Eveready rating gets an upgrade
Eveready Industries has received the first “upgrade” after a gap of three years from credit rating agency India Ratings & Research (Ind-Ra), signalling a directional change for the dry cell battery maker which has been bogged down by group debt problems.
Ind-Ra, a Fitch Group company, cited improving profitability led by growth in the battery business and improving credit matrix apart from increasing stake by the Burman family as the key drivers.
The EIL stock touched a fresh 52-week high on the bourses on Thursday, closing the session with a gain of Rs 6.65 at Rs 139.80 on the NSE, after hitting the upper circuit ceiling of 4.99 per cent. The stock has rallied 73 per cent from the end of July 13, a day before the Burman family of Dabur raced past the promoter group to become the largest shareholder of EIL. The Burmans now have a shade under 20 per cent in Eveready compared with a little over 15 per cent held by the promoters.
Ind-Ra upgraded the long term issuer rating by one notch to ‘Ind-BB+’ from ‘Ind-BB’ with a positive outlook. The BB rating indicates elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic condition over time; however, business or financial flexibility exists that supports the servicing of financial commitments.
“The upgrade reflects EIIL’s improved liquidity position aided by deleveraging in 2HFY20, coupled with sustained profitability in FY20. The positive outlook reflects Ind-Ra’s expectations of a further improvement in EIIL’s business profile and its liquidity position in FY21, backed by the improving performance of its battery and flashlight segments, a possible resolution of the contingent liability issue and the possibility of a managerial/board representation by the Burmans.” Ind-Ra said.
The last upgrade Eveready received was on August 9, 2017 when Ind-Ra had profiled it at ‘Ind AA-’. The company witnessed multiple downgrades in 2019 as the promoters — the Khaitan family of Williamson Magor Group — got trapped in a downward debt spiral.
They borrowed heavily on the strength of the balance sheets of EIL and McLeod Russel and by pledging their shares in these two firms and lent forward to cover the losses in McNally Bharat Engineering Co Ltd.
Noting expansion of margin due to combination of factors — benign commodity prices, sharp decrease in imports from China leading to increased product prices — Ind-Ra expects EIIL’s profitability to continue to improve in FY21 on the increased contribution from the battery and flashlight businesses and the discontinuation of the loss-making tea business.