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Exide: Hurt by the auto slowdown
Jan 12, 2009

Performance summary
  • Hurt by poor auto volumes, topline grows by a muted 9% YoY during the quarter.
  • Operating margins contract by 50 basis points for the quarter as higher other expenses take toll.
  • Interest expenses as well as depreciation charges show no respite as net profit growth during the quarter comes in only marginally higher.
  • Thanks to the robust 1HFY09 performance, topline and bottomline growth during 9mFY09 stand at 26% and 15%, both on a YoY basis respectively.


(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 7,219 7,887 9.2% 20,546 25,979 26.4%
Expenditure 6,130 6,738 9.9% 16,964 21,829 28.7%
Operating profit (EBDITA) 1,090 1,149 5.4% 3,582 4,151 15.9%
EBDITA margin (%) 15.1% 14.6%   17.4% 16.0%  
Other income 3 -   4 4 13.2%
Interest (net) 117 124 5.6% 248 365 47.3%
Depreciation 147 169 15.0% 486 501 2.9%
Profit before tax 829 857 3.4% 2,852 3,289 15.3%
Tax 277 295 6.5% 977 1,128 15.4%
Profit after tax/(loss) 552 562 1.8% 1,875 2,162 15.3%
Net profit margin (%) 7.6% 7.1%   9.1% 8.3%  
No. of shares (m) 750.0 750.0   750.0 750.0  
Diluted earnings per share (Rs)*         3.7  
Price to earnings ratio (x)*         11.9  
(* on trailing twelve months earnings)

What has driven performance in 3QFY09?
  • Exide manufactures batteries for both the industrial and the automotive segments. During the quarter, automotive segment witnessed a severe slowdown, hurting Exide’s growth in the OE (Original Equipment) space. However, thanks to the decent performance of the auto replacement battery segment, overall growth in the automotive segment came in higher by 8% YoY. In the industrial segment, continued traction in the telecom and power space resulted in a 17% YoY jump in revenues during the quarter. However, going forward, the company expects the growth in telecom segment to remain a little muted.

  • Exide’s operating margins have slid by 50 basis points in 3QFY09. This is mainly due to the huge 29% jump in other expenses as well as a 15% jump in staff costs. Increase in raw material costs though has come in lower than the growth in topline, providing some respite to the margins. This could be attributed to the company’s strategy of reducing its dependence on imported lead as well as an improved product mix. Operating margins for the nine month period have also contracted by 140 basis points. However, it is an improvement from the first half performance, where margins had tumbled by 210 basis points.

    cost break up
    (Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
    Raw materials 4,930 5,248 6.4% 13,318 17,401 30.7%
    % sales 68.3% 66.5%   64.8% 67.0%  
    Staff cost 396 456 15.1% 1,166 1,273 9.2%
    % sales 5.5% 5.8%   5.7% 4.9%  
    Other expenditure 804 1,034 28.7% 2,480 3,154 27.2%
    % sales 11.1% 13.1%   12.1% 12.1%  

  • The company has reported a 6% YoY jump in interest costs as well as a 15% growth in depreciation during the quarter and this has put further pressure on profits. Furthermore with tax outgo also growing at a greater rate than the growth in operating profits, bottomline growth has come in at a mere 2% during the quarter on a YoY basis.

What to expect?
At the current price of Rs 44, the stock is trading at a multiple of 7 times our estimated FY11 earnings. The sudden drop in the auto industry’s volumes as well as the near term fundamentals of the economy in general has necessitated a relook at our medium term estimates for the company. We will come out with an updated report incorporating the revised earnings forecast as well as the target price shortly.

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