Exide Industries Ltd’s share price jumped by 7% on Thursday, a day after it announced its March quarter results, which beat the Street’s expectations by a wide margin.
The battery maker’s revenue grew 21% from a year ago and 19% from the preceding quarter, which is a positive as the management had highlighted capacity constraints as a key hurdle in performance during the December quarter.
Its operating profit margin fell year-on-year (y-o-y), but it did not dampen investor sentiment. In fact, an unexpected sequential improvement in margins, up by 350 basis points to 18.6%, due to a better product mix appears to have got more weightage.
Higher volumes in the automotive replacement market and a 5% hike in prices during the quarter were the main contributors to performance, according to A.K. Mukherjee, chief financial officer of Exide. Its industrial segment, too, did well during the quarter, helped by better growth in the inverter battery category.
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Capacity constraints had compelled Exide to divert batteries away from the more lucrative replacement market to cater to higher demand growth from the original equipment segment in the previous quarter. This had threatened its historically dominant market share of around 65% in the replacement market, and also affected profitability.
The company expects profitability to improve in the current fiscal, as it will expand its capacity by 25-40% to make both two-wheeler and four-wheeler batteries this year, freeing it of supply constraints.
Operating margins also improved with higher efficiency. Exide recycles lead from used batteries in its own smelters, thereby saving on raw material costs. Today this meets 55% of its lead requirements—up from about 45% a year ago.
A Prabhudas Lilladher Pvt. Ltd research report says: “Exide enjoys a cost advantage of 10% over the LME (London Metal Exchange) lead prices on sourcing from its in-house smelters.” Over the next two years, it expects to source three-fourths of its lead from its own smelters.
Exide’s operating profit rose by only 8% y-o-y in the March quarter, but higher dividend from subsidiaries and higher treasury income contributed to a robust 21.6% rise in net profit at Rs 163.7 crore. It beat the Street’s estimates by over 20%. Treasury income rose due to the deployment of funds raised from a recently completed qualified institutional placement.
Analysts have revised Exide’s expected earnings upwards for the next two years, based on expectations of robust revenue growth and profitability improvement. At Rs 150 apiece, Exide’s share trades at a fair valuation of around 13 times its estimated fiscal 2012 earnings.
Graphi by Sandeep Bhatnagar/Mint