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Exide: High input costs take toll
Mar 23, 2012

Exide Industries announced the third quarter results of financial year 2011-2012 (3QFY12). The company reported a 19% YoY increase in revenues, while net profits fell by 16% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 19% YoY during 3QFY12 and mark an improvement as compared to 2QFY12.
  • Operating margins fall by 2% YoY on the back of a rise in raw material costs (as a percentage of sales).
  • Poor performance at the operating level combined with substantial fall in other income takes its toll on the bottomline which declines by 16% YoY.

(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Net Sales 10,502 12,502 19.0% 33,295 36,707 10.3%
Expenditure 8,900 10,847 21.9% 26,606 31,927 20.0%
Operating profit (EBITDA) 1,601 1,655 3.4% 6,688 4,781 -28.5%
Operating profit margin (%) 15.2% 13.2%   20.1% 13.0%  
Other income 331 100 -70.0% 584 486 -16.7%
Depreciation 212 250 18.1% 608 734 20.8%
Interest 19 44 133.0% 49 71 45.0%
Profit before tax 1,702 1,461 -14.2% 6,615 4,462 -32.6%
Exceptional income 0 0   469 0  
Tax 458 418 -8.7% 2,058 1,275 -38.0%
Profit after tax/(loss) 1,244 1,043 -16.2% 5,027 3,187 -36.6%
Net profit margin (%) 11.8% 8.3%   15.1% 8.7%  
No. of shares (m)       850.0 850.0  
Diluted earnings per share (Rs)*         5.7  
P/E ratio (x)*         25.5  
* On a trailing 12-months basis; Adjusted for exceptional items

What has driven performance in 3QFY12?
  • Exide Industries (Exide) recorded a 19% YoY growth in revenues during 3QFY12. This was a better performance than that in 2QFY12. In the automotive division, although conditions remained subdued in both OEM and replacement segments, the volume growth in two wheeler batteries was nearly 20% during the quarter. In the industrial segment, despite the significant de-growth in telecom batteries, the overall volume growth for the quarter was nearly 13% due to increased demand for inverter batteries.

    Cost break-up...
    (Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Raw materials/ purchases 6,814 8,428 23.7% 20,332 24,833 22.1%
    % of sales 64.9% 67.4%   61.1% 67.7%  
    Employee costs 662 752 13.6% 2,048 2,116 3.3%
    % of sales 6.3% 6.0%   6.2% 5.8%  
    Other expenditure 1,424 1,667 17.1% 4,227 4,978 17.8%
    % of sales 13.6% 13.3%   12.7% 13.6%  

  • Exide's operating margins fell by around 2% to 13.2% during the quarter. This was due to the increase in raw material costs (as a percentage of sales) from 64.9% in 3QFY11 to 67.4% in 3QFY12. During the quarter, lead prices in the international commodity markets remained comparatively soft. However, this advantage to the company was more than negated by the steep rupee depreciation during the quarter. As a result, operating profits grew by a subdued 3% YoY.

  • The subdued performance at the operating profit level percolated down to the bottomline which fell by 16% YoY. Considerable reduction in other income and rise in interest costs further compounded the company's woes. Even a drop in tax expenses was not enough to arrest the fall in net profits.

What to expect?
At the current price of Rs 145, the stock is trading at a multiple of 16.7 times our FY14 estimated earnings per share. Exide has been going through a challenging phase. On one side the company is trying to meet the requirements of the OEMs, on the other, its lesser focus on the more profitable replacement market is taking a toll on its profits. Further, the slowdown in the auto industry has only added to the company's woes.

Despite some headwinds in the medium term, the absolute battery sales volumes should continue to rise on the back of the strong volume off take of the auto industry and the replacement markets. However, the tricky part is likely to be that of input costs. Now, while the company is working on reducing its input costs (by using recycled lead), the performance during the last few quarters makes the short term outlook uncertain. We maintain a cautious view on the stock keeping in mind the uncertainty attached to it over the short term.

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