The Telegraph
Since 1st March, 1999
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Eveready demerger plan takes off

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.

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