The earlier reverse merger of McLeod Russel (India) Ltd with Eveready is being undone, to separate the tea and non-tea businesses. In September 1995, McLeod Russel had made a Rs 303-crore rights and public issue to fund the acquisition of Eveready from Union Carbide India Ltd.

At a premium of Rs 180 per share, the issue scraped through in a declining market.

The BM Khaitan-led management has been unable to push battery sales since the takeover of Eveready in the early nineties. While total sales have increased, the battery division's share has been slipping every year. The tea division has been the saving grace for the company.

Mcleod Russel bought out 1,65,84,750 equity shares of Eveready from earlier promoters Union Carbide for Rs 175 each, making a Rs 290.23-crore total payout. The deal was closed in November 1994.

A glance at the company's annual reports since fiscal 1995-96 shows that the battery division has been sliding downhill, while the company itself has been undone by the interest costs and loan components.

Corporate analysts note that the huge loan component has pushed it into a debt-trap. Under the Union Carbide management, Eveready's total loans stood at Rs 321.83 crore in fiscal 1994-95. This increased to Rs 374.74 crore in fiscal 1995-96 under the BM Khaitan management.

In 1995-96, loans more than doubled to Rs 904.11 crore. In 1998-99, the loan component was Rs 1095.96 crore. In line with this, interest payout has increased more than eight-fold to Rs 70 crore in 1998-99 from Rs 8 crore in 1995-96.

While loan and interest spiralled upwards, the battery division's share in total sales kept decreasing. In 1995-96, the battery division's sales of Rs 328.88 crore formed 80 per cent of total sales turnover of Rs 411.52 crore.

However, over the years, battery's share began declining and, in fiscal 1998-99, it was under 49 per cent of total turnover. In fiscal 1998-99, battery sales declined further to Rs 385.85 crore from Rs 423.21 crore in the previous fiscal, while the company's turnover increased to Rs 795.39 crore. Net sales in fiscal 1999-2000 declined to Rs 758.10 crore. Other sources of income together with interest income has increasingly become the saviour of the bottomline. Interest earnings had been rising, helping it to remain in the black, in part at least. In fiscal 1996-97 and 1998-99, the other and interest income components added up to a figure that was more than the gross profit.

According to the annual report for 1998-99, the company was able to remain in the black with the help of other income of Rs 13.69 crore and an interest income of Rs 44.62 crore. With all tea companies posting lower profits in fiscal 1999-2000, Net profit has remained stagnant at Rs 34.84 crore in 1998-99, against Rs 34.36 crore in fiscal 1994-95. In fiscal 1999-2000, net profit dipped alarmingly to Rs 8.51 crore.