The management of Eveready Industries have increased the price of batteries by 5%, to manage costs that have got increased due to the rupee depreciation. This is a very bold decision, though Eveready commands a very big market share in India for Batteries, the price increase can put the competitors at an advantage, mostly the low priced Chinese products that come into India.
In his interview with CNBC, Mr. Amritanshu Khaitan, MD, Eveready Industries reiterated confidence that the competitors will follow soon.
This confidence shows the belief the management has on the business and the added profits this price increase is going to bring will increase the profits and the price of the stock too. In last June Eveready stock was prices at ₹45, when we added the stock to our portfolio. Today after about 15 months, it is at ₹290 after reaching a high of ₹370, so far giving us above 500% profits.
The management is expecting to have their profit margins at 11%, from the 3.83% that the company is having now, it is a fairly big jump and it is going to take the stock to greater heights.
Eveready has entered into LED lights business, where it is competing with many prominent brands. The advantage we found with their product when we shopped for a few lights was that the price is very competitive against the other brands. This will push the sales, which is again an advantage for our investment.
RBI has approved the increase of FII limit to 49% of the company’s equity. The present FII exposure is close to 44%, which gives scope for another 5% increase and to that extent there will be demand for the stock in the market and it is add up to its price rise. Just because foreign investors are having a big stake in the company does not mean that the company is going to be ever growing, there are many instances where some FII investments have gone wrong too. The advantage we have here is that, since the company is showing good strength, FII’s will be willing to take exposure even at a slightly higher level and that will be at our advantage as the stock will move up faster. We will track the performance & stay invested only till the company is growing.