Exide's Worries Refuse To Fade

Exide Industries, in FY11 and FY12, faced immense pressure due to an increase in raw material costs which was coupled with the slowdown in the automobile sector, directly affecting sales to original equipment manufacturers (OEMs). Also, in FY11, the company lost out on market share due to capacity constraints. The ride has been rough for the company and continues to be so even now.

Over the last two years, international lead prices have seen major fluctuations pivoting in the range of approximately USD 1,500 and USD 3,000 a tonne. Since the beginning of the third quarter of FY12 though, lead prices have softened but the rupee has depreciated further, thus bringing no respite to the predicament of Exide.

Though Exide has been able to consistently post revenue growth over time, the effect of market conditions can be clearly visible in the margins of the company. Lately, there has been an increasing inability to pass the material costs on to its customers due to price sensitivity in the automotive sector. The firm has managed to re-negotiate contracts in the industrial battery segment to link sales prices to lead prices.

For Q1FY13, the net sales of Exide grew by 24.64 per cent to Rs 1,551.08 crore from Rs 1,244.41 crore in Q1FY12. The net profit of the company witnessed de-growth of 6.87 per cent YoY, reaching Rs 152.03 crore in Q1FY13 from Rs 163.25 crore in Q1FY12. In terms of segment performance, in the first quarter of FY13, the four-wheeler automotive battery division grew by 10 per cent while the motorcycle battery business grew by 28 per cent. On the industrial battery front, the firm witnessed growth of 19 per cent. The quarter also saw the rolling out of home UPS systems.

There exists immense potential in the industrial battery segment and on the home UPS front for the company to witness robust growth figures. However, the automotive division is highly dependent on the market dynamics of the automobile sector. And ultimately, as historically proven as well, the profitability finally is in the hands of material costs and currency fluctuations.

We have seen consistent numbers in the topline that have proved the ability of the firm to deliver results but it’s the bottomline that has been hampered all along. We expect the performance to be good on both the fronts only when there is stability in lead prices and the rupee or when Exide manages to pass these costs on to customers through a price hike. Till that happens, we would maintain our outlook to be negative on the scrip.

Financials Of Exide Industries For The Last 4 Quarters