MOSL: EVEREADY INDUSTRIES (Buy)-Appliance and Lighting to drive growth ahead

​Eveready Industries: Appliance and Lighting to drive growth ahead

(EVRIN IN, Mkt Cap USD0.3b, CMP INR319, TP INR368, 15% Upside, Buy)

• Revenue in-line, PAT beats estimates: EVRIN reported overall revenue of INR3,046m in 4QFY17 (est. of INR2,946m) v/s INR2,834m in 4QFY16, marking an increase of 7.5%, mainly due to significant turnover growth in lighting and appliances segments. Lighting grew robustly by 26% in 4QFY17. EBITDA rose 24% YoY to INR177m (est. of INR162m), with the margin expanding 80bp to 5.8% (est. of 5.5%). Adj. PAT thus grew from INR93m to INR105m (est. INR68m), marking YoY growth of 12.3%. For FY17, EBITDA margin stood at 10% (+60bp YoY) and PAT at INR935m (+35% YoY).
  
• Significant opportunity in appliance: Revenue from appliance segment stood at INR400m in FY17 - the first year of operations. EVRIN plans to achieve revenue of INR1b in FY18 from appliance (making the segment EBITDA breakeven) and then ~INR2,500m by FY20. The size of fan & appliance market stands at INR150b, with average industry growth at 10-15%. We believe EVRIN has significant opportunity to grow this business, with access to 6,000 retail outlets (200 distributors). It plans to increase outlets to 10,000 by FY18. The business can generate asset turnover of 5x.
  
• JV with McLeod to develop packet tea business: EVRIN will initiate discussions with McLeod for a JV to develop its packet tea business. Management cited McLeod will invest required capital for marketing of tea business and will bring in its expertise/sourcing capabilities. EVRIN has access to 1m outlets, allowing it to aggressively grow the business.