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Exide Ind.: Subdued start to the year - Views on News from Equitymaster
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Exide Ind.: Subdued start to the year
Jul 22, 2011

Exide Industries announced the first quarter results of financial year 2011-2012 (1QFY12). The company reported an 8% YoY increase in revenues, while profits fell by 1% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by a mere 8% YoY during 1QFY12 on account of a relatively slower growth in the auto sector and lower demand for inverter batteries.
  • Operating margins contract by 5% YoY on the back of higher input costs and other expenditure (as a percentage of sales).
  • Decline in net profits by 1% YoY is not as steep as that in operating profits on account of substantial increase in other income and lower tax expenses.


(Rs m) 1QFY11 1QFY12 Change
Net Sales 11,520 12,444 8.0%
Expenditure 8,899 10,222 14.9%
Operating profit (EBITDA) 2,621 2,223 -15.2%
Operating profit margin (%) 22.8% 17.9%  
Other income 62 308 398.1%
Depreciation 184 237 28.7%
Interest 13 11 -15.7%
Exceptional income 0 0  
Profit before tax 2,485 2,282 -8.2%
Tax 833 650 -21.9%
Profit after tax/(loss) 1,653 1,632 -1.3%
Net profit margin (%) 14.3% 13.1%  
No. of shares (m)   850.0  
Diluted earnings per share (Rs)*   7.3  
P/E ratio (x)*   20.6  
* On a trailing 12-months basis; Adjusted for exceptional items

What has driven performance in 1QFY12?
  • Exide Industries (Exide) recorded a muted 8% YoY growth in revenues during 1QFY12. This was largely on account of the relatively slow growth witnessed by the auto industry and the lower demand for inverter batteries. The prevalent power supply situation and pleasant weather conditions in the North Indian markets led to lower inverter battery sales.

    Cost break-up...
    (Rs m) 1QFY11 1QFY12 Change
    Raw materials/ purchases 6,851 7,906 15.4%
    % of sales 59.5% 63.5%  
    Employee costs 701 719 2.5%
    % of sales 6.1% 5.8%  
    Other expenditure 1,341 1,686 25.8%
    % of sales 11.6% 13.6%  

  • Exide's operating expenditure increased by 15% YoY as a result of which its operating profits also fell by 15% YoY during the quarter. The key factor behind the sharp rise in expenses was higher raw material costs, which rose by 15% YoY. During the quarter ended June 2011, raw material costs stood at 63.5% of revenues as compared to 59.5% in 1QFY11. Prices of lead continued to remain high in the international markets and unlike previous years, the company was not able to entirely pass on this hike to customers as demand had also remained subdued. As a result, it had to settle for reduced margins. Thus, operating margins shrunk by 5% to 17.9% during the quarter.

  • Despite the poor performance at the operating level, Exide's net profits managed to decline by only 1% YoY. This was due to a substantial rise in other income and lower tax expenses.

What to expect?
At the current price of Rs 149, the stock is trading at a multiple of 16.5 times our FY14 estimated earnings per share.

Exide's management has mentioned that the company is going through a challenging phase. On one side the company is trying to meet the requirements of the OEMs, on the other, its lesser focus on the more profitable replacement market is taking a toll on its profits. However, with new capacities coming up in the future, it will help the company to cater to the replacement market as well.

While the absolute battery sales volumes will continue to rise on the back of the strong volume off take of the auto industry and the replacement markets, the tricky part is that of the input costs. The average operating margins in the past twelve years stood at 17%. Now, while the company is working on reducing its input costs (by using recycled lead), the performance during the last few quarters makes the short term outlook uncertain.

We maintain a cautious view on the stock keeping in mind the uncertainty attached to it over the short term.

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