Eveready to demerge tea, battery businesses — Separate unit

planned for bulk tea

Our Bureau

Mr Deepak Khaitan, Vice-Chairman and Managing Director, Eveready Industries India Ltd, at a press conference in
Kolkata on Monday. Also seen is Mr A. Roy, Director-Technical. — Parth Sanyal

Kolkata , June 28

EVEREADY Industries India Ltd has agreed to demerge its bulk tea and battery
businesses and recreate a separate outfit — McLeod Russel India Ltd — for tea
operations only. This was decided by the board at its meeting here on Monday.

Making a formal announcement on this at a press conference here, Mr Deepak Khaitan,

Vice-Chairman and Managing Director, reiterated that the company would be split into
two entities.

The existing paid-up capital of Rs 55.78 crore would be divided into Rs 27.89 crore
each. Similarly, each share of face value of Rs 10 would be split into Rs 5 each. Assets
of either division would move into its respective company.

However, the board is yet to finalise the division of the debts, which is now at Rs 745
crore. Mr Khaitan said that it would be slightly higher for the battery company. The
demerger details are being worked out by PricewaterhouseCoopers and S.B. Billimoria,
the two statutory auditors of the company.

Approval from banks, FIs and other institutions are being sought. The company is
hoping to get everything ready by August but would be effective from April 1, 2004.

While Mr B.M. Khaitan would be Chairman of both the companies, Mr Deepak Khaitan
would hold the post of Vice-Chairman in McLeod Russel, and Mr Aditya Khaitan, the
younger son of Mr B.M. Khaitan, (now a director of Eveready Industries) will be the
Chief Executive of McLeod Russel.
Post-demerger, Eveready would operate with batteries, torch lights and the packet tea
business. McLeod Russel would deal only with bulk tea. The Khaitans would continue to
hold around 60 per cent in both the companies.

It may be noted that in 1996-97, the Khaitans merged McLeod Russel into Eveready.
The new McLeod Russel would have 24 tea gardens and an annual tea production
capacity of 40 million kg.

As a part of the demerger arrangement, the existing bulk tea business of Eveready
Industries would first be shifted into a shelf company called Eveready Company India
Ltd, which will then be renamed as McLeod Russel India.

Going by the segment-wise results of the existing company, Eveready Industries, the
approximate annual business of McLeod Russel would be around Rs 300 crore. Revenue
earnings of battery and FMCG business (Eveready Industries) would drop to
approximately Rs 580 crore.

Mr Khaitan added that the new Eveready Industries would like to sell the other products
through its existing marketing machinery, but nothing has been finalised yet.

Posts Rs 38-lakh loss

Eveready Industries India Ltd has registered a loss of Rs 38 lakh for fiscal 2003-04
compared to the net profit of Rs 11.13 crore in 2002-03. Gross sales of the company,
however, increased to Rs 968.23 crore from Rs 942.53 crore. According to Mr Deepak
Khaitan, Vice-Chairman and Managing Director, the loss was owing to a drop in bulk tea
prices, approximately Rs 6 per kg.

"However, we succeeded in reducing the losses by restructuring our debts," he said.

Net sales of the battery business increased to Rs 580.97 crore from Rs 566.54 crore,
but its profit before tax and interest dropped from Rs 65.87 crore to Rs 58.19 crore.
Bulk tea division registered a net loss of Rs 25.15 crore on net sales of Rs 302.20 crore.

Eveready plans to split company into two

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June 15, 2004 11:27 IST
Eveready Industries India, the flagship of the Brij Mohan Khaitan group, is set to
demerge the company into two entities -- fast moving consumer goods business
comprising batteries, packet tea in the existing company and bulk tea into the new
company.

Deepak Khaitan will remain at the helm of Eveready, while Aditya Khaitan will be the
managing director of the proposed bulk tea company.

The proposal for re-organisation of business will be placed at Eveready's forthcoming

board meeting on June 28.

Deepak Khaitan, executive vice-chairman and managing director of Eveready, said the
demerger was aimed at bettering shareholder value, as also employees.

He said that Brij Mohan Khaitan would be the chairman of both the companies and
Deepak Khaitan would continue as the managing director of Eveready, while Aditya
Khaitan would be the managing director of the bulk tea company.

Brij Mohan Khaitan is the non-executive chairman of Eveready, while Aditya Khaitan is
non-executive director.

Deepak Khaitan clarified that both the brothers would be on the board of both the
companies.

Deepak Khaitan said the timing was right for a demerger, since the tea business was
looking and prices were on the uptrend. "The tea industry is getting back of track" he
said.

The broad contours of the demerger would be in the lines of the report submitted by
ICICI and Rabo Bank but, there would be some changes. Deepak Khaitan said, the
details were being worked out by our chartered accountants and auditors.

