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Exide: Margin expansion drives profits
Jul 17, 2009

Performance summary
  • Topline remains muted due to decline in automotive and industrial segments.
  • The operating margins improve by 6.5% YoY during the year mainly on account of lower raw material costs as a percent of sales.
  • Strong margin expansion coupled with lower interest costs leads to the bottomline growth of 49% YoY.


Financial picture
Rs m 1QFY09 1QFY10 Change
Net sales 9,085 9,035 -0.5%
Expenditure 7,566 6,940 -8.3%
Operating profit 1,518 2,095 38.0%
Operating margins (%) 16.7% 23.2%  
Other Income 4 9 107.0%
Interest (net) 108 4 -96.3%
Depreciation 162 188 16.0%
Profit before Tax 1,252 1,911 52.6%
Extraordinary item - -  
Tax 430 687 59.8%
Profit after Tax/(Loss) 822 1,224 48.9%
Net profit margin (%) 9.1% 13.6%  
No. of Shares (m) 800.0 800.0  
Diluted Earnings per share (Rs)*   4.06  
Current P/e ratio   19.2  
*12 months trailing earning

What has driven performance in 1QFY10?
  • Exide reported flat sales during 1QFY10. While the company has not given any details with respect to the segmental growth, we believe that the sales were lower mainly due to the subdued demand in the automotive segment. Further, holding back of expansion plans by the companies in the industrial segment must have also led to lower sales on the industrial front. Exide gets almost 60% of its earnings from the automotive segment and 40% from the industrial segment.

    Cost break-up
    (Rs m) 1QFY09 1QFY10 Change
    Raw materials 6,184 5,256 -15.0%
    % sales 68.1% 58.2%  
    Staff cost 396 537 35.5%
    % sales 4.4% 5.9%  
    Other expenditure 986 1,147 16.3%
    % sales 10.9% 12.7%  

  • The operating margins of the company improved by 6.5% YoY during the year mainly on account of lower raw material costs as a percent of sales. This was due to decline in the lead prices. The lead prices had touched around Rs 1, 35,000-1,40,000 a tonne in March 2008 , before falling to Rs 75,000-80,000 a tonne levels in March 2009. Furthermore, with the company relying on its own smelters some of its lead requirement, the raw material prices saw a decline of 15% YoY. The expansion would have been greater but for higher staff and other expenses.

  • The bottomline saw a growth of 49% YoY during 1QFY10. This was led by operating margin expansion, higher other income and lower interest costs. The net margins improved to 13.6% from 9.1% during 1QFY09.

What to expect?
At Rs 76, the stock is trading at a price to earnings multiple of 13 times our FY12 estimates. The company has done well as compared to our margin estimates. While on the year on year basis, the sales were flat, with pickup seen in auto demand during the last quarter on a sequential basis, the company may witness strong growth going forward. We remain positive on the stock from the long term perspective.

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