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Exide Industries: Inverters drive sales - Views on News from Equitymaster

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Exide Industries: Inverters drive sales
May 9, 2014

Exide Industries has announced its March 2014 quarter results. The company has reported a 4.5% growth in topline and a 10% drop in net profits for the quarter ended March 2014. Here is our analysis of the results.

Performance summary
  • Exide Industries reports a 4.5% YoY growth in topline during the quarter.
  • A 0.4% expansion in operating margins leads operating profits to grow by 7% YoY.
  • Bottomline falls by 10% YoY, led by considerable reduction in other income and higher depreciation charges.
  • Profit for the full year (FY14) falls 7% YoY on the back of a 2% fall in topline.
  • The Board recommends a dividend of Rs 0.7 per share (dividend yield of 0.6%).

Standalone financial snapshot
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Net Sales 15,430 16,130 4.5% 60,768 59,727 -1.7%
Expenditure 13,385 13,941 4.2% 52,873 51,474 -2.6%
Operating profit (EBITDA) 2,044 2,189 7.1% 7,895 8,253 4.5%
Operating profit margin (%) 13.2% 13.6%   13.0% 13.8%  
Other income 304 98 -67.8% 704 246 -65.1%
Depreciation 288 326 13.2% 1,135 1,256 10.7%
Interest 8 (0)   42 12 -71.5%
Profit before tax 2,053 1,961 -4.5% 7,423 7,231 -2.6%
Tax 588 640 8.8% 2,195 2,360 7.5%
Profit after tax/(loss) 1,465 1,321 -9.8% 5,228 4,871 -6.8%
Net profit margin (%) 9.5% 8.2%   8.6% 8.2%  
No. of shares (m)       850.0 850.0  
Diluted earnings per share (Rs)*         5.7  
P/E ratio (x)*         20.4  
* On a trailing 12-months basis

What has driven performance in FY14?
  • Since the company derives a large part of its revenues from the auto sector, the slowdown in the same affected the company's business during the year as sales were down 2% YoY. This was true both in the replacement as well as the OEM segment. What more, even the other segment of industrial batteries remained subdued as demand for infrastructure, motive power, and inverter batteries continued to be sluggish as per the company. During 4QFY14, however, the company managed to grow sales by 4.5% and this was largely attributed to healthy inverter sales. Having said that, over the longer term, the management expects the overall inverter market to shrink as the power situation improves in the country. Further, improvement in telecom orders also provided some boost to the topline during the fourth quarter.

  • On the margins front, the company witnessed a marginal expansion to the tune of 0.8% YoY during the year. This was on account of fall in raw material costs and other expenses. The fourth quarter also saw some expansion in margins on the back of better sales and some cost saving initiatives.

    Cost break-up...
    (Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
    Raw materials/ purchases 10,367 10,779 4.0% 40,387 39,104 -3.2%
    % of sales 67.2% 66.8%   66.5% 65.5%  
    Employee costs 901 870 -3.4% 3,493 3,559 1.9%
    % of sales 5.8% 5.4%   5.7% 6.0%  
    Other expenditure 2,118 2,292 8.2% 8,993 8,812 -2.0%
    % of sales 13.7% 14.2%   14.8% 14.8%  

  • Despite the 4.5% YoY growth in operating profits for the year, net profits fell by 7% YoY on account of a substantial reduction in other income. Higher depreciation charges also played a role as the company expanded capacity hoping that the demand would improve but it did not materialise. For the fourth quarter, the situation was similar with net profits falling by 10% YoY.
What to expect?
At the current price of around Rs 117, the stock trades at around 11.5 times our projected FY16 earnings per share. We believe that Exide has been a victim of the auto sector slowdown and once the demand picks up, it should reflect in Exide's numbers as well. Having said that, increasing competition especially from Amara Raja Batteries has eaten into the market share of Exide Industries and this will be an issue for the company going forward as well. Overall, our view is that investors Hold on to the stock.

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