Exide’s rising valuation is the result of its comeback in the automotive batteries segment.
In the September quarter, Exide reported a 12% increase in Ebitda, compared with Amara Raja’s flat profits.
The market capitalization of Exide Industries Ltd has powered ahead in the past year, while that of Amara Raja Batteries Ltd has lost steam. Exide, which is the leading battery maker in the country, has seen a 10.3% increase in its market cap in one year, while Amara Raja, the second largest, lost 5.7% in value in the same period.
Exide’s rising valuation is the result of its comeback in the automotive batteries segment, after hitting a trough due to capacity constraints. In fact, until last year, it had trailed Amara Raja’s market cap for three long years, due to the slippage in performance. In the last two quarters, it clocked strong growth in revenue and profits. Importantly, analysts expect the performance to continue in the December quarter too. A report by Emkay Global Financial Services Ltd points to a higher net profit growth of 18-20% for Exide compared to Amara Raja’s estimated growth of 10-11%.
Currently, Exide commands a third of the replacement automotive battery segment. In the September quarter, Exide reported a 12% increase in Ebitda (earnings before interest, tax, depreciation and amortization), compared with Amara Raja’s flat profits.
Meanwhile, recent dealer feedback indicates that Exide is slowly but surely gaining ground in telecom batteries. This is not good news for Amara Raja, which pioneered and enjoyed leadership in the segment for more than a decade.
Meanwhile, Exide’s stronghold in the automotive original equipment segment, where it commands between 60-70% market share, is paying off by way of operating leverage and higher profit margins, since auto sales have been zooming in the last few quarters.
That said, both companies are set to gain from lower lead prices in the December quarter. The price of lead, a key raw material that comprises two-thirds of the total cost of production, has receded by 17% from its highs a year ago.
Of course, there is a risk of demand slowdown as automobile sales have shifted into the slow lane in the last few months. Its impact on components including batteries will be felt in the near term, if the sluggishness continues.