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Exide: Revenues grow, but costs rise faster
May 3, 2012

Exide Industries announced its results for the quarter and year ended March 2012. During 4QFY12, the company reported a 16% YoY increase in revenues, while net profits fell by 13% YoY. Here is our analysis of the results.

Performance Summary
  • Net sales grow by 16% YoY during 4QFY12.
  • Operating margins fall by 4% YoY largely due to the rise in raw material costs (as a percentage of sales).
  • A poor performance at the operating level combined with lower other income leads to a 13% decline in profits during the quarter.
  • During FY12, revenues grow by 12% YoY while profits decline by 31% YoY. The decline in profits is driven by the poor operating performance.
  • Board recommends final dividend of Rs 0.6 per share (dividend yield of about 0.5%). Total dividend for the year stands at Rs 1.5 per share.


Standalone financial snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net Sales 12,458 14,476 16.2% 45,715 51,110 11.8%
Expenditure 10,118 12,346 22.0% 36,688 44,232 20.6%
Operating profit (EBITDA) 2,340 2,130 -9.0% 9,028 6,878 -23.8%
Operating profit margin (%) 18.8% 14.7%   19.7% 13.5%  
Other income 216 147 -32.0% 799 633 -20.8%
Depreciation 227 273 20.2% 835 1,007 20.6%
Interest 11 14 21.4% 60 53 -12.1%
Exceptional income 0 0   469 0  
Profit before tax 2,317 1,990 -14.1% 9,402 6,452 -31.4%
Tax 681 565 -17.0% 2,738 1,840 -32.8%
Profit after tax/(loss) 1,637 1,425 -12.9% 6,664 4,612 -30.8%
Net profit margin (%) 13.1% 9.8%   14.6% 9.0%  
No. of shares (m)       850.0 850.0  
Diluted earnings per share (Rs)*         5.4  
P/E ratio (x)*         23.0  
* On a trailing 12-months basis; Adjusted for exceptional items

What has driven performance in 4QFY12?
  • Exide Industries (Exide) recorded a 16% YoY growth in revenues during 4QFY12. Company's sales were largely led by higher volumes in the auto battery space. Volumes in the 4-wheeler and 2-wheeler segments increased by 7% YoY and 26% YoY respectively. The company's industrial battery segment reported a volume growth of 15% YoY.

  • Exide reported a strong growth sequentially. As compared to the preceding quarter, revenues grew by 16%. Considering that price realizations have been flat or lower sequentially (except for the industrial segment of the company), the growth has come in on higher volumes. There has also been an improvement in the operating margins, signaling that the company witnessed a better product mix in the 4QFY12.

    Cost break-up...
    (Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
    Raw materials/ purchases 7,785 9,726 24.9% 28,230 34,330 21.6%
    % of sales 62.5% 67.2%   61.8% 67.2%  
    Employee costs 781 746 -4.4% 2,829 2,862 1.2%
    % of sales 6.3% 5.2%   6.2% 5.6%  
    Other expenditure 1,552 1,874 20.7% 5,629 7,040 25.1%
    % of sales 12.5% 12.9%   12.3% 13.8%  

  • Exide's operating profits declined by 9% YoY during the quarter as costs increased by 22% YoY (as compared to a revenue growth of 16% YoY). The company's operating margins declined by 4.1% YoY on the back of higher raw material costs and other expenses. As per the management lead prices have softened as compared to preceding quarter (3QFY12). However, the Rupee depreciation led to higher raw material costs. Having said that, the company has done well to keep its employee costs under control.

  • Exide's profits declined by 13% YoY on the back of a poor operating performance coupled with lower other income. Other income includes dividend from subsidiaries and investments. Higher depreciation charges also added to the woes.

What to expect?
At the current price of Rs 125, the stock is trading at a multiple of 14 times our FY14 estimated earnings per share. FY12 was a difficult year for Exide, with the company trying to balance catering to the OEM section of its clientele while focusing less on the higher margin replacement market. However, the company does expect an overall slowdown in the OEM section going forward; hence it will focus on regaining its lost market share in the replacement market. As per the management, the company's market share in the 4-wheeler replacement segment had dropped to about 26%, lower by about 10% to 11% compared to earlier. However, at present the same has risen to levels of 30%. Going forward, the company intends to regain the balance (6% odd) by mid FY13.

Exide's management also wishes to improve its margins to level of 15% to 16% (PBIDT margins, which includes other income; 14.7% in FY12 and 21.5% in FY11). Leaving the other income aside, the company plans on improving its marketing mix, focus on higher volumes and stronger marketing and sales efforts. The company, in fact, went ahead and cut its dealers' margins recently. The management has indicated that it wants to make sure that dealers' revenues are not reduced in absolute terms. What this indirectly means is that the management has asked dealers to focus on increasing their sales efforts.

As for volumes, the company expects the off take in the OEM space segment to be flat. However, volumes in the replacement market are expected to increase by 15% for the entire market. As such, for the company to gain market share it would have to grow at a faster pace.

The company intends to spend Rs 2.5 bn in FY13 as capex. Most of this expenditure will go towards expanding its industrial and two-wheeler battery capacities. As for batteries for 4-wheelers, it does not wish to increase it further in the current fiscal. We remain cautious on the stock.

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