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Exide: What next?

Apr 25, 2003

Exide Industries, India's largest automotive battery supplier, announced its March quarter and FY03 results. For the full year, the company declared a topline growth of 11% YoY, while its bottomline grew significantly by 67% YoY. We take a look at the performance of the company, which derives most of its revenues from the automobile industry.

(Rs m) 4QFY024FQY03% changeFY02FY03% change
Net Sales 2,183 2,405 10.1% 7,915 8,78511.0%
Other Income 52-56.9% 10 14.145.4%
Expenditure 1,886 1,956 3.7% 6,603 7,1838.8%
Operating Profit (EBDIT) 297 449 51.0% 1,313 1,602 22.1%
Operating Profit Margin (%) 13.6%18.7% 16.6%18.2% 
Interest 80 36 -54.5% 415 292-29.7%
Depreciation 99 116 17.2% 440 4614.9%
Profit before Tax 124 299 141.7% 467 863 84.8%
Extraordinary items (11)(43)304.7% (43)(55)28.1%
Tax 3585142.9% 110 285159.1%
Profit after Tax/(Loss) 78 170 118.8% 314 523 66.5%
Net profit margin (%) 3.6%7.1% 4.0%6.0% 
No. of Shares (eoy) (m) 35.7 35.7   35.7 35.7  
Diluted earnings per share (Rs)* 8.7 19.1   8.8 14.6  
P/E ratio (x)     6.6  
(* annualised)      

The performance of the company in FY03 is far better than what one saw in FY02. This is primarily due to the fact that sale of automobiles during FY03 has remained robust, especially commercial vehicles. Since the company is one of the key supplier to many OEM (original equipment manufacturers in the country) like Telco and Maruti, it has benefited immensely. Having said that, we expect the pressure on prices to have continued in FY03 also, as the bargaining power of the auto ancillary manufacturers is on the lower side. To put things in perspective, average realisation of batteries has declined at a CAGR of 5% in the last six years. We expect the trend to continue in FY04 as well.

The company continues to face competition not only from other manufacturers like Amara Raja Batteries, Amco Batteries (two wheeler battery segment) but also from the non-branded battery market, which has a very small marketshare. Exide has been able to out perform its competitors. The improvement in operating margins is primarily on account lower cost of raw material i.e. lead (the government reduced customs duty in both Budget 2002 as well as 2003). Raw materials constitute to around 50% of total expenses. The rise in margins is far higher than our expectations.

Expense snapshot
% of salesFY02FY03
Increase/decrease in stock1.0%0.6%
Consumption of raw material51.1%48.7%
Staff cost9.5%9.4%
Other expenditure23.8%24.2%

Higher cash flow from operation arising from increased capacity utilisation seem to have been utilised in retiring high cost debts (average cost of debt for the company in FY02 was 11%). Despite higher write-off towards the implementation of ERP and VRS, net profit for FY03 has leap frogged by 67%. This performance is significantly higher than estimate and reflects the benefit from robustness in CV demand (industry sales rose by 31% in FY03).

The stock is currently trading at Rs 95 at a P/E multiple of 6.6x FY03 earnings. During December 2001 Exide announced a buy back at Rs 70, the buy back offer ended in December 2002. Exide now has announced a 1:1 bonus issue apart from a dividend of Rs 4 per share for the year ending 2003 (4% dividend yield). Going forward, the performance of Exide would obviously depend on the automobile industry, which is already shown signs of slowing down. But we expect savings at the operating level from lower raw material costs to partially offset pricing pressure. Nevertheless, operating margins is expected to be lower for FY04.

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