Panasonic Energy India Company Ltd

Exciting set of Q1 results.

Points that reaffirm/further the thesis:

• Revenue up 7% YoY adjusting for the B2B order.
  From Eveready’s call according to Neilsen:

The segment of carbon-free
batteries, which still constitutes nearly 90% of the battery market by value, remained
muted during the quarter, primarily due to weak rural demand, and our performance
was in line with the market.

This implies yet another quarter of market share gains for Panasonic. During 4Q24, they had outlined ambitions to increase market share by 2 percentage points every year. They seem to be exceeding their own expectations last year and this year till date.

• Gross margins up sharply.
  Gross margins up approx 500bps for the industry. Not sure what part of the remaining increase can be attributed to the lower base from B2B customers and what part to increased realisation over and above the industry.
• EBITDA margins up to 8.5% vs 4.8% in 1Q24.
  Trending closer to Eveready’s margins as per thesis.
• Continue the renewed focus on shareholder value
  Dividend resumed, at 8.85 per share vs 7.5 per share in FY22

Employee costs have increased by around 20% YoY. Looks like the restructuring phase is over and they have resumed our growth phase. Given the widely anticipated rural market recovery in the upcoming quarters driven by strong rains and hopes for populist policies in our country in the coming years, I’m excited to see the growth they’ll be able to provide given that they’ve done strong numbers in such a weak environment in the recent quarters.

Minor reflections/rant(not analysis):
I continue to be confused by the strong performance by Eveready’s stock price despite continued muted performance and the valuation discrepancy with Panasonic.

The market seems not to appreciate that even in developed markets, revenues continue to grow single digits(according to Eveready’s claims in the latest concalls) and that batteries are proxy plays to several attractive bets on skyrocketing discretionary spends when percapita income grows beyond $2000.

eg. FirstCry listed at a very strong premium to the IPO price and saw good demand on listing. Given that toys are a great percapita play cited above, why does the market not seem to reward a strong brand like Panasonic with valuations similar to or better than a company like Eveready which has not only struggled to grow in batteries but also scale profitably in other categories such as lighting and flashlights.

FYI, only Duracell and Panasonic have their batteries being sold on FirstCry.