Amara outshines Exide in replacement segment

Given the run-up in stock prices of both firms, there might not be major gains from current levels

Amara Raja and Exide exceeded the Street expectations and had a good June quarter with higher growth in the key four-wheeler replacement segment.

Amara Raja outperformed its larger peer Exide Industries. While Amara Raja reported a 15 per cent volume growth in this segment, Exide's growth was muted at three per cent, resulting in market share gains for Amara Raja. The replacement segment is the largest revenue contributor within the auto space for both the companies. Here, Amara Raja earns a higher proportion of its sales from this more profitable segment.

While the key growth driver for Exide in the quarter was inverter sales due to delayed monsoon and power outages helping overall revenues grow 18 per cent year-on-year, Amara Raja's 15 per cent growth was driven by four-wheeler replacement market and telecom/UPS segments.  

  Though inverter sales helped shore up the muted performance of Exide's auto segment, these are likely to come down over the next two quarters. The key positive for Exide, however, will be the expected recovery in OEM sales, on which the management is bullish. The company has market share of 63-66 per cent in the four- and two-wheeler segments. However, while there will be leverage benefits, analysts do not expect Exide's margins to improve significantly. This is due to the lower margin in the OEM segment and increasing competition in the replacement market, where Amara Raja's new four-wheeler capacity is scheduled to come up in the September quarter and pose market share challenges for Exide.

Amara Raja's Ebitda (earnings before interest, tax, depreciation and amortisation) margins at 17.1 per cent were better than Exide's at 15.2 per cent. While Amara Raja's margins were higher year-on-year as well as sequentially, Exide's sequential margin saw gains on the back of higher margin inverter sales, fall in lead prices and operating leverage.

Exide's net profit growth at 16.7 per cent was better than Amara Raja's 8.3 per cent. Though Amara Raja's sales and operating profit growth were robust, gains at the net profit level was lower due to higher depreciation rate on plant and machinery under the new Companies Act.

Post results, Amara Raja stock touched its yearly high before ending 1.25 per cent up at Rs 523. Both stocks have run up over the last three months with Exide gaining 41 per cent and Amara Raja by 31 per cent. Await correction before committing to these stocks as they are trading at close to their respective post-results Bloomberg consensus target prices.