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Exide Ind.: Lead prices hit margins - Views on News from Equitymaster
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Exide Ind.: Lead prices hit margins
Jan 23, 2013

Exide Industries announced the third quarter results of financial year 2012-2013 (3QFY13). The company reported a 17% YoY and flat growth in revenues and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 17% YoY led by healthy growth in the replacement market.
  • Operating margins decline by 1.7% YoY to 11.3% in 3QFY13 largely due to higher raw material costs (as a percentage of sales).
  • Poor performance at the operating level results in the flat bottomline growth.

Standalone financial snapshot
(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Net Sales 12,467 14,632 17.4% 36,638 45,345 23.8%
Expenditure 10,842 12,985 19.8% 31,887 39,488 23.8%
Operating profit (EBITDA) 1,625 1,647 1.3% 4,751 5,857 23.3%
Operating profit margin (%) 13.0% 11.3%   13.0% 12.9%  
Other income 99 121 22.1% 486 394 -18.9%
Depreciation 250 289 15.5% 734 847 15.4%
Interest 14 11 -27.1% 43 34 -21.2%
Profit before tax 1,460 1,469 0.6% 4,460 5,370 20.4%
Tax 417 428 2.5% 1,274 1,607 26.2%
Profit after tax/(loss) 1,043 1,041 -0.2% 3,187 3,763 18.1%
Net profit margin (%) 8.4% 7.1%   8.7% 8.3%  
No. of shares (m)       850.0 850.0  
Diluted earnings per share (Rs)*         6.1  
P/E ratio (x)*         20.7  
* On a trailing 12 months basis

What has driven the performance in 3QFY13?
  • Exide Industries (Exide) recorded a decent 17% YoY growth in revenues during 3QFY13. Although demand in the automotive OE segment remained dampened during the quarter due to the ongoing slowdown in the Indian automotive industry, robust growth in the replacement market was able to compensate for this. The industrial segment did not do too well either as the early onset of winter impacted the UPS and home UPS segment.

    Cost break-up...
    (Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    Raw materials/ purchases 8,321 9,836 18.2% 24,604 30,020 22.0%
    % of sales 66.7% 67.2%   67.2% 66.2%  
    Employee costs 752 855 13.6% 2,116 2,592 22.5%
    % of sales 6.0% 5.8%   5.8% 5.7%  
    Other expenditure 1,769 2,295 29.7% 5,167 6,876 33.1%
    % of sales 14.2% 15.7%   14.1% 15.2%  

  • Exide's operating profits grew by a mere 1% YoY during the quarter as costs grew at a faster pace than sales. The company's operating margins shrunk by 1.7% YoY to 11.3% in 3QFY13 on the back of higher raw material costs (as a percentage of sales). Raw material costs increased from 66.7% of sales in 3QFY12 to 67.2% in 3QFY13. This was on account of higher lead prices. Impact of currency loss of Rs 60 m also played a part in dampening margins.

  • Because of the subdued growth in operating profits, net profit growth was flat. This was inspite of higher other income and benign rise in tax expenses.

What to expect?
At the current price of Rs 126, the stock is trading at a multiple of 13.9 times our FY15 estimated earnings per share. Going forward, although the company does expect an overall slowdown in the OEM section, it will focus on regaining its lost market share in the replacement market. In this regard, it has regained market share of around 32% and aims to take this up to 35%. The company has been facing headwinds in terms of pricing as it has not been able to entirely pass on the impact of rising lead costs as the auto industry is also in a downturn. Based on the performance in 9mFY13, we will have to revise downwards our margin estimates for the year. Further, because of valuations also being on the higher side, we have a 'Sell' view on the stock.

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