The better-than-expected momentum in car sales should help Exide do well this year.
While Exide should be able to pass on the higher cost of lead to its customers, soaring prices of the commodity that recently crossed $2,400 a tonne, are nonetheless worrying.
That’s probably why the stock of the country’s largest producer of lead acid storage batteries has lost more than 7 per cent since the start of September. Lead prices have gone up by more than 80 per cent since May 2009.
While Exide purchases a fair share of lead on a contract basis, analysts say the company may just have to absorb some part of the increase.
The good news is that the company will benefit from better-than-expected pick-up in car sales. Sales of batteries are expected to grow by about 15 per cent in the current year since the demand from original equipment manufacturers (OEMs) is now fairly strong.
Moreover, according to analysts, the demand from the inverters segment is now estimated to grow by 20 per cent, up from the earlier 12 per cent.
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In a bid to cash in on the improving demand, Exide plans to spend around Rs 100 crore to create more capacity given that it is already using about 90 per cent of its facilities.
In the current year, the company is expected to turn in revenues of Rs 3,700 crore, an increase of 8.5 per cent over 2008-09. The net profit, however, is expected to increase by 60 per cent over the Rs 291 crore reported last year, thanks to better operating leverage and lower interest costs.
At the current price of Rs 89, the stock trades at just under 15 times estimated 2009-10 earnings with room for upside, especially since the company has a 50 per cent stake in ING Vysya Life Insurance. The stake, according to analysts, could be worth Rs 11-12 a share.