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Exide Industries: Energetic start to FY11 - Views on News from Equitymaster

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Exide Industries: Energetic start to FY11

Jul 13, 2010

Exide Industries has announced its 1QFY11 results. The company has reported a 28% YoY growth in its sales while net profits have increased by a faster 35% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 28% YoY during 1QFY11.
  • Operating margins contract by 0.4% YoY on the back of higher raw material and purchase of traded goods (as a percentage of sales).
  • Net profits increase by 35% YoY on the back of higher other income and a slow increase in depreciation costs. Lower tax outgo also helps in bottomline improvement.

Financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Net Sales 9,035 11,521 27.5%
Expenditure 6,940 8,889 28.1%
Operating profit (EBITDA) 2,095 2,632 25.7%
Operating profit margin (%) 23.2% 22.8%  
Other income 9 62 592.1%
Depreciation 188 194 3.2%
Interest 4 13 235.0%
Profit before tax 1,911 2,486 30.1%
Tax 687 833 21.1%
Profit after tax/(loss) 1,224 1,653 35.1%
Net profit margin (%) 13.5% 14.4%  
No. of shares (m)   850.0  
Diluted earnings per share (Rs)*   6.8  
P/E ratio (x)*   19.9  
* On a trailing 12-months basis

What has driven performance in 1QFY11?
  • After recording a strong performance in FY10, Exide Industries (Exide) has started the current fiscal with a bang. Recording a topline of Rs 11.5 bn during 1QFY11, the company posted a growth of 28% on a YoY basis. On a quarter on quarter basis, i.e. in comparison to 4QFY10, revenues are higher by 12%. This is a strong performance considering that Exide posted a 29% YoY increase in revenues during 4QFY10. The revenue growth has been a mix of two factors – higher volumes and better realisations. As per the company, sales from the replacement market for tractors and commercial vehicles grew by 14% YoY. The motorcycle battery segment, on the other hand, saw an increase of 27% YoY in volume terms. The company reported a good growth in sales in its automotive battery and industrial battery segments as well.

    There was a significant improvement in realisations as well. This would be on the back of a higher input costs, which the company is able to pass on to its customers (mainly the OEMs). It is believed that lead (Exide’s key raw material) prices have increased by nearly one-third as compared to last year.

    Cost break-up...
    (Rs m) 1QFY10 1QFY11 Change
    Raw materials/ purchases 5,221 6,863 31.4%
    % of sales 57.8% 59.6%  
    Employee costs 548 678 23.7%
    % of sales 6.1% 5.9%  
    Other expenditure 1,171 1,348 15.1%
    % of sales 13.0% 11.7%  

  • As compared to the 28% YoY increase in net sales, Exide’s operating profits grew at a marginally slower pace of 26% YoY. This is on the back of a slight contraction in operating margins (0.4% to be precise). Margins during the quarter contracted due to higher cost of raw materials and purchase of traded goods (as a percentage of sales). However, it was able to maintain margins to a certain extent on the back of a slower increase in other expenditure and staff costs. It may be noted that margins during FY10 (23.5%) were higher than usual on the back of lower input costs. Therefore, it is quite possible that margins would contract during the current year. During FY09, operating margins stood at about 16%.

  • Exide reported a 35% YoY increase in profits during 1QFY11. Apart from a strong operating performance, higher other income and a benign increase in depreciation aided the bottomline. A lower tax outgo aided the bottomline growth as well.

What to expect?
At the current price of Rs 134, the stock is trading at a multiple of 18 times our FY12 estimated earnings per share (For RPro subscribers, our latest view can be tracked here). FY10 was possibly the best year for the Indian auto industry. That was pretty much reflected in Exide’s performance last year, especially during the second half. However, the chances of the auto industry seeing a similar kind of growth during the current fiscal are less. This is one key concern for Exide. However, the company has taken up various measures to try and maintain growth levels. The key one is of it investing about Rs 3.5 bn to set up a unit for manufacturing batteries for two-wheelers.

As for our view on the stock at current levels, we would like to wait for another quarter before we make any changes to our estimates.

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