Earlier, Eveready was considering selling a minority stake in the batteries business but,
Deepak Khaitan said, such a proposition was currently not being explored.

On the growth plans for the bulk tea company, he said the company would consider
acquisitions, if something interesting came by and the combined balance-sheet of the
two would be strong enough to carry out an acquisition, if required.

However, the financial performances of the bulk tea and FMCG companies were vastly
disparate, according to results of 2002-03.
Revenues from FMCG business accounted for Rs 645.43 crore (Rs 6.45 billion) as
against Rs 297.09 crore (Rs 2.97 billion) from the bulk tea business. Profit before tax
from the FMCG business was at Rs 65.87 crore (Rs 658.7 million) and bulk tea at Rs
6.27 crore (Rs 62.7 million).

But, the market expected the tea business to pick up this year owing to higher prices.

KHAITANS TO
MERGE TEA
BUSINESSES
BY PALLAB BHATTACHARYA

Calcutta, Sept 26:

The Khaitans of the Magor group are planning
to bring their entire tea businesses, which are
now spread over two companies, under one
umbrella.

The Calcutta-based group is considering a

proposal to demerge the tea division of
Eveready Industries Ltd (EIL) into a separate
outfit which will be merged with another
group company, Bishnauth Tea.

Confirming the plan, highly placed sources in

the group said EIL was assessing various
alternatives before making a presentation to
the financial institutions.

�The restructuring, when approved, will give

birth to one of the largest tea companies in the
country,� they said. The Magor�s group�s
tea business is worth well over Rs 500 crore
and is spread over 40 tea estates.

The restructuring will also save EIL from

financial disaster. The company is saddled
with borrowings of Rs 645 crore with an
annual interest burden of Rs 83.48 crore.

EIL has decided to appoint a consultancy firm

to prepare a �feasible formula� for the
demerger of its tea business.

Sources said the promoters of EIL were

frantically looking for a buyer or joint venture
partner for the EIL�s battery business.
Gillette of the US, the owner of the Duracell
brand of batteries, is reportedly the front-
runner in the race for the company.

�Splitting the company into two will not help

much as none of the two companies will be
able to service the loans. The company needs
to have a strong financial partner which can
take care of the battery business,� sources
added.

In order to avoid a debt trap, EIL is also

considering a proposal to sell its real estate in
Delhi and Bhopal which will help it raise
around Rs 60 crore.

EIL is in talks with a host of companies and

hotel chains to sell off 1.5 acres of land on the
Aurangzeb Road in Delhi and around 10 acres
of land in Bhopal.

The Khaitans, who hold around 44 per cent in

EIL and 50 per cent in Bishnauth Tea, are
planning to move out of the battery and
lighting business in which they entered into
with great fanfare five years ago.

The group created a sensation by taking over

the battery business of Union Carbide in
November 1994 through group company
McLeod Russel with an investment of Rs 290
crore.

In April 1995, the the company was

rechristened as Eveready Industries with
which McLeod Russel was merged in April
1996.

In 1995, McLeod had made a rights cum

public issue to mop up Rs 302.6 crore in order
 to retire the high-cost debt raised from the
financial institutions.

The issue, one of the largest from this region,

failed to evoke the expected response from the
investors, and put a heavy debt burden on the
company.

As a result, the company made a loss of Rs 11

crore in the first quarter of the the current
financial year.

Sources said the company will focus on the

packet tea segment by repositioning its
brands, Tez and Premium Gold.

�We came to the packet tea segment long

after the other major tea companies. But we
have embarked on a brand repositioning
exercise in a big way and hope to corner
sizable market share in the next couple of
years,� a senior official of the group said.

The company has already made substantial

investments in its packet tea factory at
Chuapara for modernisation purposes

Eveready board clears

demerger

The board of Eveready Industries India decided to demerge the Brij Mohan Khaitan flagship
into two businesses "" bulk tea and fast moving consumer goods (FMCG).

The FMCG business will comprise batteries, flashlights, and packet tea under the existing
company, while the bulk tea business will be a new entity.

According to the scheme of demerger, existing shareholders of Eveready would get an

equivalent number of equity shares of face value Rs 5 in the new bulk
tea company, McLeod Russel Ltd.
Upon demerger, the paid-up share capital of the company would stand reduced to Rs 27.89
crore from Rs 55.78 crore, by reducing the face value of each share from Rs 10 to Rs 5.

The liabilities of both the companies would be shared. Deepak Khaitan, executive vice-
chairman and managing director Eveready, said the larger share of the Rs 745 crore debt
would be with the FMCG business.

