InvestorQ : Now that the Dabur family has taken control of Eveready, will the Khaitans lose full control of Eveready? How exactly did this happen?
ishika Banerjee made post

Now that the Dabur family has taken control of Eveready, will the Khaitans lose full control of Eveready? How exactly did this happen?

12 months ago

Recently, the Burmans of Dabur informed the stock exchanges that they had bought an additional 14.3% stake in Eveready Industries. In the last 2 years, the control of Eveready gradually has slipped out of the hands of the Khaitan group. Now the stake of the Burman family stands at 38.3%, and gives them the effective control of Eveready Industries. Just a couple of months back, Khaitans had handed management control to the Burmans. JM Financials had bene mandated by Dabur to buy shares in the open market.

But the bigger and more interesting story is about how the Khaitan family of Eveready Industries. The problems began when two of its Khaitan group companies; McNally Bharat Engineering and McLeod Russel got into serious financial problems. Now, McNally Bharat being an infrastructure company, got stuck in certain projects while McLeod Russel was not able to service its debt, despite selling a number of its tea assets to reduce its asset base. This led them to the bankruptcy courts where the Khaitans were forced to eventually bail out the struggling group companies by pledging Eveready shares.

But that was just the beginning of the problem for the Khaitan family. In fiscal 2019, McNally Bharat reported a net loss of Rs466 crore while McLeod Russel reported losses even after selling tea estates to improve its cash flow. Then Yes Bank referred bankruptcy proceedings against the companies for default. But the real problem arose when Aditya Birla Finance sold 25 lakh shares of Eveready, pledged by the Khaitan family. Eventually, the pledging of shares to save a group company proved to be their undoing.

The net result was that the Khaitan family stake in Eveready fell from 27.39% to below 5%. These shares had been pledged by the Khaitan family to give comfort to the creditors against existing dues of McNally Bharat Engineering and McLeod Russell. The Burman family had then agreed to warehouse the stock for a brief period to help Khaitans retain control. However, with Khaitans unable to come out of the mess, eventually Burmans had not choice but to take effective control of Eveready.

While it does sound like a sorry ending, the truth is that the Khaitans have lost control of a family silver. Burman group wants to take full management control of Eveready. Khaitans are likely to have a limited role to play with just 4.9% stake and it remains to be seen what they intend to do with that stake. The end is ironic because Khaitans had won Eveready (then called Union Carbide) against all odds by fighting hard against the Wadia family of Bombay Dyeing. Now the story has come a full circle.