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Corporate - Restructuring


Eveready to demerge battery, tea biz

Our Bureau

Kolkata , June 14

THE Rs 1,000-crore Eveready Industries India Ltd, the flagship company of the city-based B.M. Khaitan Group, will be split vertically into two companies - one dealing with battery and packet tea and the other with bulk tea.

According to a company official, Eveready Industries will continue to deal in batteries and will also take care of the packet tea business, which was introduced by the company a couple of years back.

The new company, whose name is yet to be finalised, officials said, would deal in bulk tea business only.

According to Mr Deepak Khaitan, Vice-Chairman and Managing Director of Eveready Industries, the demerger move is aimed at enhancing shareholder value.

"Ours was neither an FMCG company nor a tea company - hence, the phenomenon of one business killing the other. Even the PE ratios of the two businesses were different. Hence, demerging was the most rational option," Mr Khaitan told Business Line from London. According to him, the company had been contemplating a demerger for some time but could not implement it as the tea industry was going through a bad phase.

"As the fortunes of the tea sector are changing for the better, we felt the time was right to go ahead," he added.

It may be noted that Eveready Industries was considering a demerger for the last three to four years. A few years back, Rabo Bank was appointed by the company and the global consultant placed a set of recommendations and suggestions on this issue.

Though the company will be split vertically, the nitty-gritty is yet to be finalised. Solicitors of Eveready Industries, Khaitan & Co, are already working on the proposal. Moreover, inputs are being taken from the company's auditors, Price Waterhouse and S.B. Billimoria & Co.

"In this sort of a demerger, the company ends up paying huge taxes. We are studying all pros and cons and looking into all the alternatives before deciding on the finer aspects of the demerger," sources said.

However, it has been decided that post-demerger, all shareholders would continue to hold equal stake. So the Khaitans will continue with their 60 per cent stake in Eveready Industries and hold a similar amount of stake in the new company.

"As a first step, we have informed the stock exchange about the demerger. We are also holding talks with the banks and financial institutions," sources said.

The final proposal will be placed before the board of directors of Eveready Industries on June 28, this year.

On enhancing the shareholder value, Mr Khaitan said the market capatilisation of the Eveready scrip was approximately Rs 150 crore.

"However, we know it should be six to seven times more," he said.

Post demerger, the two companies will function as two separate entities. The management of the two companies will also try to attract investors for either of the two companies.

As of now, the battery division generates approximately Rs 650 crore of business out of Eveready Industries' total business of Rs 1,000 crore.

The rest is generated by bulk tea. The packet tea business is yet to reach a significant level.

In terms of profitability, for the last four years, the battery division generated almost all the profits because the tea industry was suffering from low prices and high input costs.

`No split in business'

FOLLOWING the announcement of the demerger of Eveready Industries, questions were raised in several quarters whether the company was being spilt between the two sons of Mr Brij Mohan Khaitan.

Mr Khaitan's elder son is Mr Deepak Khaitan and Mr Aditya Khaitan is the younger son. While Mr Deepak Khaitan, is the Vice-Chairman and Managing Director (in other words the Chief Executive) of Eveready Industries, Mr Aditya Khaitan, is just an executive director on the board.

As far as daily operations were concerned, Mr Deepak Khaitan looked after the battery business and Mr Aditya Khaitan, the tea segment.

Company officials averred that the demerger did not mean a business split between the brothers as the management would remain same.

However, Mr Deepak Khaitan told Business Line said that the new company would be headed by his brother, Mr Aditya Khaitan.

"I will be there on the board but he will be chief executive because he is already looking after the tea division," he said.

More Stories on : Restructuring | Electrical Goods

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