Details of distribution was being worked out by PricewaterhouseCoopers and Billimoria and
Co. Deepak Khaitan said the management structure of both the companies would remain
the same.

Brij Mohan Khaitan and Deepak Khaitan would be chairman and vice-chairman of the firms
respectively.

Sources said, in addition, Deepak Khaitan would continue to be the managing director of
Eveready. Sources added that Aditya Khaitan, the younger son of Brij Mohan
Khaitan would, however, continue to run the bulk tea business.

The management had already charted out growth plans for the two companies. Deepak
Khaitan said the main driver for growth in the FMCG business would be through packet tea,
where it was relatively a small player.

Eveready demerger plan takes off

OUR SPECIAL CORRESPONDENT
Calcutta, June 14: Eveready Industries India Limited (EIIL), the B.
M. Khaitan flagship company, is being split.

The company will demerge its fast moving consumer goods (FMCG)
and bulk tea businesses — three years after taking a decision on the
issue.

The board of directors will meet on June 28 to consider the reorganisation of its business under
two separate legal entities — one devoted to the FMCG business and others to the bulk tea
segment, the company said in a notice sent to the Bombay Stock Exchange (BSE) today.

EIIL will retain the FMCG business and spin off the bulk tea business into a new entity.

“The demerger issue has been in the air,” executive vice-chairman and managing director
Deepak Khaitan said. “We could not separate the two businesses as tea was not doing well. Now
that the tea industry is showing signs of recovery, we think that this is the right time to separate
the two businesses. We feel that tea can now operate on a stand-alone basis.”
In 2001, Bishnauth Tea Limited was merged with EIIL. Before the merger, EIIL was focused on
the battery and flashlight businesses. Later, the Khaitans decided to demerge tea from the battery
business.

Back then, the company had appointed Rabo Bank to examine the demerger issue. However,
Rabo Bank's valuation of the tea business was not very encouraging, which forced the Khaitans
to soft-pedal on the demerger issue.

Khaitan said the reorganisation will benefit the shareholders of the company.

“The tea company will have a different price earning ratio from the FMCG company. The share
price is also expected to improve. This will also help the group to be back on the dividend
regime,” he said.

After opening at Rs 29.40 on the Bombay Stock Exchange, the EIIL share hit an intra-day low of
Rs 28.50 and closed at Rs 28.95 against Friday's close of Rs 29.40. The scrip recorded a 52-week
high of Rs 60.10 on December 17, 2003 and a low of Rs 18 on March 23, 2004. The P/E ratio for
the share is around 14.47.

The FMCG company will concentrate on the battery, flashlight and packet tea businesses. The
turnover from the battery business in 2002-03 was Rs 505 crore. It also earned Rs 92.93 crore
from the flashlight business and Rs 30.20 crore from the packet tea operations.

The company recorded a turnover of Rs 942.53 crore and a net profit of Rs 11.13 crore in 2002-
03. The bulk tea business has 28 gardens within its fold — 23 in Assam and five in Dooars. The
total tea production of EIIL is 38 million kg.

"We will be able to acquire other FMCG businesses once the two companies are separated," said
Khaitan.

Khaitan & Co is currently working out the details of the scheme of arrangement under section
391 of the Companies Act, 1956, which will be tabled before the board of directors on June 28.

Corporate mavens feel that the demerger could be a precursor to the division of the businesses
between the two sons of B. M. Khaitan — Deepak and Aditya. The speculation is that Deepak
will be in charge of the battery business, while Aditya — the younger son — will look after tea.

However, Deepak Khaitan denied such a move. “Our father will be the chairman of both
companies. Aditya and I will be on the boards as well. There is no family issue involved in the
entire exercise which is aimed at strengthening our businesses and ensuring better returns,” he
said

Company Background Eveready started its operation in 1905 by selling batteries and was incorporated
in 1934 by Khaitan family under the name National Carbon Company. It became a part of Williamson
Magor group in 1993 and changed its name to Eveready Industries Limited in 1995 and is currently
headed by Mr. B.M Khaitan, the chairman. The company operates under four main business segments;
Batteries, Flashlights, Lighting & Electrical and Packet tea. Their products include batteries, flashlights,
lanterns, lamps, tube lights, electronic appliances and other devices like radio and mobile phone power
banks. Batteries, Flashlights and Bulbs are sold under brands ‘Eveready’ and ‘Powercell’ while their
packet tea brands include ‘Tez’, ‘Jaago’ and ‘Premium Gold’. The company has six manufacturing
locations in Kolkata, Chennai, Lucknow, Noida, Maddur and Uttaranchal which serve 42 distribution
centers, 4000+ distribution points and 15 sales offices across India. The company is enhancing its brand
visibility in urban and rural markets by adding new stores for lighting and electrical appliance businesses.