Exide Industries: F2Q11 Results: In Line with Expectations
Quick Comment - Results In Line: Exide posted in
line numbers with revenue and adjusted net income
growth of 19% and 15% YoY. The EBITDA margin
decline of 100 bps QoQ was disappointing but as new
capacity comes online we expect the mix to shift towards
the replacement segment and thus lead to margin
expansion. Adjusted for the one-time gain from the sale
of lease land, net income was in line with our estimates.
We remain OW on the company and view it as the best
way to participate in the auto consumption theme.
Margins down 100 bps QoQ: Raw material costs were
under control and gross margins were flat. A sharp rise
in other expenses led to an EBITDA margin decline of
100 bps QoQ. The EBITDA margin came in at 21.8%,
down 100 bps QoQ. We view the mix change in terms of
more OEM sales and a slowdown in the power backup
segment as the key reason for margin decline.
Margins to improve as new facilities come up:
During the quarter the company commissioned its third
motorcycle battery plant in Ahmedabad and, in
September, started additional four wheeler lines. High
demand from the OEM side (low margin segment) and
production constraints (automotive facilities are running
at 100% plus utilization and industrial facilities are
running at 90% utilization) led to lower sales in the high
margin replacement business. With commissioning
facilities and additional lines in existing facilities we
expect margins to inch up in the coming quarters. In the
first half the company has done 50% of our annual
estimate thus as margins improve there could be upside
risks to our FY11 numbers.
Other income came at Rs191 mn, up 3x on QoQ
basis and comprised of subsidiary dividends of about
Rs80 mn and remaining income came from mutual
funds/current investments. The company did not make
any additional investment into insurance business in Q2.
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