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Exide Industries: Profits down by 25% - Views on News from Equitymaster
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Exide Industries: Profits down by 25%
Jan 17, 2014

Exide Industries has announced its December quarter results. The company has reported an 11% drop in topline and a 26% drop in net profits for the quarter ended December 2013. Here is our analysis of the results.

Performance summary
  • Exide Industries reports an 11% YoY fall in topline during the quarter.
  • A 0.3% contraction in operating margins leads operating profits to fall by 13% YoY.
  • Bottomline witnesses a fall of 26% YoY, led by poor topline performance and higher depreciation charges.
  • Profit for the nine month period falls 6% YoY on the back of a 4% fall in topline.

(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Net sales 14,631 13,039 -10.9% 45,339 43,597 -3.8%
Expenditure 12,985 11,613 -10.6% 39,488 37,533 -5.0%
Operating profit (EBDITA) 1,646 1,426 -13.4% 5,851 6,064 3.6%
EBDITA margin (%) 11.2% 10.9%   12.9% 13.9%  
Other income 122 49   400 148 -63.0%
Interest (net) 11 4 -63.8% 34 12 -64.3%
Depreciation 289 317 9.5% 847 930 9.8%
Profit before tax 1,469 1,155 -21.4% 5,370 5,269 -1.9%
Tax 428 380 -11.2% 1,607 1,720 7.1%
Profit after tax/(loss) 1,041 775 -25.5% 3,763 3,549 -5.7%
Net profit margin (%) 7.1% 5.9%   8.3% 8.1%  
No. of shares (m) 850.0 850.0   850.0 850.0  
Diluted earnings per share (Rs)*         5.9  
Price to earnings ratio (x)*         17.1  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 3QFY14?
  • Since the company derives a large part of its revenues from the auto sector, the slowdown in the same has affected the company's prospects. This was true both in the replacement as well as the OEM segment. What more, even the other segment of industrial batteries remained subdued as demand for infrastructure, motive power, telecom and inverter batteries continued to be sluggish as per the company. In fact, had it not been for the price hikes taken during the quarter, the fall would have come even higher.

  • On the margins front, the company suffered a marginal contraction to the tune of 0.3% YoY. This was on account of rise in employee costs as well as lower than proportionate fall in other expenses. Lower capacity utilisation has led to fixed costs being spread over a smaller base and this is impacting the company's margins we believe.

    Cost break-up...
    (Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Raw materials 9,836 8,486 -13.7% 30,020 28,325 -5.6%
    % sales 67.2% 65.1%   66.2% 65.0%  
    Staff cost 855 897 4.9% 2,592 2,689 3.7%
    % sales 5.8% 6.9%   5.7% 6.2%  
    Other expenditure 2,295 2,231 -2.8% 6,876 6,520 -5.2%
    % sales 15.7% 17.1%   15.2% 15.0%  

  • On the net profit front, the situation worsened further what with the profits coming down by 26% YoY during the quarter. Higher depreciation charge was the main culprit for this as the company expanded capacity hoping that the demand would improve but it did not materialise.
What to expect?
At the current price of around Rs 100, the stock trades at around 9.8 times our projected FY16 earnings per share. The stock has fallen by some 15% since the last quarter. Thus, it has had both a time as well as price correction. Therefore at current valuations, it is trading at attractive valuations from medium term perspective. We don't feel the need to change our projections as the company seems a victim of auto sector slowdown and once the demand picks up, it should reflect in Exide's numbers as well. We thus change our recommendation to a BUY from a FY16 perspective.

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