BackHigher margin drives profit growth for Exide
Higher margin drives profit growth for Exide
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There are several reasons for Exide’s good performance - largely stemming from internal checks and balances, to combat volatile raw material prices. Its flat sales growth is only a reflection of lead prices which softened compared to 2008, resulting in lower selling prices. The company has sold 12-14 per cent more batteries in unit terms, across various segments.
But the key turning point for Exide has been its cost control measures. It has invested in lead recovery smelters, for used batteries, protecting it from an increase in lead prices. Captive smelters now cater to 40% of its lead requirements against 25% at the end of FY’09. This is significant as raw material costs take away nearly 70% of the company’s sales.
The management has also added to margins by reducing operating costs and controlling defects. As a result, its operating profit margin increased from 15% to 23%. It has also retired high cost debt, leading to lower interest costs. In the September 2009 quarter, another saviour has been a forex fluctuation gain of ₹ 4.1 crore compared to a loss of ₹ 8.7 crore in the previous corresponding period.
Higher volumes are expected to continue in FY’10, as OEM volumes are rising. “We are operating near full capacity and are considering adding and upgrading capacity," said a senior company official. While the company is optimistic about its future, investors seem more circumspect. The share price fell by 5% to ₹ 96 on Monday after hitting a high of ₹ 105. They may be having one eye on rising lead prices, which have increased from $1500 a tonne in April 2009 to $2300 a tonne at current levels. This may dent profit margins in future, even as it would contribute to higher sales growth.
Write to us at marktomarket@livemint.com
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