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Exide: Poised for pace

May 3, 2002

Exide Industries, the market leader in the Indian automotive battery segment, has posted a 24% fall in net profits for the full year ended March 31, 2002. However, turnover during the same period has gone up 3% to Rs 7,915 m.

(Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
Net Sales 2,378 2,183 -8.2% 7,702 7,915 2.8%
Other Income 4 5 24.4% 11 10 -7.6%
Expenditure 2,006 1,886 -6.0% 6,304 6,603 4.7%
Operating Profit (EBDIT) 372 297 -20.1% 1,398 1,313 -6.1%
Operating Profit Margin (%) 15.6% 13.6%   18.1% 16.6%  
Interest (net) 88 80 -9.3% 453 415 -8.4%
Depreciation 116 99 -14.0% 434 440 1.4%
Profit before Tax 173 124 -28.5% 521 467 -10.3%
Extraordinary items (12) (11) - (36) (43) -
Tax 25 35 - 70 110 57.1%
Profit after Tax/(Loss) 136 78 -42.9% 416 314 -24.4%
Net profit margin (%) 5.7% 3.6%   5.4% 4.0%  
No. of Shares (m) 36.0 35.7   36.0 35.7  
Diluted Earnings per share 15.1 8.7   11.5 8.8  
P/E Ratio (x)         7.5  

Exide derives almost 99% of revenues from sale of batteries, catering both to automotive and industrial segments. Automotive battery segment contributes 60% to revenues and as a result, is higly related to the performance of the auto industry. It has a commanding market share as a supplier to most of the Original Equipment Manufacturers (OEMs) in India (90%). It also has a 63% market share in the replacement market. In FY02, except for two-wheelers, passenger cars and to a certain extent, medium and heavy commercial vehicles, demand for automobiles remained subdued. Though Exide to managed to post a 3% rise in sales for FY02, average realisation is estimated to have declined by atleast 5% in the wake of slowdown in the economy. Since bargaining power of the customer is higher in the segment, the company cannot pass on the rise in input costs like 'lead' to OEMs.

This along with a industrial unrest in its manufacturing unit in Hosur have exercised a downward pressure on operating margins for FY02. Apart from OEMs, Exide's leadership in the replacement segment is being threatened by cheaper imports from countries like China, Korea and Bangaladesh. Given the fact that price realisations are higher in the replacement segment, this has been a cause of concern. We had projected a net profit for FY02 at Rs 375 m on the back of a 75 basis points fall in operating margins. However, the industrial unrest at Hosur has resulted in steeper fall in margins consequently lowering profits of the company.

Extraordinary item here pertains towards amortisation of expenditure incurred towards Y2K/ERP implementation costs, voluntary retirement scheme (VRS) and expenditure towards website development. Consequent to the buyback scheme, equity share capital stands reduced by 270,472 shares. Exide has declared a dividend of Rs 3.5 per share.

The stock currently trades at Rs 66 implying a P/E multiple of 7.5x FY02 earnings. As far as future outlook of the company is concerned, the Finance Minister in his recent budget had lowered the import duty on lead from 35% to 25% and this has given much needed relief to the indigenous battery manufacturer. As India moves towards WTO norms, import duty on key raw materials is expected to fall and this would benefit the company in the long run. Similarly, import duty on aluminium has also been brought down to 15%. Since raw material costs account for 60% of operating expenditure of Exide, the reduction in duties augurs well for the company in future.

Besides, outlook for the auto sector continues to remain positive and both multinational and domestic auto majors have lined up a number of models in the passenger car segment. With a commanding 90% market share in the OEM category, Exide is well poised to capitalise on any upturn in industry volumes. Having said that, lack of pricing power and increased competition from imports would continue to have a bearing on profits of Exide.

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