Rajan Raheja-owned Exide Industries Ltd’s stellar March quarter results fired up its stock, which shot up 5.5% on Monday. High lead prices notwithstanding, the market leader in lead-acid batteries ticked off all boxes on the back of energized sales.
The company impressed with its 13.7% operating margin, which was 86 basis points higher than the year-ago period and also higher than what the Street had penciled in. This was propelled by strong sales volume across product categories, be it automotive, telecom, inverters or solar. It appears that the No.1 battery maker did its best to regain lost market share in the replacement market, where its competitor Amara Raja Batteries Ltd had steadily crept in during years of capacity constraints at Exide.
The 26% jump in net revenue at Rs2,459 crore was in line with Bloomberg’s 18-broker average estimate. A note from HDFC Securities Ltd said that sales traction in nascent segments such as e-rickshaws and solar, in addition to a shift in customer preference in favour of the organized battery makers, aided revenue growth. Innovative marketing strategies such as limited warranty brands at lower prices to take on competition from the unorganized segment paid off.
Exide has left no stone unturned to regain lost market share in automotive batteries, where it still rules the roost, garnering about half the share.
The net result: operating profit soared by 34%. Of course, high lead prices that show no signs of cooling off had lowered profit expectations on the Street. Net profit at Rs189 crore was 15.5% higher than a year back. But for the high tax rate, it may have surpassed estimates.
Exide’s strong comeback after losing steam for many quarters, when compared to its arch-rival Amara Raja, has lifted investor confidence as mirrored in the stock price movement. Since March, the Exide stock has rallied by about 19%. At Rs262, the one-year forward price-to-earnings ratio is a rich 20, up from around 16 a year back.
Although this may be sustained, given the strong growth prospects in the auto segment, there are risks on the horizon for battery firms. Growth in electric vehicle sales would mean replacement of lead-acid batteries by lithium-ion ones. Some auto original equipment manufacturers are likely to make these batteries in-house through technical collaborations, as such batteries will comprise a higher component of production costs in electric vehicles.
Such uncertainties could weigh on the long-term prospects of the stock, while the risk of strong lead prices loom over its near-term prospects.