In an interview with CNBC-TV18, Amritanshu Khaitan, Managing Director (MD) of Eveready India says that low prices and government initiatives will lead to growth in the LED business.
Government's urbanistation initiatives and decrease in LED prices will lead growth over the next two to three years, says Amritanshu Khaitan, Managing Director (MD) of Eveready India . He expects the industry to grow at 15 percent in the near future.
In an interview with CNBC-TV18, Khaitan says that there has been a 10 to 15 percent increase in consumer demand for remotes. However, cheap Chinese batteries contribute nearly 7 to 8 percent to the 2.6 billion industry.
Anti-dumping laws need to be implemented soon to ensure accelerated growth for main players like Eveready, Nippon and Panasonic, Khaitan says. The earlier anti-dumping rules expired in 2013.
The LED market will grow to Rs 15,000-20,000 crore in next five years. Khaitan expects the LED business to become main contributor to company's revenue. The aim is to clock in Rs 700-1,000 crore to the overall LED business in next 5 years, he says.
In FY16, he expects revenue to grow by Rs 100-150 crore in LED and Rs 800 crore in batteries. He expects earnings before interest, tax, depreciation and amortisation (EBITDA) margin to expand by 100 to 150 basis points in coming years.
In FY17, Khaitan expects a 15 to 20 percent growth in revenues.
Below is the transcript of Amritanshu Khaitan's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: The Kolkata city has shadow of china everywhere, a fairly large Chinese population as well but at the moment you are worrying that Chinese batteries are making life difficult?
A: The category of battery is seeing one of its highest growth rates in the last few years. We think that the battery category is seeing demand of over 10-15 percent. This has been fuelled because of the whole digitisation push of the government and the more and more remotes going into household, is creating a huge demand.
However, part of this growth has been taken away by cheap Chinese batteries. We had anti dumping as an industry against Chinese battery for ten years which expired in 2013. At that time, the then government and the bureaucracy had said that we want to wait and watch that if dumping does arise again then we will take action.
Now, the industry has made application with the designated authority for both AA and AAA batteries that we need to bring in the duties back because 7-8 percent of 2.6 billion battery market is a significant amount of battery being dumped and these batteries are very poor quality.
The government and their team have given good hearing to us and we are hopeful that in the next three-six months some positive developments regarding anti dumping should come in. Once that comes in, the organised industry, which is Eveready, Nippon and Panasonic should see much higher growth rates in the volume of batteries going forward from next year.
Latha: What kind of demand forecast are you working with for India for this year and for the next and how much is the duty you are expecting or you want?
A: If you see remote as a category - that category in India is growing at about 18-20 percent thereby fuelling a high growth for batteries. So, if you see per capita consumption of batteries in India, its 2 versus China at 10.
Even if the battery category in India grows at 15 percent per year, we will only reach a per capita consumption of 3. One assumption for us as a company is that battery should grow at about 15 percent annually in next five years.
On the duty side, it's not a percentage, its absolute amount which was put, so that no batteries are imported below that price. Even if the same duty, which was there for 10 years, gets reinstated - that itself will stop cheap Chinese batteries coming in.
Sonia: Your view on whether there is any improvement in the situation for automakers in Kolkata because there are hardly any automobile companies in Kolkata any more. We have seen how the experience of the Tata with Singur got sour but since then and now has there been any improvement in the ease of doing business in a state like West Bengal?
A: I do not want to comment on a particular sector because Eveready doesn't deal with auto, but I can only tell you being a corporate house based in Kolkata are seeing a lot of green shoots coming up when it comes to ease of doing business.
The new government is being very proactive under the leadership of Mamata Banerjee - their whole team below is very keen to attract investment and they are keen to improve business. Our sister concern Mcleod Russel is into tea plantation in Bengal and they are in close connect with the Bengal government, who want to revive a lot of the loss making plantation.
They want to improve ease of doing business. I think there is a perception change, but whenever there is a change, it takes a bit of time and Kolkata is on to the revival path ably led by the new government.
Sonia: The light-emitting diode (LED) bulb business is getting bigger and bigger as we speak. Give us a sense of what your own contribution would be from the LED business in the next two-three years and how much in the overall pie could LED contribute?
A: Eveready as a brand has always been known for batteries. We are synonymous with the category with over 70 percent top of mind share and 50 percent market share, but the battery category in India has about 1,500 crore growing at 10-15 percent.
The LED business, if things go the way the government has been pushing the category and the way the prices of LEDs have been coming down, could become Eveready's biggest business in the next two-three years.
From a base of zero for the first year this year, we think we will clock between Rs 100 crore and Rs 150 crore and at that time the battery category for us will be about Rs 800 crore. If estimates of LED go according to plan, the category itself could be 15,000 crore-20,000 crore in five years time and Eveready wants to play a significant part of that share.
If you look at a long-term view, the potential for us as a company is to create Rs 700-1,000 crore business in five years out of the overall lighting market which will be primarily lead by different types of LED products.
Sonia: You said Rs 100-150 crore - that's the topline that you are looking to generate from the LED business next year, FY17?
A: In the current fiscal - FY16.
Sonia: What kind of margins would you be enjoying in the LED business and how will that change your blended margins if you are looking to get Rs 700 crore to Rs 1,000 crore in the next five years?
A: The LED business is going through a new phase of prices coming down albeit we are keeping gross margins quite intact. It is very difficult for me to give you a breakup on the margin profile as lot of our cost of the company is shared between all the categories.
From day one itself the LED business is at over 10 percent at EBITDA level and we think this chain should continue. Thereby, our blended EBITDA margins which were around 9.5 percent last year should every year increase by 100-150 bps as the LED business picks-up.
Till now, 100 percent of the EBITDA was coming out of batteries and flashlights while lighting business virtually was at a breakeven level. With LEDs contributing nearly company averages and in terms of EBITA, the overall EBITDA margin should inch up closer towards our targeted margins of 13-14 percent in the next two-three years.
Latha: Only for LED or for the entire lot?
A: For the entire company.
Latha: Now you are standing at single digit. How much are you expecting?
A: We think this year will be around 11 percent. Last year was 9.5 percent.
Latha: Eventually you can even go up to 13-14 percent?
Latha: This would be FY17 estimate itself?
A: I think it would be by FY18 because for the brand itself our ad spend was only 3 percent of our topline which we have now upped to nearly 6 percent. So we are taking part of the gross margin expansion into profitability and taking part of it into brand building.
Latha: What kind of compounded annual growth can we expect? Last year you did 11 percent in terms of revenues, considering the kind of confidence you have in urbanisation, would this get higher in 2016-17 or 2018?
A: In the current year, because monsoons have been weak, one of our key categories of flashlight has seen a decline of 10 percent. Taking that into account, we should still be double digit growth in the current fiscal but as the LED component increases for the company, we should be hitting higher than 15-20 percent growth hopefully going forward from FY17 onwards.
Click here to view details.