It’s hard for TV Ramanathan to be charged up about his company’s prospects in the near term. But the managing director of Exide Industries is keeping his fingers crossed that his clients, which include the likes of Maruti and Tata Motors, will see sales picking up.
The operating profit margins were dented by 60 basis points to 14.4 per cent with lead contracts entered into at higher prices still valid during the quarter---lead accounts for 70 per cent of Exide’s raw material costs. However, falling lead prices will help shore up margins in 2009-10, says Ramanathan. According to Bloomberg data, lead prices have fallen by 44 per cent since September 2008. Prices are believed to have bottomed out and may rise by around $200 per tonne, from current levels of $1,140 per tonne which the company should be able to handle. Meanwhile, Exide is expanding its network in tier two and tier three cities like Bhagalpur in Bihar, to take on the unorganised sector which has a strong grip on the commercial vehicles (CV) and taxi segments. These smaller manufacturers have a good presence in semi urban areas.
However, unless the economy picks up speed, it’s unlikely that the momentum in sales which averaged a compounded 27 per cent in the last three years, will be matched in the near term. Analysts estimate that gross sales could increase by around 14-15 per cent in 2008-09 over the Rs 3,606 crore earned in 2007-08. The growth in the net profit could be subdued—in 2007-08 the company earned a profit after tax of Rs 250 crore. The Exide stock outperformed the Sensex in 2008 but has lost some 15 per cent since the start of this year; on Tuesday the stock fell 5.5 per cent to close at Rs 42.