Eveready Ind Seeks Mckinsey Help To Spread Wings Further

The company is considering a venture into the agro-processing sector and the McKinsey report would outline the opportunities in this line of business.

Investment in the agro-processing sector in India has been estimated at over Rs 50,000 crore and promises to emerge as a key growth area in the coming years, Eveready's managing director C P Raman said.

Our endeavour would be to ride on this phenomenal growth opportunity that this sector will witness, Raman added.

The compounded annual growth rate for Eveready is projected at 15 per cent this year and that of McLeod is 8 per cent.

Raman agreed that the merged company's growth in the first year of operation would barely touch the double digit mark unless it looks for new growth areas. The merger will only bear fruit four years down the line. What we are taking is a long term view, Raman said.

 

A major advantage, if Eveready enters the agri-processing business, would be in the form of an extensive distribution network across the country comprising 4,000 distributors who have access to 5 lakh retail outlets.

Being a low technology area the entry costs would also be minimal. Suggesting a hypothetical example, Raman said: A fruit juice unit with a capacity of 50,000 litres annually would require an investment of around Rs 20 crore.

The only major investment required for a foray into agro-processing would be in brand building. And that, says Raman, is not going to be easy as the company would have to contend with established brands of major multinationals which already have a well established brand presence.

It would seem, however, that the company is slowly moving towards low-tech areas as it is well aware that it does not have access to the latest technology. Unless a company has access to the newest technology, it would be very difficult to fight competition that is bound to increase with the entry of multinationals, Raman said.

McKinsey had earlier been appointed by the Williamson Magor group, which controls majority stake in Eveready, to look into possibilities of business restructuring of the entire group.

At the same time, the B M Khaitan-controlled group had also engaged J P Morgan to advise specifically on financial restructuring within group companies.

In a report, McKinsey had advised the group to strengthen its presence in the packet tea segment as it promises high growth. Following this, the group went ahead and merged its tea outfit McLeod Russel with Eveready.

Agreeing to the fact that McLeod's negative cash flow would offset Eveready's positive cash flows to a certain extent, Raman said that the investors would largely stand to gain since EPS would rise substantially as the paid-up capital of the merged entity would increase by only Rs 4 crore.