Highlights of financial performance during Quarter ended December 31, 2005

• Net Sales of the Company for quarter ended December 2005 was at Rs.184.03 crores – up 12.6% over the comparable quarter last year. This growth is accounted for both by increase in sales volumes as well as higher unit sales realizations.

• Pressure of fast rising input material costs continued unabated during the quarter putting strain on the operating margins. The Company has been taking progressive price increases to neutralize the impact. However, since movements of prices of some of the key commodities used by the Company (mainly zinc) have been rapidly rising in the recent past, the Company has really been playing catch-up with pricing of its products to the market. The time-lag has resulted in under recovery – approximately Rs.11.4 crores in Q3 FY 06 and Rs.30.5 crores in the first nine months of the current year.

• Despite the above disadvantage, the Company has improved its PBDIT margin this quarter – with a growth of 38.8% over the corresponding period in the previous year mainly on account of volume gains and cost savings in other areas.

• The quarter’s financial impact of expense on account of translation of loans in foreign currency is adverse by Rs.20.16 crores as compared to the corresponding quarter in the previous year. If this is ignored, profit before tax is up by 94.8% this quarter as compared to the one in the previous year.

Review of operations

Dry Cell Batteries

Domestic dry battery market was estimated to have grown by nearly 3% during the quarter. Eveready, however, grew by about 6%. Almost the entire industry growth was accounted for by Eveready, with its hold of 47% of the market. Eveready grew by 8.5% in the first 9 months of the current financial year over the corresponding period last year.

Accordingly, this resulted in an improvement of market share for Eveready. This trend of increasing share is also borne out by AC Nielsen data, which puts Eveready’s current market share at 47.5%, up from the earlier estimate of 45.6%.

The ‘D’ size segment continued to show healthy growth, with Eveready growing at the rate of nearly 10%, which was nearly double that of the industry rate. AA segment – the high-growth segment for the industry – was however stagnant. The industry was flat – Eveready grew by a little over 2%.

The market had to bear the impact of higher input costs – fuelled mainly by zinc. The process of price increases had to be carried right throughout the current financial year and did not seem to have any adverse reaction from consumers. The resistance was somewhat appreciable at the trade level, as Eveready products were at most times prevailing at more than 10% premium to the competitors’ products, as the latter were slow to take up their prices.

Flashlights

Q3 is usually a somewhat quiet period for flashlights, things pick up again in Q4. The current year was no exception. Growth in Q3 FY 06 sales settled to a 4% level over the corresponding period last year.

Growth for the first nine months was a healthy 10%. The high-margin brass flashlights grew 5% and aluminium/plastics flashlights grew 17%. Besides meeting flashlights business’ own profit objective, this healthy growth also augers well for batteries, as flashlights continue to be a key demand-driver for batteries – especially in the ‘D’ segment.

Flashlight products also suffered squeeze on margins right through the current financial year due to pressure of input cost increases. However, the same were progressively passed on to the market.

Packet Tea

Packet tea grew by 17.6% over the corresponding period of last financial year. This level of healthy growth is in line with Eveready’s aspirations with this product category.

Packet tea initiatives were originally restricted to mass-market and popular segments. To also establish the product at higher price points, a new blend of ‘Premium Gold’ at the premium segment was introduced in a few key markets during December 2006. The initial market reaction was encouraging.

Comments on input material costs

As touched upon earlier in this analysis, Eveready’s margins came under pressure both in batteries and flashlights. The main cause for this was runaway prices in base metals used by the Company - mainly zinc and to some extent copper. Pressure also came from a few petroleum based chemicals used in battery manufacturing - like acetylene black & ammonium chloride, and natural manganese dioxide ore.

Zinc has really been on a bull run. The following table of monthly average LME zinc rates will indicate the extent of such increase –

It will be evident that zinc has been seeking significantly higher levels month after month. With Eveready’s monthly consumption in excess 1000 tons, this has been a major drag on margins.

The Company took steps to pass on this increased cost to the market. However, this could be done on a progressive basis giving due weightage to protection of market share. This led to a time lag between occurrence of the adverse impact and subsequently recovering the same. Unfortunately, since zinc price trend has been a one-way street right through the quarter as also during the current financial year, there has been some under-recoveries on this account.

Such under recovery is estimated at Rs.11.4 crores for the quarter under review and Rs.30.5 crores for the year so far – net of contributions from higher prices passed on to the market.

