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Conference call update
Exide’s management team reiterated an optimistic outlook for FY12 in the
conference call yesterday, highlighting a recovery in industrial margins
in4QFY11, a likely normalisation in the auto product mix from an on-track
capacity expansion plan and 20%+ volume growth for FY12 alongside
margins of 19-20%. Whilst performance should continue to improve, we
see continuing risks to the 19-20% margin target. Retain O-PF.
4Q recovery driven by industrial
Exide saw the auto product mix continue to move towards OEM at the cost of
replacement sales in 4Q (1.11:1 against 1.17:1 in 3Q). This caused auto
segment margins to remain flat QoQ (-400bps YoY) despite the replacement
price hike during the quarter. Industrial margins recovered 470bps QoQ (flat
YoY) as the drag from loss making telecom sales in 3Q eased and inverters
saw a seasonal uptick. Overall FY11 battery volumes were 23.8m (21.8m in
FY10); realisations were Rs2309 (Rs2070 in FY10).
Capacity addition plans, focus on marketing and distribution
Exide continues to target aggressive capacity expansion (28% 2W and 24%
4W for FY12), whilst exit capacity for FY11 was somewhat below the earlier
target. This should drive a normalisation in the replacement:OEM product mix
for the segment (target of 1.35-1.4:1), boosting margins. The capacity
expansion will also support Exide’s dealer retention efforts, which, along with
brand building, are a key focus area. Exide is cognisant of fresh competition
in the sector given strong margins over the past two years and has stepped
up its marketing and distribution efforts to retain market leadership.
Healthy growth outlook
The company management was optimistic on growth outlook for FY12. In the
auto 4W segment, the company anticipates ~20-25% volume growth, lead by
a market share recovery in replacement as capacity comes on stream (share
dropped to 65-67% against 70% earlier). In 2W, the company expects
market share gain from new products to drive 40%+ growth while industrial
grows at ~15%, driving overall top line growth of well over 20%.
We remain cautious on margins
FY12 margin performance will hinge on volume performance and pricing in
the auto replacement and industrial businesses. While we are sanguine about
the auto business, we believe that margins in industrial will remain a
challenge. Our margin assumptions for FY12 remain below company
guidance. Retain O-PF with a price target of Rs161, 5% upside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Conference call update
Exide’s management team reiterated an optimistic outlook for FY12 in the
conference call yesterday, highlighting a recovery in industrial margins
in4QFY11, a likely normalisation in the auto product mix from an on-track
capacity expansion plan and 20%+ volume growth for FY12 alongside
margins of 19-20%. Whilst performance should continue to improve, we
see continuing risks to the 19-20% margin target. Retain O-PF.
4Q recovery driven by industrial
Exide saw the auto product mix continue to move towards OEM at the cost of
replacement sales in 4Q (1.11:1 against 1.17:1 in 3Q). This caused auto
segment margins to remain flat QoQ (-400bps YoY) despite the replacement
price hike during the quarter. Industrial margins recovered 470bps QoQ (flat
YoY) as the drag from loss making telecom sales in 3Q eased and inverters
saw a seasonal uptick. Overall FY11 battery volumes were 23.8m (21.8m in
FY10); realisations were Rs2309 (Rs2070 in FY10).
Capacity addition plans, focus on marketing and distribution
Exide continues to target aggressive capacity expansion (28% 2W and 24%
4W for FY12), whilst exit capacity for FY11 was somewhat below the earlier
target. This should drive a normalisation in the replacement:OEM product mix
for the segment (target of 1.35-1.4:1), boosting margins. The capacity
expansion will also support Exide’s dealer retention efforts, which, along with
brand building, are a key focus area. Exide is cognisant of fresh competition
in the sector given strong margins over the past two years and has stepped
up its marketing and distribution efforts to retain market leadership.
Healthy growth outlook
The company management was optimistic on growth outlook for FY12. In the
auto 4W segment, the company anticipates ~20-25% volume growth, lead by
a market share recovery in replacement as capacity comes on stream (share
dropped to 65-67% against 70% earlier). In 2W, the company expects
market share gain from new products to drive 40%+ growth while industrial
grows at ~15%, driving overall top line growth of well over 20%.
We remain cautious on margins
FY12 margin performance will hinge on volume performance and pricing in
the auto replacement and industrial businesses. While we are sanguine about
the auto business, we believe that margins in industrial will remain a
challenge. Our margin assumptions for FY12 remain below company
guidance. Retain O-PF with a price target of Rs161, 5% upside.
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