Dry Cells Sector Set To Ride On Electronic Boom In Rural Markets

Dry cells industry is likely to witness a good growth fired by increasing usage of electronic devices in the rural sector. Yet, despite a rise of 15 per cent in the sales income of three dry cell companies, net profit edged up a fractional 0.9 per cent in the year to March 1997.

This was primarily because of a rise in the depreciation and taxation. The three companies operating margin fell to 9.5 per cent (9.6 per cent) even as gross profit margin remained unchanged at 8.2 per cent. Net profit margin was down to 3.7 per cent (4.2 per cent).

 

The dry cell batteries can be classified into three segments large (UM1), medium (UM2) and pencil (UM3).

The industry further classifies dry cell batteries into zinc carbon and alkaline batteries. Although the alkaline battery scores in terms of better performance and higher durability over zinc carbon, its share in total demand is four per cent in the country.

However, in developed countries like the US it is about 70 per cent and in Europe it is about 50 per cent of the total demand.

The main reason for the low share of alkaline battery in India is that its production is highly technological intensive and its cost of production is four times that of zinc carbon batteries.

BPL is the only major manufacturer of alkaline batteries having technical collaboration with Sanyo, Japan.

The company has set up a fully automated production facility of alkaline batteries at a cost of Rs 110 crore in Dobaspet, Tumkur District, Karnataka.

In dry cell batteries large sized batteries account for 70 per cent, medium sized four per cent and pencil sized 26 per cent of the total production output. The increasing use of transistor radios and torches in the rural sector ensures good demand for large sized batteries.

However, increased use of electronic devices and higher offtake of quartz wall clocks have affected the market for large size batteries but helped to increase the demand for pencil sized batteries.

Eveready Industries dominates the batteries market with a share of 42 per cent followed by Indo National 27 per cent, Lakhanpal National 23 per cent and Geep Industrial Syndicate eight per cent.

The industry is highly raw material intensive with zinc, carbon rods and manganese dioxide as major inputs in dry cell batteries. Cost of raw materials accounts for 48 per cent of the net sales income. Zinc accounts for 30-35 per cent of raw material consumption. Therefore a rise in the prices of zinc affects the production cost of the companies.

Even though the industry has a vast growth potential it is unable to tap the same so far. This can be seen from Indias per capita consumption of 1.5 cells as against 19.8 cells in Hongkong, 14 in the United States and nine in Europe.

There is a need to increase the marketing and dealership network to capture the untapped rural and urban market.

The ongoing entry of global battery manufacturers is a major factor in the process of change affecting the dry battery industry. The MNCs entering the Indian market may lead to severe competition but may result in better technological penetration of the industry.

Eveready Industries has a tie up with Eveready Battery Company Inc., US, Indo National and Lakhanpal National has a technical support from Matsushita Electric Industrial Co., Japan. Eveready Industries has been merged with McLeod Rusell with effect from April 1, 1996.

The company has launched several products and has plans for capacity expansion and modernisation in view of the growing demand. Indo National, a Madras-based company reported a growth of 13.6 per cent in the sales income and 24.2 per cent in net profit last fiscal. The company has completed capacity expansion of UM-3D (Penlite) during the year. The UM-3D penlite batteries, a high growth segment , may help the company to increase the turnover in future. The sales income of Lakhanpal National rose by 14.7 per cent to Rs 176.2 crore, less than the projected Rs 198.5 crore. Its net profit fell by 32.5 per cent.