 "Exide Industries: Demand woes continue")
Exide Industries' numbers for the June quarter disappointed the Street yet again, with reported revenues down 6% to Rs 1,799 crore while operating profit was down 9% to Rs 265 crore. Consensus estimates pegged the two numbers at Rs 1,943 crore and Rs 298 crore, respectively. The bottomline, too, at Rs 155 crore down 16% was below expectations of Rs 180 crore. However, on a sequential basis the company reported a 13% growth in net profit on a 9% growth in operating profit and a 28 bps margin improvement to 14.8%. Margins in FY15 were at 13.3%. The stock was up about a percent in trade today.
The company indicated that the demand for automotive and industrial battery segments including home UPS, power and traction battery was subdued. The volume decline on this count has reflected in fall in the revenues. What has given support to the overall revenues have been encouraging sales from the replacement segment, both for automotive and motorcycle replacement sales.
Given the muted revenue numbers, research firms are likely to downgrade revenue estimates for the current fiscal. Analysts at IndiaNivesh Securities say that the revenue fall is due to lower sales of inverter battery sales and price cut taken in March quarter. The analysts also indicate that the company slashed dealer incentives and increased number of dealerships impacting profitability of its dealers. The company is now changing this strategy and this should reflect in the coming quarters, they add.
Falling lead prices, which is the key raw material, helped the company improve gross margins, up about 40 basis points largely due to raw material to sales ratio decline by a similar number to 66%. However, rising employee expenses diminished the gains at the operating profit level with margins coming in at 14.8%, 30-40 basis points below analyst expectations.
A muted top line and higher costs coupled with lower other income and higher taxes dented the bottomline. The company has said that technology upgradation and cost control remain the key strategy of the company to improve its bottomline. The company has a technical collaboration and assistance agreement with East Penn Manufacturing Company of the US to upgrade Exide’s plants across the country. It also has agreements with two Japanese companies, Furukawa Battery and Shin-Kobe Electric of the Hitachi group.
While the stock is trading at 17-18 times FY17 estimates and is not in expensive territory (Amara Raja, its closest peer trades at 21-22 times), any sustained stock up move will depend on operational improvements especially on the margins front which has so far not come about. Await improvements in the core business before taking an exposure to the stock.