• OUTLOOK ARENA
  • VIEWS ON NEWS
  • OCTOBER 3, 2001

Exide: What’s on the cards?

The slowdown in auto demand has had a significant impact on profitability of auto ancillary manufacturers. Though Exide, the market leader in the automotive battery segment, reported a decent growth in sales in 1QFY02, profits fell sharply. Given the recent upturn in auto volumes, what can one expect from the company?

Exide Industries is India’s largest storage battery company. It sells both automotive and industrial batteries and the sales mix is in the ratio of 60:40. It has a technology tie up with Shin Kobe Electric Machinery Co Ltd. for industrial batteries and The Furukawa Battery Co. for automotive batteries.

Exide dominates the Indian battery market. For the automotive segment, the company had a market share of 90% in the original equipment market and a 63% market share in the replacement market. It supplies batteries to almost all the major auto companies like Telco, M&M and Ashok Leyland.

However, Exide is having a tough time on the replacement market front. With India coming under WTO purview, cheaper imports from China, Korea and Bangladesh have flooded the domestic markets. Since margins are higher in the replacement market (due to a better pricing power), availability of cheaper substitutes is a cause of concern. But after representations from the industry, the government of India has declared an anti-dumping duty on these imports. But this is expected to be safeguard domestic manufacturers only in the short run.

On a positive note, the company’s new customers like Hyundai, Honda and Toyota have reported commendable increase in volumes in 1QFY02. These companies have also launched new models in 1HFY02 (Hyundai Sonata and Honda Accord), which augurs well for the Exide. The two-wheeler battery demand grew by 21% in FY01 on the back of a sharp rise in motorcycle volumes thanks to new launches from Hero Honda and Bajaj Auto (Exide supplies batteries to both these companies). With the motorcycle segment growing at a CAGR of 25%, buoyancy in two-wheeler battery demand is expected to continue in the coming years also.

Though the company reported a healthy 11% rise in sales in 1QFY02, margins fell by 300 basis points. Extraordinary item on account of provisioning for voluntary retirement scheme also subdued profit growth. Net profits for 1QFY02 fell sharply by 48% to Rs 36 m. Though volumes are expected to increase, margins might continue to remain under pressure for the rest of the year.

To capture the replacement market, it has launched a website where customers can order for batteries and be delivered at their doorsteps. It also enables dealers to track orders and help release the capital locked in inventory. But this initiative is expected to succeed only in the long run.

The scrip is currently trading at Rs 44 at a P/E multiple of 11x annualised 1QFY02 earnings. The auto sector continues to reel under pressure due to slowing economy and slow progress on the reforms. Though volumes have increased in recent weeks, it remains to be seen whether it sustains in the second half of the year. The industrial battery demand has also remained sluggish in absence of fresh investments. Against this backdrop prospects in the current year do not sound promising.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407