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2QFY12 results
Exide reported disappointing operating results for 2QFY12 with revenues
up 4% YoY (-6% QoQ) and PAT down 76% YoY (-69% QoQ). Beyond the
impact of lead/FX volatility, underlying margins have declined 700+ bps
YoY as price discipline has eroded. Both auto and industrial businesses
saw volumes decline 5-6% YoY despite price cuts to try and regain
market share. With dwindling confidence in management guidance on
margins, we cut earnings by 27-38% and price target to Rs100. U-PF.
2QFY12: disappointing quarter
Exide reported revenue growth of 4% YoY (-6% QoQ), Ebitda decline of 63%
YoY (-60% QoQ) and a net profit decline of 76% YoY (-69% QoQ). Ebitda
margins of 7.6% declined more than 1400bps YoY and 1000+ bps QoQ and
were the lowest in over ten years, driven by a sharp fall in gross margins
from high lead prices. While capex continues (~Rs870m in the quarter), the
balance sheet remains substantially net cash (Rs5.05bn).
One-offs only part of the reason, eroding price discipline
The margin performance was partially driven by one-off factors with FX
volatility causing a loss of Rs149m while lead price volatility drove a loss of
Rs0.5-6bn. Even without these, Ebitda margins would be only 14%, -780bps
YoY/-390bps QoQ, below management’s earlier guidance of 20%. This margin
decline has been driven by a breakdown in price discipline as Exide tries to
regain the market share and dealer traction it lost in FY11. Despite price
drops in both auto replacement and inverters during the quarter, volumes
remain disappointing with auto battery volumes -6% YoY and industrial -5%
YoY. The company also hosted a large dealer conference during the quarter
and continues to spend on promotions (other expenses +17% YoY/7% QoQ).
‘Normalisation’ likely in 4Q but definition of ‘normal’ uncertain
Exide expects 3Q to be overhung by high cost lead and the benefit of recent
lead price correction to only flow through in 4Q. While the company is hopeful
of margins normalising to ~18%, this is below previous guidance of 20%. We
remain sceptical given continuing signs that Exide’s historic price premium in
B2C segments is being eroded and model in 16% Ebitda margins for FY13.
Downgrade earnings, uncertainty still high
We have downgraded revenues to factor in lower battery realisations from
falling lead prices and cuts in B2C segments. We have also downgraded
margin estimates for FY12-14, driving an earnings cut of 27-38%. Given
continuing uncertainty around earnings, we do not expect Exide’s historic
multiple of 14-15x to sustain and use a multiple of 13x for battery earnings.
Downgrade price target to Rs100, 18% downside. Retain U-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
2QFY12 results
Exide reported disappointing operating results for 2QFY12 with revenues
up 4% YoY (-6% QoQ) and PAT down 76% YoY (-69% QoQ). Beyond the
impact of lead/FX volatility, underlying margins have declined 700+ bps
YoY as price discipline has eroded. Both auto and industrial businesses
saw volumes decline 5-6% YoY despite price cuts to try and regain
market share. With dwindling confidence in management guidance on
margins, we cut earnings by 27-38% and price target to Rs100. U-PF.
2QFY12: disappointing quarter
Exide reported revenue growth of 4% YoY (-6% QoQ), Ebitda decline of 63%
YoY (-60% QoQ) and a net profit decline of 76% YoY (-69% QoQ). Ebitda
margins of 7.6% declined more than 1400bps YoY and 1000+ bps QoQ and
were the lowest in over ten years, driven by a sharp fall in gross margins
from high lead prices. While capex continues (~Rs870m in the quarter), the
balance sheet remains substantially net cash (Rs5.05bn).
One-offs only part of the reason, eroding price discipline
The margin performance was partially driven by one-off factors with FX
volatility causing a loss of Rs149m while lead price volatility drove a loss of
Rs0.5-6bn. Even without these, Ebitda margins would be only 14%, -780bps
YoY/-390bps QoQ, below management’s earlier guidance of 20%. This margin
decline has been driven by a breakdown in price discipline as Exide tries to
regain the market share and dealer traction it lost in FY11. Despite price
drops in both auto replacement and inverters during the quarter, volumes
remain disappointing with auto battery volumes -6% YoY and industrial -5%
YoY. The company also hosted a large dealer conference during the quarter
and continues to spend on promotions (other expenses +17% YoY/7% QoQ).
‘Normalisation’ likely in 4Q but definition of ‘normal’ uncertain
Exide expects 3Q to be overhung by high cost lead and the benefit of recent
lead price correction to only flow through in 4Q. While the company is hopeful
of margins normalising to ~18%, this is below previous guidance of 20%. We
remain sceptical given continuing signs that Exide’s historic price premium in
B2C segments is being eroded and model in 16% Ebitda margins for FY13.
Downgrade earnings, uncertainty still high
We have downgraded revenues to factor in lower battery realisations from
falling lead prices and cuts in B2C segments. We have also downgraded
margin estimates for FY12-14, driving an earnings cut of 27-38%. Given
continuing uncertainty around earnings, we do not expect Exide’s historic
multiple of 14-15x to sustain and use a multiple of 13x for battery earnings.
Downgrade price target to Rs100, 18% downside. Retain U-PF.
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