Home >Markets >Mark To Market >Replacement demand keeps batteries running for Exide Industries
Exide may also reap the benefits of improving operating leverage in the coming quarters as volumes rise after the easing of lockdown.
Exide may also reap the benefits of improving operating leverage in the coming quarters as volumes rise after the easing of lockdown.

Replacement demand keeps batteries running for Exide Industries

  • One positive is that cost-cutting was quite sharp during the quarter. Exide’s other expenses to sales ratio declined sequentially to 12.6% in Q1 from 17%

MUMBAI: Exide Industries Ltd seems to be charging its batteries, anticipating replacement demand in the coming quarters. Shares of Exide jumped about 1.5% on Tuesday as secondary market sales inched up in the first quarter.

But a decline in vehicle sales during the quarter (April-June) had an impact on Exide’s volumes. The hit to original equipment sales dragged down revenues by about 44% year on year (y-o-y) in Q1. Besides, the industrial and replacement segment also saw revenues contract as most businesses were closed during the most of the quarter given the lockdown.

This also had an impact on operating leverage. Exide’s Ebitda margins fell to 9.6% from 14.7% a year ago. One positive is that cost-cutting was quite sharp during the quarter. Exide’s other expenses to sales ratio declined sequentially to 12.6% in Q1 from 17%. Note that there has been a steep decline in sales volumes sequentially as well, and so these savings are pretty substantially.

Exide may also reap the benefits of improving operating leverage in the coming quarters as volumes rise after the easing of lockdown. One positive is that sales of original equipment manufacturers are improving. July auto sales in passenger vehicles and two-wheelers have been better than June.

Besides, the replacement market is also improving as batteries need to be changed every few years. "We do not rule out the possibility of the replacement nature of the business leading to demand surge in the near term. Further, we expect replacement volumes to touch FY20 peak in FY22," brokerage firm Edelweiss in a note to clients

Still, Exide has a long way to go on the technology front and that could be a speed breaker. Newer technologies pose a competitive threat to business. On that score, Exide’s research and development expenses are quite low.

“With limited expertise in lithium-ion technology and muted R&D investments, we believe over the long term, the terminal growth potential of both the companies in the sector will get negatively impacted resulting in further multiple de-rating," said analysts at Kotak Institutional Equities.

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