Margin analysis

Note : Margins have been computed without including ‘Other Income’.

It will be observed from the above that despite a significant erosion of margins due to input material costs, the Company has been able to improve its operating margin (PBDIT) from 11.6% in Q3 04-05 to 14.0% in Q3 05-06.

GDR issued by Eveready

The Company’s offering of Global Depository Receipts (GDR) was successfully issued. Total amount issued was US $ 33 million with each GDR represented by a fully paid up equity share of Rs.5/-, at an issue price of Rs.95/- (US $ 2.066) for each such share.

Total proceeds on this account amounted to Rs.151.70 crores, which was utilized mainly to pay down debt. An amount of Rs.101 crores out of this was used to pre-pay debts which had not yet matured. Substantial part of this was debts in unhedged foreign currency loans.

Distribution of Shareholding

Distribution of shareholding stood as follows as on December 31, 2005 –

Acquisition of BPL Soft Energy Systems Ltd.

The acquisition of BPL Soft Energy Systems Ltd. (BSESL) was completed during the quarter, with the registration of transfer of shares being completed in November 2006 – whereupon BSESL became a wholly owned subsidiary of the Company. Process is on to rechristen BSESL as Powercell Battery India Ltd.

BSESL comes with a share of the dry battery market of nearly 9% and is a superb fit to the dry battery business of the Company. The financial results shown in this analysis contains only the stand-alone results of the Company and does not yet contain any element of those of BSESL.

Progress on sale of real estate

The Company had entered into a Memorandum of Understanding in September 2005 to sell its allocation of space in the IT Park being developed at its land site in Guindy, Chennai for a consideration of Rs.72 crores.

The Company has so far received Rs.17 crores till the end of December 2005 and the balance Rs.55 crores is expected to be realized by March 2006 as per the MOU.

Outlook

Eveready’s strategies revolve around making its operations best in class of comparable FMCG organizations across the world. It is towards this objective that restructuring measures initiated and successfully completed in FY 2005 and the current fiscal, which included –

1. Demerger of Eveready’s plantation business to a separate entity.
2. Raising of capital through the GDR route and Promoter warrants.
3. Sale of real estate.
4. Acquision of the 4th largest battery company – BSESL.

The above measures will ensure –

1. Focused attention to the FMCG business.
2. Correction of leverage in its Balance Sheet.
3. Scaling up its operation to a more economic size.

Having achieved the above, the Company is poised to take an aggressive path of sustainable profitable growth.

After an 11% growth in batteries in FY 05 – which was in some measure a correction for a stagnant market position in the preceding fiscal - growth in the current year has settled down to a sustainable 8.5%. The growth could perhaps be higher had it not been for the price increases which the Company had to inflict on the market to pass on the burden of rising input costs.

The growth of the lucrative ‘D’ segment at 10% is most heartening given the fact that Eveready’s market share in this segment exceeds 50%. This growth rate seems be holding in 4Q 05-06 and going forward 06-07.

Growth in the other major segment – viz.,’AA’ has of course belied expectations this year. From a historical growth rate of 15% over the last 10 years, current year’s rate is marginally negative for the industry and just a positive 2% for Eveready. However, this is believed to be temporary is nature and in all likelihood a trade reaction to pricing changes in the market. It is expected that gradually growth will be back to the double-digit levels, as there has been no discernible change in off-take patterns at the tertiary level.

Considering the above and also given that Q4 FY 05 was to some extent disrupted due to implementation of VAT, the Company expects its trade volumes in batteries to grow by 12% in Q4 FY 06 over the same quarter previous year. This will take growth in FY 06 to 9%. FY 07 is expected to grow by 10% over the current year.

Flashlights have been growing by 10% in the current year. This rate is sustainable – in fact this may be considered somewhat conservative, given higher rate of growth seen in over the last 2 years. It is expected that volumes in this business will grow by 12% in Q4 FY 06 as compared to Q4 FY 05, thereby growth for full FY 06 will be by 10.6% over the last fiscal. FY 07 should see growth at 14% over FY 06.

Packet tea growth for Q4 FY 06 over corresponding period last year is estimated at 29%, thereby taking the current year’s growth to 20% over last year. FY 07 growth is estimated at 22.5%.

Mosquito Coils, recently launched by the Company under the brand ‘Eveready PowerOn’ will add marginal revenues in the current fiscal. A firm outlook for this business will be available by the end of the current year.

