Home >Markets >Mark To Market >As revenue declines, auto sales revival is key for Exide’s growth

With the covid-19 pandemic and ensuing lockdown slashing sales, Exide Industries Ltd’s Q4 revenue plunged about 21% year-on-year. While a slower offtake is expected in the original equipment category, the stock may not quite power ahead in the coming months. Shares of Exide Industries fell 8.35% on Monday.

In fact, the slide in revenue was steeper than that of rival Amara Raja Batteries Ltd in Q4. The company’s battery division has seen considerable challenges due to the slowdown in the original equipment category. Regulatory changes and technology shifts are battering the automotive industry, already roiled by uncertain demand.

Graphic: Sarvesh Kumar Sharma/Mint
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Graphic: Sarvesh Kumar Sharma/Mint

Note that Exide has a large share in the automotive original equipment segment. Besides, the lockdown and delay in the onset of summer hampered its UPS segment growth.

Still, softer lead prices have boosted gross margins by about 310 basis points. Nevertheless, this has not translated into improved operating margins largely due to higher employee costs and the lower operating leverage. Exide’s Ebitda fell about 28% y-o-y. Ebitda is earnings before interest, taxes, depreciation and amortization. A positive is that lead prices could be soft in the coming months. This would aid in sustaining gross margins to an extent.

Further, on account of the pandemic, the company has recently implemented some cost control measures. “With cost control via cut in salary cost of 15-30% and technology upgradation, we anticipate margins would actually improve from current lows," said analysts at Edelweiss Securities in a note to clients. Exide’s smelter capacity will also help in controlling costs in the coming years.

Another thing to watch is the replacement market. With most automobiles not being used during the lockdown, a rise in sales in the replacement market is likely. Any improvement in the replacement market volumes in FY22 could see Exide’s revenue rise.

Nevertheless, covid-19 headwinds and slowing auto sales will disrupt business in the short run. Shares of Exide are not quite inexpensive at about 16 times trailing 12-month earnings. But unless sales to the auto sector improve, valuations could remain under pressure.

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