Cost relief came from lower lead prices, which were down 13% YoY (Mint)
Cost relief came from lower lead prices, which were down 13% YoY (Mint)

Replacement sales, low lead prices power Exide’s margins

  • A pick-up in retail sales trimmed Exide’s inventory. This, along with lower dealer incentives, shored up profitability
  • According to the management, battery sales improved in the auto replacement market and in the power supply, solar and infrastructure segments

In a surprisingly upbeat performance, Exide Industries Ltd, the country’s largest battery maker, clocked better-than-anticipated profits for the March quarter. This comes amid worries of severe production cuts by automakers, which affects battery sales in the original equipment segment.

However, tailwinds from strong sales in the auto replacement market and softening lead prices drove profitability.

The Ebitda (earnings before interest, tax, depreciation, and amortization) margin, at 14.4%, was 90 basis points (bps) above Bloomberg’s 14-broker average.

It was also 70bps higher than the year-earlier quarter. One basis point is one-hundredth of a percentage point.

Battery sales improved in the auto replacement market and in the uninterrupted power supply, solar and infrastructure segments, the management said.

As a result, revenues increased by 6% from the previous year. This apart, cost relief came from lower lead prices, which were down 13% year-on-year (y-o-y). Raw material costs fell marginally as a percentage of sales, though there could be more gains in the coming quarters.

From a brand perspective, dealer feedback shows that Exide has regained lost share in the replacement market, especially in auto batteries.

A pick-up in retail sales trimmed inventory. This, along with lower dealer incentives, shored up profitability.

The result was a 19% jump in Ebitda to 373.3 crore. Lower tax outgo fuelled net profit even more, by 35% from the previous year to 210 crore, topping Street expectations.

Analysts have a positive outlook. Greater sales in solar and e-autorickshaws, a shift in sales towards the regulated segment following the implementation of the goods and services tax, as well as lower input costs are likely to aid margin expansion in the quarters ahead, said Dolat Capital Markets Pvt. Ltd.

That said, there are long-term anxieties for battery firms because of the shift to BS-VI emission norms and electric vehicles.

In the immediate future, the uncertainty and a subdued outlook for growth in the auto universe may impact revenues for a few quarters.

Still, analysts see Exide’s margins as northbound, riding on expectations of double-digit revenue growth for the next few quarters.

Note that the stock had undershot the broader Nifty 200 index in the last six months on reports of sluggish demand in the auto sector. Valuations, therefore, have turned less expensive as the stock trades at 20 times the estimated fiscal year 2021 earnings.

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