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Exide: Expanding its wings - Views on News from Equitymaster
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  • Nov 27, 2000

    Exide: Expanding its wings

    Exide Industries has announced its plans of acquiring two companies in the South East Asian region, as part of its expansion programme. The company has earmarked a total capital expenditure programme of Rs 2 bn spread over a period of three years.

    It is set to acquire a 100% stake in Chloride Batteries South East Asia in Singapore for a price of Singapore $ 3.8 m. Besides it will also acquire a 49% stake in Associated Battery Manufacturers in Sri Lanka for a consideration of SL Rs 112 m. It is also keen to set up an automotive battery manufacturing unit in Bangladesh and is looking out for partners.

    This move will boost the company's exports, by giving exposure to South East Asian markets as well as enhance its product range. Currently it exports batteries mainly to Russia and the Middle East and exports account for less than 1% of the company's turnover. As the income statements of the above two companies are not available it is not possible to comment on the impact on Exide's earnings as and when the acquisitions take place.

    As part of its domestic capital expenditure programme, the company is in the process of setting up a new automotive battery manufacturing unit with a capacity of 1 m units p.a. in Haryana by FY02. Exide plans to spend around Rs 700 m for this project. This expansion will take its installed capacity to nearly 9 m storage battery units from 7.9 m units in FY2000.

    In the current year like other auto ancillary industries, automotive battery sales too have slowed down. This can be attributed to the slowdown in commercial vehicles and passenger cars. In FY2000, Exide's net rose by 23% YoY, as there were many new entrants in the passenger car segment and the industry as a whole was buoyant. In the 2QFY01, Exide's net grew by only 5% YoY to Rs 140 m as result of a slowdown in sales.

    Though these acquisitions do not seem to be very large in terms of investments, they will help the company to some extent to protect itself from the downturn in the domestic auto market. Also the company will be faced with more competition in the domestic market, with the aggressive entry of Amaraja Batteries in the automotive segment. As of March 2000, Exide commands a 92% market share of the automobile battery market in the organised OEM segment and 63% of the organised replacement market.

    On the current price of Rs 103, Exide is trading at 7x FY01E EPS of Rs 14.8. It is trading close to its 52 week low of Rs 85.



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