Result Analysis: Exide Industries

At 19 times estimated FY13 earnings, Exide appears a little expensive

Exide announced a marginally better-than-expected sales growth for June 2012. The company posted a 24.5 per cent growth in sales at Rs 1,554 crore as compared to Rs 1,248 crore in June 2011 and a 7.3 per cent growth as compared to March 2012 figure of Rs 1,448 crore.
Exide’s profit for June 2012 stood at Rs 152 crore a drop of seven per cent when compared to Rs 163.25 in June 2011. The drop was partly because the company earned income through dividends totaling Rs 30.78 crore in June 2011 as compared to Rs 14.74 crore in June 2012. However, it was better than that of March 2012 when the company posted a profit of Rs 142.51 crore.

At the operating level there was a margin improvement on account of lower raw material prices, with margins moving up from 15.3 per cent in June 2011 to 15.7 per cent in June 2012. Exide expects margins to improve to 16-18 per cent over the next few quarters.

Thanks to the electricity shortage, Exide posted a jump of 70 per cent in replacement battery segment, especially inverter batteries (UPS Batteries). This also helped in cushioning the decline in OEM volumes. Automotive replacement battery segment also posted a healthy 9.1 per cent growth. Exide’s management expects replacement batteries to improve further in the second half of the current fiscal.

As for the industrial segment, the company expects a growth of 15-16 per cent going forward. The industrial segment offers margins comparable with that of the automotive segment, and can be better at times, said the company management in a news channel interview.
Exide is bullish on growth in two-wheeler segment, which though has slowed down in the OEM market, has more than made up for this loss from the replacement demand. The company has ruled out any price increase as it might affect its market share.

Unlike auto companies, Exide has capitalised on the replacement demand from batteries. It has further strengthened its position by capturing a decent market share of the UPS market. However, its stock price seems to capture this upside. At Rs 131, Exide trades at 25 times its past four quarters earnings and 19 times consensus FY13 EPS estimates. Unless growth spurts, there is little attraction in owning the stock.