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Exide Ind.: Slowdown takes toll - Views on News from Equitymaster

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Exide Ind.: Slowdown takes toll
Nov 21, 2013

Exide Industries announced the second quarter results of financial year 2012-2013 (2QFY14). The company reported a 6.5% YoY and 1% YoY decline in revenues and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales fall by 6.5% YoY on account of subdued demand for both automobile and industrial batteries.
  • Operating margins improve by 1.8% YoY to 14.1% in 2QFY14 largely due to lower raw material costs and other expenditure (as a percentage of sales).
  • Net profits fall by 1% YoY on account of a substantial reduction in other income.

Standalone financial snapshot
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net Sales 15,311 14,321 -6.5% 30,745 30,562 -0.6%
Expenditure 13,424 12,307 -8.3% 26,540 25,924 -2.3%
Operating profit (EBITDA) 1,887 2,014 6.7% 4,205 4,638 10.3%
Operating profit margin (%) 12.3% 14.1%   13.7% 15.2%  
Other income 121 37 -69.6% 278 99 -64.4%
Depreciation 282 313 11.2% 558 614 10.0%
Interest 10 5 -52.0% 23 8 -64.5%
Profit before tax 1,716 1,732 0.9% 3,901 4,115 5.5%
Tax 514 546 6.2% 1,179 1,341 13.7%
Profit after tax/(loss) 1,202 1,186 -1.3% 2,722 2,774 1.9%
Net profit margin (%) 7.9% 8.3%   8.9% 9.1%  
No. of shares (m)       850.0 850.0  
Diluted earnings per share (Rs)*         6.2
P/E ratio (x)*         18.9  
* On a trailing 12-months basis

What has driven performance in 2QFY14?
  • Exide Industries (Exide) recorded a 6.5% YoY fall in revenues during 2QFY14. Demand for both automobiles (especially OEMs) and industrial batteries (including infrastructure, telecom and inverter) remained subdued. This is on account of the slowdown in the auto industry and sluggishness in industrial activity during the quarter.

    Cost break-up...
    (Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Raw materials/ purchases 10,060 9,374 -6.8% 20,185 19,838 -1.7%
    % of sales 65.7% 65.5%   65.7% 64.9%  
    Employee costs 897 855 -4.7% 1,738 1,793 3.2%
    % of sales 5.9% 6.0%   5.7% 5.9%  
    Other expenditure 2,467 2,079 -15.7% 4,618 4,293 -7.0%
    % of sales 16.1% 14.5%   15.0% 14.0%  

  • Exide's operating profits grew by 7% YoY during the quarter as costs fell at a faster pace than sales. The company's operating margins thus improved by 1.8% YoY to 14.1% in 2QFY14 on the back of lower raw material costs and other expenditure (as a percentage of sales). The latter considerably reduced from 16.1% of sales in 2QFY13 to 14.5% of sales in 2QFY14.

  • Despite the 7% YoY growth in operating profits, net profits declined by 1% YoY on account of the substantial fall in other income.
What to expect?
At the current price of Rs 117, the stock is trading at a multiple of 11.5 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, there is not much upside and hence we are of the view that investors not buy the stock at current levels.

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