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Exide: On an expansion spree - Views on News from Equitymaster
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  • Dec 27, 2000

    Exide: On an expansion spree

    Exide Industries Ltd, India's largest automotive battery manufacturer does not seem as worried regarding the slowdown in the automobile sector as the others. The expansion of its production capacity by opening of a new auto battery plant at Hosur in Tamil Nadu recently is an indication of the company's optimistic stance.

    This state-of-the-art plant, which cost the company Rs 500 m has an installed capacity of 1 m units, which can be increased to 1.5 m units if required in future. In terms of benefits to the company it would gain by having a stronger presence in the South ( it already has 2 plants in Tamil Nadu) and this would result in savings in terms of transport costs for the growing Southern market.

    Exide will be able to take advantage of the fact that many foreign auto players are setting up base in the South. Besides many players like Hyundai Motors, Mitsubishi Lancer and Ashok Leyland are already present in the South. As the company commands a 92% market share in the OEM (Original Equipment Manufacturer) segment, this strategy may not leave too much scope to increase market share but this plant will definitely save the company transportation costs and hence enhance its operational efficiency.

    The company currently has an installed capacity of 8.9 m units with 9 plants (including Hosur) across the country. This will go upto close to 10 m units by FY2002 when its plant at Haryana (1 m units) too opens up. As of March 2000, its capacity utilisation works out to 83%. However, this is likely to be lower in the current financial year as demand from the automobile segment has not been very positive. Heavy and medium commercial vehicles and passenger cars have seen a decline in volumes in April-October 2000. The only gainers have been Light commercial vehicles and utility vehicles.

    On the international front the company has acquired a 100% stake in Chloride Batteries South East Asia in Singapore and a 49% stake in Associated Battery Manufacturers in Sri Lanka. It is also keen to set up an automotive battery manufacturing unit in Bangladesh and is on the look out for a partner.

    This move will boost the company's exports, by giving exposure to South East Asian markets as well as enhance its product range. Also the company will gain in terms of tax benefits offered by these countries. Currently, it exports batteries mainly to Russia and the Middle East and exports account for less than 1% of the company's turnover.

    On the current price of Rs 107.5, Exide is trading at 7.3x FY01E EPS of Rs 14.8. It has come off from a high of Rs 251 during the past one year.



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