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Exide Ind.: Volumes take a beating - Views on News from Equitymaster
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Exide Ind.: Volumes take a beating
Jul 26, 2013

Exide Industries announced the first quarter results of financial year 2013-2014 (1QFY14). The company reported a 5% YoY and 4% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 5% YoY led by growth in the replacement market and higher realisations.
  • Operating margins improve by 1.2% YoY to 16.1% in 1QFY14 largely due to lower raw material costs and other expenditure (as a percentage of sales).
  • Growth in net profits at 4% YoY is lower than the growth in operating profits on account of lower other income and higher tax expenses.

Standalone financial snapshot
(Rs m) 1QFY13 1QFY14 Change
Net Sales 15,537 16,274 4.7%
Expenditure 13,219 13,650 3.3%
Operating profit (EBITDA) 2,319 2,624 13.2%
Operating profit margin (%) 14.9% 16.1%  
Other income 157 62 -60.4%
Depreciation 276 300 8.8%
Interest 14 4 -73.5%
Profit before tax 2,185 2,382 9.0%
Tax 665 795 19.5%
Profit after tax/(loss) 1,520 1,588 4.4%
Net profit margin (%) 9.8% 9.8%  
No. of shares (m) 850.0 850.0  
Diluted earnings per share (Rs)*   6.2  
P/E ratio (x)*   20.9  
* On a trailing 12-months basis

What has driven performance in 1QFY14?
  • Exide Industries (Exide) recorded a mere 5% YoY growth in revenues during 1QFY14. Volumes were lower in the auto, industrial and the inverter battery segments. However, volumes in the replacement segment did well and the company has now managed to regain market share accordingly. Overall capacity utilization was lower at around 70%. Despite lower volumes, revenue growth across segments was better on account of improved realisations.

    Cost break-up...
    (Rs m) 1QFY13 1QFY14 Change
    Raw materials/ purchases 10,124 10,464 3.4%
    % of sales 65.2% 64.3%  
    Employee costs 841 938 11.6%
    % of sales 5.4% 5.8%  
    Other expenditure 2,254 2,248 -0.2%
    % of sales 14.5% 13.8%  

  • Exide's operating profits grew by 13% YoY during the quarter as costs grew at a slightly slower pace than sales. The company's operating margins improved by 1.2% YoY to 16.1% in 1QFY14 on the back of lower raw material costs and other expenditure (as a percentage of sales). Raw material costs decreased from 65.2% of sales in 1QFY13 to 64.3% in 1QFY14 as the cost of lead, which is the primary raw material, had not increased much. Overall margins improved on account of higher realisations even though capacity utilization was low.

  • Growth in net profits at 4% YoY was lower than the growth in operating profits on account of lower other income and higher tax expenses.

What to expect?

At the current price of Rs 130, the stock is trading at a multiple of 12.8 times our FY16 estimated earnings per share. Exide has now regained its lost market share in the replacement market which is a positive sign because it also now has pricing power. But the company's fortunes are dependent on the automobiles and the industrial segment. Because of the slowdown in both, near term headwinds for the company are expected to continue. Overall, with valuations being on the higher side, we have a 'Sell' view on the stock.

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