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Exide Ind.: Lead prices play spoilsport - Views on News from Equitymaster
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Exide Ind.: Lead prices play spoilsport
Nov 20, 2014

Exide Industries has announced its September 2014 quarter results. The company has reported a 23% YoY and 6% YoY growth in topline and net profits respectively. Here is our analysis of the results.

Performance summary
  • Exide Industries reports a 23% YoY growth in topline during the quarter led by growth in volumes.
  • Operating margins contract by 2.3% though resulting in a relatively lower growth of 3% YoY in operating profits.
  • Bottomline growth at 6% YoY is slightly better than the growth in operating profits on account of higher other income and benign increase in tax expenses.

Standalone financial performance
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Net Sales 14,321 17,633 23.1% 30,562 36,740 20.2%
Expenditure 12,307 15,556 26.4% 25,924 31,752 22.5%
Operating profit (EBITDA) 2,014 2,077 3.2% 4,638 4,988 7.6%
Operating profit margin (%) 14.1% 11.8%   15.2% 13.6%  
Other income 37 69 86.9% 99 156 57.9%
Depreciation 313 329 5.0% 614 652 6.3%
Interest 5 4 -12.8% 8 7 -21.7%
Profit before tax 1,732 1,813 4.6% 4,115 4,486 9.0%
Tax 546 555 1.6% 1,341 1,375 2.6%
Profit after tax/(loss) 1,186 1,258 6.0% 2,774 3,111 12.1%
Net profit margin (%) 8.3% 7.1%   9.1% 8.5%  
No. of shares (m)       850.0 850.0  
Diluted earnings per share (Rs)*         6.1  
P/E ratio (x)*         25.5  
(*On a trailing 12-month basis)

What has driven performance in 2QFY15?
  • Exide did well this quarter to report revenue growth of 23% YoY. Growth was largely driven by increase in volumes in both the automotive and industrial segments as there was no increase in pricing. As was the case in the last few quarters, inverter sales during 2QFY15 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 contraction to the tune of 2.3% YoY during the quarter. This was on account of a rise in raw material costs (as percentage of sales) on the back of higher lead prices. Other expenditure also increased due to costs related to technology upgradation. As a result of this, operating profit growth was relatively lower at 3% YoY.

  • Despite this, net profit growth was slightly better at 6% YoY on account of a substantial rise in other income and benign increase in tax expenses.
What to expect?
At the current price of around Rs 156, the stock trades at around 14.4 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, we maintain our Sell view on the stock of Exide Industries.

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