India Ratings & Research (Ind-Ra) has assigned Eveready Industries India  (EIIL) a long-term issuer rating of 'A-' with stable outlook.

The ratings reflects EIIL's strong market position with a 51% market share in the battery division and 76% market share in the flashlight segment. The company's total market share is more than twice that of its closest competitor, thus reflecting low competition risk.

The ratings reflect the improvement in EIIL's credit metrics on the back of a decline in overall debt to Rs 2,094.5 million in 9MFY14 from Rs 2,671 million in FY13 (year end March) and an increase in  EBIDTA margins to 7.7% (6.1%). For the nine month period, interest cover improved to 2.7x (FY13: 1.7x) and annualised adjusted net leverage to 3.1x (4.5x). Ind-Ra expects credit metrics to improve further in the medium term as the company does not have any capex plans. Margins rose due to the company’s improved ability to pass on increased raw material costs through price hikes. EIIL revised its end product prices twice during 9MFY14 without any adverse impact on its sales volumes. Ind-Ra expects the company to sustain profitability through similar, regular price hikes.

Also, the agency believes with its improved cash flow from operations (FY13: Rs 295.3 million, FY12: Rs 217.0 million), the company will comfortably be able to meet its debt obligations without any refinancing.

The ratings are, however, constrained by the slow growing (FY13: 0.3% yoy) dry cell industry which is likely to remain stagnant. The shift in demand from D sized batteries to AA/AAA resulted in EIIL downsizing its D size battery manufacturing capacity. Also, the company plans to diversify its revenue further through its lighting solutions division FY15 onwards. The division contributed 10% to the overall revenue in FY13.

Shares of the company gained Rs 1.25, or 2.52%, to trade at Rs 50.95. The total volume of shares traded was 123,119 at the BSE (12.18 p.m., Monday).