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Exide: Profitability goes for a toss
Oct 21, 2011

Exide Industries announced the second quarter results of financial year 2011-2012 (2QFY12). The company reported a 4% YoY increase in revenues, while net profits fell by 76% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by a mere 4% YoY during 2QFY12 on account of decline in volume sales both in the automotive and industrial battery segment.
  • Operating margins plunge by 14% YoY on the back of a steep rise in raw material costs (as a percentage of sales).
  • Poor performance at the operating level combined with substantial fall in other income takes its toll on the bottomline which declines by 76% YoY.
  • Board declares an interim dividend of Re 0.9 per share.
    Standalone financial snapshot
    (Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
    Net Sales 11,272 11,761 4.3% 22,793 24,205 6.2%
    Expenditure 8,817 10,858 23.1% 17,706 21,080 19.1%
    Operating profit (EBITDA) 2,455 903 -63.2% 5,087 3,125 -38.6%
    Operating profit margin (%) 21.8% 7.7%   22.3% 12.9%  
    Other income 191 79 -58.7% 253 387 53.1%
    Depreciation 201 247 22.5% 396 484 22.3%
    Interest 17 16 -4.7% 30 27 -9.6%
    Profit before tax 2,428 719 -70.4% 4,913 3,001 -38.9%
    Exceptional income 469 0   469 0  
    Tax 768 208 -73.0% 1,600 858 -46.4%
    Profit after tax/(loss) 2,129 512 -76.0% 3,783 2,144 -43.3%
    Net profit margin (%) 18.9% 4.3%   16.6% 8.9%  
    No. of shares (m)       850.0 850.0  
    Diluted earnings pershare (Rs)*         5.9  
    P/E ratio (x)*         20.3  
    * On a trailing 12-months basis

    What has driven performance in 2QFY12?

    • Exide Industries (Exide) recorded a muted 4% YoY growth in revenues during 2QFY12. There were several reasons for this. For starters, the automotive battery segment was adversely impacted by lower off take from the OEM customers given that there has been a slowdown in the overall auto sector. Further, the sales volume in the replacement segment also did not pick up to the extent envisaged by the management. As a result, sales volume for the quarter was 6% lower than in the corresponding quarter last year. Not just that, with respect to the industrial battery segment, which caters to a number of segments like telecom, construction, power generation, the demand for batteries was lower due to the lack of good growth in these segments. Thus, the sales volume in the industrial segment was 5% lower as compared to the corresponding quarter last year. The silver lining in the cloud was that the two wheeler battery segment had a robust volume growth of 30%.

      Cost break-up...
      (Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
      Raw materials/ purchases 6,671 8,499 27.4% 13,518 16,405 21.4%
      % of sales 59.2% 72.3%   59.3% 67.8%  
      Employee costs 684 644 -5.9% 1,385 1,364 -1.6%
      % of sales 6.1% 5.5%   6.1% 5.6%  
      Other expenditure 1,462 1,715 17.3% 2,803 3,311 18.1%
      % of sales 13.0% 14.6%   12.3% 13.7%  

    • It was a sorry state of affairs at the operating level. Exide's operating margins plunged by around 14% to 7.7% during the quarter. One of the reasons for this was firm lead prices during most of the quarter under review. As a result, raw material costs (as a percentage of sales) increased from 59.2% in 2QFY11 to 72.3% in 2QFY12. Having said that, lead prices softened towards the end of the quarter and should have a positive impact on the company's fortunes in the coming quarter unless volatility in the rupee continues which could then offset this positive impact. The other reason for this poor performance was the decline in sales volumes which pushed the per unit cost of production and led to the steep drop in operating profits (down 63% YoY).

    • The subdued performance at both the topline and operating profit level percolated down to the bottomline which fell by 76% YoY. Considerable reduction in other income and rise in depreciation charges further compounded the company's woes. Even a substantial drop in tax expenses was not enough to arrest the fall in net profits. That said, the company received extraordinary income to the tune of Rs 469 m in 2QFY11, which was not present this quarter. Thus, on excluding the same, fall in net profits stood at 69% YoY.

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