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Exide Industries 3QFY2013 performance highlights and results update

Contributed by Angel Broking

Exide Industries (EXID) reported disappointing results for 3QFY2013 with top-line and bottom-line coming in significantly lower than our estimates. The weak performance can be attributed to ~200bp yoy contraction in EBITDA margins, primarily owing to raw-material cost pressures and unfavorable forex movement. While the company increased the prices in the replacement market by ~5% in November 2012 to offset the increase in lead cost prices; it was unable to pass on the increases to the OEM customers which led to a significant deterioration in OEM gross margins (~300bp qoq contraction to 1.3%). Nonetheless, on the positive side, EXID regained market share in the four-wheeler replacement segment to 32.8% in December 2012 from 25% in May 2012. We lower our FY2013 EBITDA margin estimates by 210bp to 12.7% and earnings by ~19% to factor in the weak quarterly performance. We also lower our FY2014 EBITDA margin estimates by ~140bp to 14.4% and earnings by ~12%, as we believe weak pricing power will result in a slower-than-expected recovery in margins. We maintain our Neutral rating on the stock.

Lower-than-expected 3QFY2013 performance: For 3QFY2013, EXID’s top-line registered a 17% yoy (down 3.8% qoq) growth to Rs.1,463cr; nonetheless, it was below our estimates of Rs.1,595cr. While the demand remained strong in the two-wheeler (2W) and four-wheeler (4W) replacement battery segments leading to a strong volume growth of ~50% and ~25% yoy respectively; subdued demand in the 2W and 4W OEM and industrial battery (5.5% yoy) segments led to a lower-than-expected top-line performance. The EBITDA margins declined by ~200bp yoy (~110bp qoq) to 11.3%, despite the price hike in November 2012, due to the steep increase in lead prices, unfavorable currency movement and higher incentives to dealers. Consequently, net profit declined 13.4% qoq (flat yoy) to Rs.104cr as against our estimates of Rs.137cr.

Outlook and valuation: At Rs.127, the stock is trading at 16.1x FY2014E earnings. We lower our target multiple for the core business to 15x (from 16x) largely on account of the lower margin profile of the company relative to the historical levels. We maintain our Neutral rating on the stock.