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Exide: A memorable year - Views on News from Equitymaster

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Exide: A memorable year
Apr 22, 2008

Performance Summary
  • Topline for the full year has grown by 52% YoY. Reported sales higher by 14% as compared to our estimates.
  • Operating margins have remained almost stable during FY08, thus enabling a 53% YoY growth in operating profits.

  • Net profit growth at 61% YoY for the full year has come in higher than the topline growth due to robust margins and higher operating leverage. Profit figure higher by 24% as compared to our estimates.

  • Topline and bottomline have grown by 50% YoY and 63% YoY during 4QFY08.

  • The company has recommended a dividend of 40 paise (dividend yield of 0.5%).

(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net sales 5,289 7,913 49.6% 18,703 28,449 52.1%
Expenditure 4,530 6,790 49.9% 15,626 23,754 52.0%
Operating profit (EBDITA) 759 1,123 48.0% 3,077 4,695 52.6%
EBDITA margin (%) 14.3% 14.2%   16.5% 16.5%  
Other income 42 50 19.0% 94 65 -31.2%
Interest (net) 80 126 58.2% 277 374 35.0%
Depreciation 141 156 10.5% 542 642 18.5%
Profit before tax 580 891 53.6% 2,352 3,743 59.1%
Tax 195 263 34.9% 800 1,240 55.0%
Profit after tax/(loss) 385 628 63.1% 1,552 2,503 61.3%
Net profit margin (%) 7.3% 7.9%   8.3% 8.8%  
No. of shares (m) 750.0 800.0   750.0 800.0  
Diluted earnings per share (Rs)*       1.9 3.1  
Price to earnings ratio (x)**         24.6  
(* annualised, ** on trailing twelve months earnings)

What has driven performance in FY08?
  • The 52% YoY growth in Exide’s topline for FY08 was a result of strong growth across both its key segments viz., automotive and industrial. In the automotive segment, nearly 80% of the new passenger vehicles sold in the country come equipped with Exide batteries and with this segment posting a 14% YoY growth in production, the benefits flowed to the company’s topline. Demand from the replacement market also remained strong, further aiding the growth of the division. Strong traction was also witnessed in the industrial segment sales, which accounts for 40% of the company’s topline. Particularly noteworthy is the growth in demand from the telecom segment, which stood at an impressive 71% YoY. It should be noted that a substantial part of the growth in revenues is also price driven, indicating the bargaining and the branding power that Exide has with its customers.

  • On the operating margins front, these have remained at last year’s levels. This is despite the fact that lead, which accounts for more than 70% of the total costs of the company, has seen its price escalate by a factor of more than 2 times in the past year. Exide has a ‘cost plus increase’ contract in place for its auto customers and with the industrial customers too willing to oblige the company on this front, no adverse impact of a raw material cost increase was seen on the company’s operating margins. Further, given the consolidated nature of the organised industry and Exide’s strong technological strengths, it was able to affect a price increase at the retail level too.

    cost break up
    (Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
    Raw materials 3,369 5,384 59.8% 11,369 18,574 63.4%
    % sales 63.7% 68.0%   60.8% 65.3%  
    Staff cost 331 345 4.2% 1,240 1,510 21.8%
    % sales 6.3% 4.4%   6.6% 5.3%  
    Other expenditure 830 1,061 27.8% 3,017 3,670 21.6%
    % sales 15.7% 13.4%   16.1% 12.9%  

  • Exide’s other income declined by 31% YoY during FY08, a result of the company deploying excess cash towards setting up additional capacities and also towards increased working capital needs. This is also the reason behind a strong 35% jump in interest costs, as Exide must have also resorted to external borrowings to fund its expansion. Despite these adverse impacts, bottomline growth for the full year has come in at 61% YoY, due to modest increase in depreciation charges and a slightly lower tax outgo.

What to expect?
At the current price of Rs 76, the stock is trading at a multiple of 20 times our estimated FY10 earnings. The company has managed to outperform our FY08 estimates by 15% and given the strong outlook for the business, we will also have to revise upwards our future estimates.

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