Eveready Industries India Ltd., is planning to re-organise its packet-tea business. The options being explored include spinning off the business to a wholly-owned subsidiary or forming a special purpose vehicle with a strategic partner.
The EIIL Board on Monday approved this reorganisation, subject to the finalisation of a suitable modality for the same, the company said in a regulatory filing. The Board also authorised Amritanshu Khaitan, Managing Director, to examine and evaluate all aspects and alternatives.
Best known for its flashlights and dry-cell batteries, EIIL is now marking an increasing presence in the lighting (LED, CFL and GLS) and home appliance segments. It unveiled the small home appliance business last year. “These are our core businesses,” Mr Khaitan said.
EIIL sells about 1.2 billion batteries and 25 million flashlights annually. It had entered the tea business in 2000. It now has two brands — Tez and Premium Gold — which sell mainly in the north and east parts of India.“The main objective is to provide sharper focus and scale up the tea business through either the organic or inorganic route,” he told The Hindu . The packet tea business contributed ₹80 crore to EIIL’s annual turnover of ₹1,323 crore for the year 2015-16. “While contributing 6% to the top line, it was virtually a zero-margin business,” he said, adding that the current exercise would bring clarity to EIIL’s tea business.
Industry watchers said that the decision paved the way for tie-ups with another B.M. Khaitan group company Mcleod Russel India Ltd. which is into bulk tea production with estates in India, Vietnam and Africa.
‘Fragmented market’
“Packet tea is a ₹10,000 crore market which is very fragmented. We would like to work towards positioning ourselves into a prominent national position, leveraging on the company’s widespread distribution network, especially in the rural areas,” he said. EIIL said that its 4,000-strong distributor network reaches large and even small towns with populations of about 5,000. The scale-up will need an annual investment of about ₹15 crore over the next three years. Even as it battles the impact of battery imports from neighbouring countries (the third quarter turnover for the battery business was flat), margins were hit by hardening prices of zinc (a critical input) and a firm dollar.
The Flashlight business was flat with a 5% growth in the third quarter.
