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Exide Industries: Pick up in performance - Views on News from Equitymaster

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Exide Industries: Pick up in performance
Jul 26, 2014 | Updated on Jul 28, 2014

Exide Industries has announced its June 2014 quarter results. The company has reported a 17.5% YoY and 17% YoY growth in topline and net profits respectively. Here is our analysis of the results.

Performance summary
  • Exide Industries reports a 17.5% YoY growth in topline during the quarter led by growth in inverters, telecom segment, exports and improvement in the auto OEM segment.
  • Operating margins contract by 0.9% though resulting in a relatively lower growth of 11% YoY in operating profits.
  • Despite this, bottomline grows by 17% YoY on account of a surge in other income.
Standalone financial snapshot
(Rs m) 1QFY14 1QFY15 Change
Net Sales 16,275 19,124 17.5%
Expenditure 13,650 16,212 18.8%
Operating profit (EBITDA) 2,624 2,911 10.9%
Operating profit margin (%) 16.1% 15.2%  
Other income 62 87 40.7%
Depreciation 300 323 7.6%
Interest 4 2 -33.3%
Profit before tax 2,383 2,673 12.2%
Tax 795 820 3.2%
Profit after tax/(loss) 1,588 1,853 16.7%
Net profit margin (%) 9.8% 9.7%  
No. of shares (m) 850.0 850.0  
Diluted earnings per share (Rs)*   6.0  
P/E ratio (x)*   26.2  
* On a trailing 12-months basis

What has driven performance in 1QFY15?
  • After a few sluggish quarters, Exide did well this quarter to report revenue growth of 17.5% YoY. While revenues from the auto segment grew by 9% YoY in value terms, the same stood at a robust 33% YoY for the industrial segment. In the auto segment, there was some growth in the OEM space, which had otherwise reported declines in the previous few quarters. In the industrial segment, the key growth drivers were telecom batteries and exports. As was the case in 4QFY14, inverter sales during 1QFY15 were also quite healthy. Having said that, over the longer term, the management expects the overall inverter market to shrink as the power situation improves in the country.

  • On the margins front, the company witnessed a marginal contraction to the tune of 0.9% YoY during the quarter. This was on account of a rise in raw material costs (as percentage of sales). As a result of this, operating profit growth was relatively lower at 11% YoY. The company managed to keep other costs under control based on some cost cutting initiatives taken.

    (Rs m) 1QFY14 1QFY15 Change
    Raw materials/ purchases 10,517 12,670 20.5%
    % of sales 64.6% 66.3%  
    Employee costs 938 1,000 6.6%
    % of sales 5.8% 5.2%  
    Other expenditure 2,196 2,542 15.8%
    % of sales 13.5% 13.3%  

  • Despite the 11% YoY growth in operating profits for the quarter, net profits grew by a decent 17% YoY on account of a substantial rise in other income.
What to expect?
At the current price of around Rs 158, the stock trades at around 15 times our projected FY17 earnings per share. We expect Exide's growth to ramp up once there is a revival in the economy as well as the auto sector. Even though there is increasing competition especially from Amara Raja Batteries, we believe that there is enough room for both the players to grow in the battery market. However, the stock price has run up in the last few months and so even after factoring in a recovery, current valuations do not leave room for much upside. Consequently, our view is that investors Sell the stock of Exide Industries at current price levels.

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