-generated growth rather than just top-line growth. (Page 22) In summary, the company expects improved earnings and operating profits with EBITDA moving to double digits in FY24 and sustained revenue growth beyond 14%.

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Fundraise plans

→Currently, the company is not planning any immediate equity fundraising due to restrictions linked to the KKR case.
→Any strategic capital raise, including equity, is being considered 2-3 years down the line once current issues are resolved.
→The company prefers to rely on internal cash generation and manageable debt levels for ongoing investments.
→Debt has increased recently due to route-to-market investments, but management aims to reduce it over time, targeting a neutral working capital position.
→Promoters are keen to increase shareholding if restrictions are lifted, and any capital raised would potentially be used to pay down debt.
→Presently, no noncore asset sales are planned as all assets are in productive use, and KKR restrictions limit such actions.

Order book

The provided transcript does not mention any information regarding the current or expected order book or pending orders for the company. The discussion mainly revolves around topics such as: - Premiumization strategy and market segmentation. - Working capital and receivables management. - Distribution network revamp and efficiencies. - Legal/arbitration matters with KKR. - Growth outlook and EBITDA margin expectations. - Market size and competition in battery and lighting segments. No specific details on order book, order backlog, or pending orders are disclosed or discussed in the transcript on page 24 or the surrounding pages.

Capex plans

Yes

→FY24 capex requirements are not very high, estimated to be a little over Rs. 35 crores.
→Normal capex is around Rs. 25 crores annually.
→FY25 may require higher capex, around Rs. 70-80 crores, due to capacity expansion needs as the company grows and taps under-indexed segments.
→No immediate strategic capital raise planned; focus is on growth funded by internal cash generation.
→If capital restrictions (e.g., legal issues) are lifted in the future, raising capital may be considered for strategic purposes such as paying down debt or new investments.
→Current investments include route to market realignment and increased advertising (A&P), which are considered essential for growth.
→The company is focused on profitable and cash flow-generating growth going forward.

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