Exide Announces 14% Rise In Operating Profit

Exide Industries announced its Q1FY14 numbers on July 15, 2013, post market hours. In the last few quarters, the company had taken a hit on account of a decline in automobile sales volumes. However, Q1FY14 saw improvement in its sales and operating margins.

FY13 was a bad year for Exide. It faced tremendous pressure from the automotive OEM business. Demand was so poor that Exide had undergone a series of rate cuts ending up with a decline in gross margins for sales to four-wheeler OEMs from roughly 12% in FY12 to a near-2% in FY13.

In such grave situations, the replacement market, which constitutes for two-thirds of battery sales, provide substantial buoyancy. It is this segment that has been responsible for the company’s decent performance in Q1FY14.

In Q1FY14, Exide’s net sales saw an increase of 4.78% to Rs 1626.34 crore, as compared to the previous year. Its operating profit grew by 13.79% to Rs 232.4 crore. This translates into a 113 basis points improvement in its operating profit margin to 14.29%. Its net profit witnessed growth of 3.13% to Rs 156.8 crore. This resulted in a 16 basis points reduction in its net profit margin to 9.64%.

Exide stated better margin management, judicious product mix and cost reduction through value engineering as the reasons for margin improvement.

Although there has been improvement in the overall sales and profitability of Exide in the quarter under review, its sales in the OE business, industrial batteries business and home UPS business remained disappointing.

Moreover, rupee depreciation has been putting pressure on the company’s operating margin since the cost of imported lead has been on the rise.

Although the quarter has shown decent numbers for Exide, it continues facing pressures on multiple fronts. From intense competition to a slowdown in most of the segments that Exide operates in, pressure is likely to continue and affect its performance till there is significant improvement in macroeconomic cues.

We thus have a negative outlook on the performance of Exide in the short-term.