Exide Industries, India’s largest auto battery manufacturer, for 4QFY2009 clocked 0.5% y-o-y growth in net sales to Rs799.5 crore, which was largely in line with our estimate of Rs800 crore, aided by 18% total volume growth during the quarter.
According to the company, both its OE and Replacement sales improved in the fourth quarter compared with the previous (3QFY2009) quarter. While OE sales increased by 10%, Replacement sales moved up by almost 20%.
However, as against 4QFY2008, OE demand was lower by 2% and there was a marginal growth in Replacement sales.
In the industrial segment, domestic volume demand increased 40% y-o-y. The company’s bottomline growth at 8.6% y-o-y to Rs68.2 crore, however, came in slightly above our estimate of Rs63.7 crore.
During 4QFY2009, the company witnessed a 212bp y-o-y increase in EBITDA margins owing to a 487bp y-o-y fall in raw material costs, which accounted for around 64.7% of sales (68.5% in 4QFY2008).
Exide incurred net exchange loss of Rs14.7 crore (as against gain of Rs1 crore in 4QFY2008) on raw material during the quarter.
However, the 241bp jump in Other expenditure and Staff cost together restricted higher growth in OPM, wherein Operating Profits during the quarter increased by 15% yoy.
Outlook and valuation
Exide’s prospects are dependent on the fortunes of the auto and industrial segments. Lately, the auto sector earnings have been under pressure due to sluggish demand.
However, Exide managed a better showing on the back of higher growth in the Industrial Segment and better Replacement demand on an increased base of OE sales in the last 4-5 years.
Lower reliance on imported raw materials coupled with an improved Sales mix enabled the company to fully negate the adverse impact of a significant reduction in offtake from customers in the Automobile Segment.
We believe that a strong Balance Sheet and lower Debt-Equity ratio will enable the company sustain strong cash flows and meet the challenges arising from lower buoyancy in the Auto market in the near term.
We estimate the company to clock EPS of Rs4.5 and Rs5.2 in FY2010E and FY2011E, respectively.
At the CMP, the stock is quoting at 12.1x and 10.3x FY2010E and FY2011E Earnings, respectively. We have valued its stake in ING Vysya Life Insurance at Rs11/share on lower FY2010E New Business Arrived Profit (NBAP).
At adjusted valuations of 9.6x and 8.1x FY2010E and FY2011E Earnings for its core business respectively, the stock is available at attractive valuations. We maintain a BUY on the stock, with a target price of Rs61.