Capacity constraints and a change in sales mix have affected revenues and margins.
Exide Industries, the automotive and industrial battery manufacturer, has seen a strong surge of late. The stock has risen almost 30 per cent in the last three months, outperforming the benchmark indices like the Sensex and the BSE Auto, which have risen almost 12 per cent and 18 per cent, respectively.
This was mainly because of a strong performance in the June quarter, when the company witnessed 14 per cent sequential growth in revenues and a 23 per cent rise in net profit, spurred by a 170-basis-point jump in operating profit margins. The growth also ratified expectations of a performance parallelling the auto boom.
The September quarter has, therefore, been relatively disappointing, with revenues shrinking 2.5 per cent sequentially to Rs 1,374 crore (up 21 per cent year-on-year) and operating margins narrowing by over 100 basis point to 21.8 per cent. One-off gains of Rs 47 crore accrued from transfer of unused leasehold land boosted profits by 30 per cent sequentially.
The management attributed the top line and margin impact to capacity constraint, particularly in the four-wheeler category, where the focus on original equipment manufacturers curtailed supplies to the higher-margin replacement market. This change in sales mix hurt operating margins and also the company’s market share in the September quarter.
Exide has recently commissioned its third motorcycle battery facility and added production lines to its existing four-wheeler battery facilities. The replacement supply is, therefore, expected to improve in the near term.
The continued strength in auto sales keeps analysts bullish on the stock. Exide saw its share price fall almost three per cent on Wednesday to Rs 166. At these levels, it trades at an expensive PE of nearly 22 and 18 times its consensus 2010-11 and 2011-12 earnings per share estimates, respectively. Further upsides will be linked to upgrades in earnings estimates, which will flow through only with stronger performance in the coming quarters.
