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UBS Investment Research
First Read: Exide Industries
L ook beyond the headline
Stock corrects on concern over price cuts
Exide stock price has corrected 9% over the past week on news of 8-10% price
cuts made by Exide for its aftermarket car batteries.
Our channel checks suggest cuts yet to be implemented nationwide
Our channel checks (30+ dealers across India) suggest the 8-10% price cut have
not yet been made across all cities. The prices have been cut by 8-10% in Sept in
Mumbai, Bangalore & Delhi. However, some dealers have not yet received any
formal communication in e.g. Kolkata and Hyderabad. The dealers cited that YoY
demand is weak YTD but has improved marginally in the past couple of months.
Management confirmed price "rationalisation", confident on margins
Management did confirm this price cut of 8-10% and indicated it is part of its
initiative to regain market share in the car battery aftermarket, which they had
strategically let go last year due to capacity constraints. While they declined to
comment on the impact on margins in the immediate couple of quarters, they
remain confident of maintaining 18-20% EBITDA margins over the medium term.
Valuation: Maintain our estimates and SOTP-based PT
The price cut is only for the car battery aftermarket (47%/50% of
revenues/EBITDA as per our est.) and is made after a 5-6% price hike in 1QFY12
and a limited price hike (in few products) in Aug. Lead prices (45-50% of rev)
have come off by 10-12%. Price cuts should help to regain mkt. share and is timed
with increasing capacity - which should have some operating leverage benefits.
The impact on margins, if any, is likely to be limited - at worst to a couple of
quarters.
Exide Industries
Exide Industries is India's largest lead acid battery manufacturer and it
dominates the storage battery market in the automotive OEM and replacement
segments. The company is involved in the manufacture of automotive, industrial
and submarine batteries for automotive and industrial (power, telecom and
railways infrastructure) applications. The company sells its products under wellestablished
brands including EXIDE, SONIC, SF, INDEX and Standard
Furukawa.
Statement of Risk
We believe the key risks facing the company include volatility in the prices of
lead, competitive pressure in domestic market, slowdown in auto and
infrastructure sector; and forex volatility.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
First Read: Exide Industries
L ook beyond the headline
Stock corrects on concern over price cuts
Exide stock price has corrected 9% over the past week on news of 8-10% price
cuts made by Exide for its aftermarket car batteries.
Our channel checks suggest cuts yet to be implemented nationwide
Our channel checks (30+ dealers across India) suggest the 8-10% price cut have
not yet been made across all cities. The prices have been cut by 8-10% in Sept in
Mumbai, Bangalore & Delhi. However, some dealers have not yet received any
formal communication in e.g. Kolkata and Hyderabad. The dealers cited that YoY
demand is weak YTD but has improved marginally in the past couple of months.
Management confirmed price "rationalisation", confident on margins
Management did confirm this price cut of 8-10% and indicated it is part of its
initiative to regain market share in the car battery aftermarket, which they had
strategically let go last year due to capacity constraints. While they declined to
comment on the impact on margins in the immediate couple of quarters, they
remain confident of maintaining 18-20% EBITDA margins over the medium term.
Valuation: Maintain our estimates and SOTP-based PT
The price cut is only for the car battery aftermarket (47%/50% of
revenues/EBITDA as per our est.) and is made after a 5-6% price hike in 1QFY12
and a limited price hike (in few products) in Aug. Lead prices (45-50% of rev)
have come off by 10-12%. Price cuts should help to regain mkt. share and is timed
with increasing capacity - which should have some operating leverage benefits.
The impact on margins, if any, is likely to be limited - at worst to a couple of
quarters.
Exide Industries
Exide Industries is India's largest lead acid battery manufacturer and it
dominates the storage battery market in the automotive OEM and replacement
segments. The company is involved in the manufacture of automotive, industrial
and submarine batteries for automotive and industrial (power, telecom and
railways infrastructure) applications. The company sells its products under wellestablished
brands including EXIDE, SONIC, SF, INDEX and Standard
Furukawa.
Statement of Risk
We believe the key risks facing the company include volatility in the prices of
lead, competitive pressure in domestic market, slowdown in auto and
infrastructure sector; and forex volatility.
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