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Exide: Marches on… - Views on News from Equitymaster

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Exide: Marches on…
Jan 14, 2008

Performance summary
  • Supported by continued buoyancy across its key segments, topline registers a handsome 58% YoY growth during the third quarter.

  • Despite raw material costs pressure, operating margins have shown a small improvement over corresponding previous quarter.

  • Write back of depreciation provisions has helped offset jump in interest expenses, enabling the bottomline to register a strong growth of 58% YoY during 3QFY08.

  • For the nine month period ended December 2007, bottomline has grown 61% YoY on the back of 52% YoY growth in topline.

(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Net sales 4,577 7,219 57.7% 13,500 20,536 52.1%
Expenditure 3,895 6,130 57.4% 11,181 16,964 51.7%
Operating profit (EBDITA) 682 1,090 59.7% 2,319 3,572 54.1%
EBDITA margin (%) 14.9% 15.1%   17.2% 17.4%  
Other income 19 3 -85.6% 52 14 -72.2%
Interest (net) 34 117 244.8% 197 248 25.6%
Depreciation 134 147 9.8% 401 486 21.3%
Profit before tax 534 829 55.3% 1,772 2,852 61.0%
Tax 185 277 49.7% 605 977 61.5%
Profit after tax/(loss) 349 552 58.3% 1,167 1,875 60.7%
Net profit margin (%) 7.6% 7.6%   8.6% 9.1%  
No. of shares (m) 750.0 750.0   750.0 750.0  
Diluted earnings per share (Rs)*         3.0  
Price to earnings ratio (x)**         28.9  
(* annualised, ** on trailing twelve months earnings)

What has driven performance in 3QFY08?
  • Exide’s stellar growth in topline during 3QFY08 was driven by both volume as well as realisations. On the volumes front, growth in both the segments viz., automotive and industrial has come in at 20% YoY. In fact, the telecom segment of the company has more than doubled its volumes over corresponding previous quarter. As far as realisations are concerned, till date in FY08, the company has undertaken four round of price hikes with the final one taking place in the December quarter. This has enabled it to partially pass on the price hikes in its raw material expenses.

    Cost break-up…
    (Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
    Raw materials 2,695 4,902 81.9% 7,683 13,240 72.3%
    % sales 58.9% 67.9%   56.9% 64.5%  
    Staff cost 321 396 23.3% 909 1,166 28.3%
    % sales 7.0% 5.5%   6.7% 5.7%  
    Other expenditure 879 832 -5.3% 2,590 2,559 -1.2%
    % sales 19.2% 11.5%   19.2% 12.5%  

  • Exide’s operating margins have expanded marginally by 20 basis points in 3QFY08. This is despite the huge 82% jump in raw material costs, led largely by the rising cost of lead. However, with staff costs growing at a lower rate than the topline and other expenses declining as a percentage of sales, margins have shown a slight improvement.

  • While interest expenses have jumped more than three fold, revaluation of some of Exide’s fixed assets has led to a benign 9% YoY jump in depreciation outgo. This has enabled the company to offset high interest costs and thus, prevent any further damage to the bottomline.

  • For the nine-month period, bottomline growth has been even higher at 60% YoY, due mainly to a relatively smaller jump in interest expense as opposed to the third quarter.

What to expect?
At the current price of Rs 87, the stock is trading at a multiple of 22 times our estimated FY10 earnings. The company’s nine month EPS for the current fiscal almost equals our FY08 full year earnings estimates, thus necessitating an upward revision. However, while we are positive on the volume growth front, the company may not be able to keep on passing raw material price hikes to the end consumer on a consistent basis in the future. This makes us cautious on the medium term growth prospects of the company.

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