In spite of the 6.9% drop in net profit, Exide Industries Ltd’s June quarter earnings reflect a steady recovery in performance in a challenging environment. The country’s largest battery maker’s net revenue jumped 24.8% from a year earlier to Rs 1,551.1 crore—a growth rate clocked after nearly seven quarters.
This was driven by strong volume expansion—28% in motorcycle batteries and 19% in industrial batteries—even as the firm took some price cuts to restore market share lost to its closest competitor Amara Raja Batteries Ltd in the last few quarters.
The price cut on some batteries in the replacement market (which has higher profit margins) and rupee depreciation that made lead imports costlier offset the near 30% drop in global lead prices from peak levels scaled a year back.
Operating profit grew around 4.7% year-on-year and 9.3% sequentially to Rs 232 crore. Operating margin fell 290 basis points (bps) from a year ago to 15%. A basis point is 0.01%. Although operating margin improved only by 40 bps from the March quarter, it has almost doubled from the low of 7.6% in the September 2011 quarter, when the firm’s performance was hit by capacity constraints and high lead prices.
Following aggressive capacity expansion both in the two-wheeler and four-wheeler segments, Exide is riding on its strong pan-India dealer network to regain lost market share. Although it’s hard to get authentic data, dealer information indicates that Exide has recovered around half its lost market share. But analysts reckon that given the sluggishness that has set into the replacement and original equipment category of the auto segment, retracing market share in the near term may be a tall order for Exide.
Meanwhile, demand in the industrial battery segment could hold out for another quarter, shoring up margins.
One must note, however, that the 6.9% fall in net profit to Rs 152 crore was partly due to the 50% drop in dividend income from subsidiaries against the year-ago period.
Exide’s shares were only marginally up the day after the results were announced. The management said on a television news channel that it expects stable lead prices and fewer currency fluctuations going forward. According to Surjit Arora, analyst at Prabhudas Lilladher Pvt. Ltd, “Stable material cost and any recovery in the replacement market in the second half of fiscal 2013 (FY13) may lift margins from current levels.”
The firm expects to improve the full year FY13 operating margin to 16-18% from 13.5% last year. Risks to this would emanate from any price cuts to regain the replacement market share and a further slowdown in the automotive segment. Exide’s shares, however, had run up in the last few months as lead prices softened. The current price of Rs 132.35 apiece discounts FY14 earnings about 14 times, which is a fair valuation, until momentum returns in the auto sector.
Exide Industries (PDF)
Quarterly performance (PDF)