The Company has been able to pass on the adverse impact of input material costs, albeit some delays. When margins came under pressure, the Company was also able to do cost conservation to improve or protect margins. Given the above volume growth numbers, it is thus expected that the business will in the minimum be able to sustain margins as seen in Q4 FY 06.

Also, going forward to FY 07, note may be taken of 2 other positive issues –

1. Under-recovery on account of adverse input materials costs estimated at over Rs.30 crores in the first 9 months, will revert to the margins, pricing action having been taken.

2. The action on debt reduction will result in corresponding reduction in interest cost. Also, with pre-payment of its debt, the Company has unwound its entire position of unhedged foreign currency debt, excepting for a minor sum of US $5 million. Thus, expenses, if any, on account of translation costs will be minimal.

In the overall and in concept, Eveready’s growth strategies will be centered on the following –

• Sustaining organic growth in its mainline batteries and flashlights businesses
• Concentrate on organic growth through leveraging its distribution channels through newer product portfolio
• Address inorganic growth through the acquisition or joint venture route

Brief profile of the Company

Eveready Industries India Ltd. (Eveready) is one of India’s leading FMCG Companies. Eveready possesses an expertise in manufacturing, marketing and distributing a diverse range of products to the entire length & breadth of the country. Its portfolio comprises of carbon zinc & alkaline batteries, rechargeable batteries, flashlights, packet tea and now mosquito coils.

Its market share in batteries is 47.5% (AC Nielsen) and in flashlights about 85% (Company estimate). It is a recent entrant in the packet tea segment. Its market share ranges between 2 – 8% in the various regions where the products have been launched.

Eveready is the world’s 3rd largest zinc carbon player, selling more than a billion units a year, catering to the entire range of equipments that need portable energy. Its rechargeable products cater to the cylindrical replacement market and cordless phones. It has a complete range of flashlights – plastics, aluminium & brass. All battery and flashlight products are branded ‘Eveready’.

Packet tea products are branded ‘Tez’, ‘Premium Gold’, ‘Jaago’ and ‘Classic’. Mosquito Coils are branded ‘Eveready PowerOn’.

Key strengths of Eveready lie in its 4 core assets – brand ‘Eveready’, a distribution system that is deeply entrenched, its skill of efficient mass-manufacture and its human capital.

Brand ‘Eveready’ is celebrating its 100th year of existence in India this year. Across generations ‘Eveready’ has emerged as more than a battery or a flashlight; it has emerged as an idea – that of trusted reliability of the enduring and the dynamism of the contemporary.

Eveready’s manufacturing facilities are located at Chennai, Hyderabad, Lucknow, Noida and Kolkata. Its latest state-of-the-art battery plant is coming up at Hardwar, Uttaranchal.

Eveready’s sales network is wide and comprises of 15 sales branches and 40 C&F points. It also comprises of a family of 4000 distributors and a team of 1000 exclusive vans servicing retailers covering the length & breadth of the country. Eveready’s products are available in about 3.2 million outlets, which gives it a retail penetration exceeding 65% in its class of outlets. Out of this, about 1 million outlets are directly serviced by the Company’s network. Eveready’s unique strength in distribution lies in its ability to access and service rural parts of the country.

Eveready is a clear leader in its 2 mainstay businesses – batteries & flashlights. It has taken an aim to scale up operations by adding new products to its range, with an objective to have a pan-Indian presence – cutting across the rural & urban divide – and to be within the first 3 players of that segment.

Important Notes :

1. Eveready’s Investor Relations activities are co-ordinated by Tehnaz Punwani, General Manager & Company Secretary (tehnazpunwani@eveready.co.in) and Suvamoy Saha, Director (s_saha@eveready.co.in).

2. Eveready may be contacted for any further information or clarification on Telephone No. +91-33-2288 4436 ; Fax No. +91 33 2288 4059.

3. This Update is being issued after the Board of the Company at its meeting held on January 30, 2006 has taken on record the unaudited financial results for the quarter ended December 31, 2005.

4. Some forward looking statements on projections, estimates or expectations are included in this update for better comprehension of the Company’s prospects. Actual results may, however, differ materially on account of several economic or market related factors.

5. This Update is also available on the Company’s website: www.evereadyindustries.com . In view of this, information in this Update is also available to the public and does not therefore constitute unpublished price sensitive information under the SEBI (Prohibition of Insider Trading Regulations, 1992.