B M Khaitan Group companies plunge on bourses after ratings downgrade

The share price of Eveready Industries India (EIIL) plunged by a fifth to close at Rs 116.85 on the BSE and Rs 117.2 on the National Stock Exchange (NSE).

This was a sequel to India Ratings & Research (Ind-Ra) having downgraded, a day earlier, the long-term credit assessment of the company to one of negative outlook. 

Another group company from the B M Khaitan stable, McLeod Russel, also dipped by 19.96 per cent to close at Rs 61.15 per share on the BSE and fell by 20 per cent on the NSE to finally close at Rs 61.00 apiece. McLeod has been selling its tea estates in Bengal, Assam and Africa to pare debt. Earlier, the firm, too, had faced a ratings downgrade for long-term credit with a negative outlook.

Recently, B M Khaitan has resigned as non-executive chairman from both these companies because of old age although he will continue to be chairman emeritus in both these firms. The ratings agency said EIIL’s net leverage (net debt, divided by operating earnings) remained high at the end of the 2018-19 financial year. Debt was not cut to the expected levels, it said, owing to continuous financial support extended to other group companies and delays in asset monetisation. 

During 2017-19, said Ind-Ra, the company extended Rs 210 crore in inter-corporate deposits (ICDs) to group companies. Additionally, advances of Rs 75-80 crore were due. Expenses grew to Rs 39.2 crore during April-December, the first nine of the financial year, owing to increased term debt and working capital requirement. 

Indi-Ra says EIIL needs to cut its debt by Rs 130-140 crore in 2019-20 for the leverage to reduce to an acceptable level. Achievable only by sale of its Hyderabad asset or full repayment of the ICDs. “Any delay in asset monetisation plans and/or further extension of support to group companies would be negative for the ratings,” it warned. EIIL, it said, expects to raise Rs 175 crore this financial year through asset monetisation. Also, that its promoters plan to deleverage at other companies in the group through asset sales, including at the holding company. 

A stake sale, full or partial, for its batteries business under the Eveready brand name, is likely in the next two to three months. While this is expected to relieve some of the debt stress, it would also mean losing a key revenue generator.

As of March-end, Ind-Ra noted, 49.8 per cent of the promoter shareholding in EIIL stood pledged. The promoters have been exploring a raising of funds by stake sale.  

In April, after the company informed the NSE that its lenders had invoked 0.24 per cent of Williamson Magor Group (WMG) shares in a market transaction, EIIL’s shares had fallen around 12 per cent over three days. Around three per cent of 23.43 per cent stake of WMG, a holding company, are pledged with the lenders.

Beside, since March 6, DSP Trustee, which held 4.89 per cent stake in EIIL, sold 3.8 per cent or 2.76 million shares via the open market route at Rs 200 a share. The former is the trustee for the schemes launched by DSP Mutual Fund and DSP Alternative Investment Fund.

According to what EIIL has told the BSE, total promoter shareholding declined to 44.11 per cent as on end-March, as compared to 44.35 per cent at end-December 2018. Mutual funds have also been reducing their stake, which fell from 11.6 per cent during December to 4.42 per cent in March 2019.

In April 2018, the Competition Commission of India had imposed a fine of Rs 171.55 crore on EIIL, for allegedly forming a cartel. The company got a stay on this from the the National Company Law Appellate Tribunal but had a to deposit a tenth of this penalty amount. The company, however, hasn’t made any provisioning for the penalty in iuts accounts and Ind-Ra was concerned. It is, the latter says, a key factor to monitor. For, if  EIIL is ordered to make the full payment, its liquidity and credit metrics will be affected. 


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