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Deutsche Bank on Exide
Exide's 3QFY11 results are significantly below our and consensus estimates. EBITDA margin at 15.3% (-650bps QoQ, DBest 21.9%) was severely
impacted due to combination of unfavourable sales mix and inability to pass
on input cost pressures. The company continues to face capacity constraints in the automotive segment which is limiting its ability to cater to the
more profitable replacement market as OEM demand has remained buoyant. We estimate that margins on replacement sales are c30-35% vs 8-10%
on OEM sales.
Management has also stated that the industrial segment (40% of revenue)
has performed below expectations which is likely on account of lower demand for power back-up solutions.
Key highlights:
* Revenue - Rs 10.5bn (+15% YoY, 15% below DBest), EBITDA - Rs 1.6bn
(-27% YoY, 41% below DBest), PAT - Rs 1.2bn (-5% YoY, 27% below
DBest).
* EBITDA margin contraction of 650bps QoQ was on account of a 580bps
QoQ increase in raw material costs to 65.1%.
* Management commentary indicates that they did not pass on the higher
lead prices to the replacement market as they were already losing marketshare on account of supply constraints. We note that lead prices increased
by 17% QoQ.
* Management has guided for an acceleration in their capex plans - company will spend Rs 1.2bn in 4Q vs Rs 1.8bn in April-Dec 2010.
Maintain Buy with a target price of Rs 180.
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