>EXIDE INDUSTRIES LIMITED: “Positive developments factored in”

Q3 FY12 - Sequential improvement
On the back of strength shown from 2 wheeler segment, Exide was in a position to put up a sequential improvement in numbers. Total income increased by 6% qoq, while 19% yoy. At the EBITDA levels, there was an increase of 84% qoq and a 3% yoy. RM to sales came down significantly to 67.4% v/s 72.3% qoq while it was still up from 62.7% yoy. The reason for sequential dip was the exhaustion of high cost lead which impacted Q2 margins. EBITDA margins came in at 13.2% v/s 7.6% qoq and 15.2% yoy.PAT almost doubled to Rs1.04 mn on strong operational performance. 


2W volumes strong, 4W subdued, industrial post a growth
The volume improvement in the quarter was on the back of strong 2W battery sales. The auto battery volumes grew 19% yoy and 3% qoq to 3.55mn while 4W volumes declined by 21% yoy, while grew by 6% qoq. On the industrial side, volume growth was 13% yoy and 3% qoq on harsh October summer and demand from telecom industry increasing. On the capacity side, the company is through with 4W capacity expansion at 12mn units, while is still in the process of increasing 2W capacity which is slated to move up to 21mn. The management is confident about 2W demand getting back on track quickly, while has pessimistic outlook on 4W demand. In Q3FY12, the company functioned at 82% utilization rate on the auto side while 81% on the industrial side, which was a sequential improvement of 72% and 62% respectively. The replacement: OEM ratio on the auto side was 1.24:1 which was an improvement qoq. Going forward, we believe that 2W demand on the OEM side will be slightly soft as the sector has seen some slowdown off late, while on the 4W side OEM demand, we believe softness will continue over a couple of quarters. On the replacement side, we believe that Q1 FY13 will see some turnaround emanating from the demand for automobiles 3 years ago, both on 2W as well as 4W.


Margin improvement may come in coming quarters
The improvement in margin performance was in line with our expectations as high cost lead was expected to get over this quarter. The composition of replacement in the total volumes also improved and is expected to improve even more from FY 13. This will assist margin performance.Softening of lead prices as seen in Q3 is expected to continue and help the margins going forward. We have already factored in about 400 bps improvement in margins in FY 13 to 15.7%.


Industrial segment to remain subdued
Going forward with improving power conditions,we see the demand for inverters going down from current levels in the long term. In Q3, inverter sales were up due to strong summer in October, while stronger winter in most parts of the country would be reducing the sales of inverters in Q4. We expect the contribution of inverter sales to reduce in the total topline from FY 13, though the company is planning to enter the inverter business. On the telecom side of the industrial batteries, winning of contract by rival Amara Raja for supplying batteries to Bharti’s Africa business may take some market share from Exide.


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