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Exide: Buoyancy from all sides

Jul 20, 2007

Performance summary
  • Driven by strong volumes and realisations growth, topline has edged higher by an impressive 51% YoY.

  • Led by drop in other expenses, operating margin expansion has stood at 160 basis points (1.6%).

  • PAT growth has been even higher at 84% YoY.

(Rs m) 1QFY07 1QFY08 Change
Net sales 4,411 6,639 50.5%
Expenditure 3,613 5,329 47.5%
Operating profit (EBDITA) 798 1,311 64.2%
EBDITA margin (%) 18.1% 19.7%  
Other income 9 6 -29.5%
Interest (net) (93) (53) -42.4%
Depreciation 133 193 44.3%
Profit before tax 581 1,071 84.3%
Tax 200 370 85.0%
Profit after tax/(loss) 381 701 84.0%
Net profit margin (%) 8.6% 10.6%  
No. of shares (m) 749.7 749.7  
Diluted earnings per share (Rs)* 2.0 3.7  
Price to earnings ratio (x)**   19.9  
(* annualised, ** on trailing twelve months earnings)

What is the company's business?
EIL (Exide Industries Ltd) is India's largest storage battery company. It sells both automotive and industrial battery and the sales mix is estimated at 60:40. Over the years, it has consolidated its position in the automotive OEM segment and currently boasts of an overall market share of 78% in four wheelers and 58% market share in two-wheelers. Exide's growth prospects are largely linked to the auto sector, considering its large presence in this segment. It has a technology tie up with Shin Kobe Electric Machinery Co and VRLA batteries and The Furukawa Battery Co. The company also caters to the needs of industrial customers (like telecom and railways) and has a 50% market share.

What has driven performance in 1QFY08?
Riding the industrial wave: EIL is the largest supplier of automotive batteries to the OEMs and despite the sedate performance of most of these segments during the quarter; the huge 51% jump in topline is indeed commendable. We believe this could be due to the continued strong traction in the industrial batteries segment, where growth has been phenomenal in recent times. Also, with the strong growth encountered in the auto segment in the last couple of years, the replacement demand must have also started to positively influence the volume growth. Further, as the company has been resorting to price hikes quite frequently in recent times, a significant portion of the topline growth could also be attributed to the same.

The other expense squeeze: While lead prices, which account for nearly 70% of the total raw material costs, have continued to move northwards, the company was able to more than offset the same by a significant reduction in other expenses, which formed 13% of sales as compared to 18% in the same quarter last year. The fact that the company was able to pass on some of the lead price hikes to the end consumer also helped expand margins.

Cost break-upů
(Rs m) 1QFY07 1QFY08 Change
Raw materials 2,531 4,092 61.7%
% sales 57.4% 61.6%  
Staff cost 285 395 38.6%
% sales 6.5% 5.9%  
Other expenses 797 842 5.6%
% sales 18.1% 12.7%  

Both the other income as well as interest income declined during the quarter, but on account of their small size, were not able to significantly influence the bottomline growth which registered an impressive jump of 84% YoY. Besides expansion in operating margins, a less than proportionate increase in depreciation charges, helped the bottomline to grow at a faster pace than the topline.

Over the last few quarters: As seen from the table below, the company has broken fresh ground in FY08 as not only the topline growth but the margins have also been higher than what was witnessed during the past four quarters. However, it remains to be seen whether the buoyancy will continue in the coming quarters.

What to expect?
At the current price of Rs 51, the stock is trading at a multiple of 13 times our estimated FY10 earnings. While the company has achieved 35% of our FY08 earnings target in the first quarter itself, we would like to wait for another quarter before we update our numbers. Till such time, we believe the risk reward ratio is currently in favour of the former.

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Sep 21, 2020 03:35 PM

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