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Exide Industries (EXID.BO)
Neutral Equity Research
Conference call takeaways: margin pressure likely to persist
What's changed
Key takeaways from 2QFY12 conference call – 1) OEM segment volumes
grew by +7% yoy, 4-wheeler auto replacement by -10%, 2-wheelers by more
than 30% and industrial batteries by -5%. Management commented that
demand in the most profitable segments namely auto replacement and
industrials still remains weak, and over the last 10 years yoy volume decline in
these segments has been rare. 2) Lead cost is expected to decline gradually
during 3QFY12, but margin is likely to normalize only in 4QFY12. 3) Capacity
utilization during 2QFY12 was at 70% vs. 92% during 1QFY12 as the
distribution channels sold off existing inventory. The company expects
utilization to improve during 3QFY12 with inventory re-stocking, and pickup in
retail sales in the auto replacement and industrial segments in response to
price cuts undertaken in Sept 2011. 4) The company reported a mark-tomarket forex loss on their quarterly LME US$-denominated lead purchase
contracts to the tune of Rs148mn, vs. Rs40mn gain in 2QFY11. 5) Margin
decline was uniform across segments – the company reported 2QFY12
EBITDA margin for both industrial and auto segments at 9.2%, compared with
1QFY12 margin in the auto segment at 16.6% and 18.9% for industrial.
Company attributed this to: a) weaker market demand particularly for auto
replacement batteries, b) higher competitive pressure on pricing, c) adverse
operating leverage on lower capacity utilization.
Implications
We believe near-term demand remains weak, driving significant pricing
and mix pressures as highlighted in our October 24, 2011 note, “Off
Conviction List; downgrade to Neutral on pricing/mix pressures”.
Valuation
Our 12m FY13 P/E-based TP of Rs135 is based on historical 10-year avg P/E
of 16x. Stock looks fairly valued on Director’s Cut vs. GS India coverage.
Key risks
Higher/lower than expected demand, competition and lead costs.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Exide Industries (EXID.BO)
Neutral Equity Research
Conference call takeaways: margin pressure likely to persist
What's changed
Key takeaways from 2QFY12 conference call – 1) OEM segment volumes
grew by +7% yoy, 4-wheeler auto replacement by -10%, 2-wheelers by more
than 30% and industrial batteries by -5%. Management commented that
demand in the most profitable segments namely auto replacement and
industrials still remains weak, and over the last 10 years yoy volume decline in
these segments has been rare. 2) Lead cost is expected to decline gradually
during 3QFY12, but margin is likely to normalize only in 4QFY12. 3) Capacity
utilization during 2QFY12 was at 70% vs. 92% during 1QFY12 as the
distribution channels sold off existing inventory. The company expects
utilization to improve during 3QFY12 with inventory re-stocking, and pickup in
retail sales in the auto replacement and industrial segments in response to
price cuts undertaken in Sept 2011. 4) The company reported a mark-tomarket forex loss on their quarterly LME US$-denominated lead purchase
contracts to the tune of Rs148mn, vs. Rs40mn gain in 2QFY11. 5) Margin
decline was uniform across segments – the company reported 2QFY12
EBITDA margin for both industrial and auto segments at 9.2%, compared with
1QFY12 margin in the auto segment at 16.6% and 18.9% for industrial.
Company attributed this to: a) weaker market demand particularly for auto
replacement batteries, b) higher competitive pressure on pricing, c) adverse
operating leverage on lower capacity utilization.
Implications
We believe near-term demand remains weak, driving significant pricing
and mix pressures as highlighted in our October 24, 2011 note, “Off
Conviction List; downgrade to Neutral on pricing/mix pressures”.
Valuation
Our 12m FY13 P/E-based TP of Rs135 is based on historical 10-year avg P/E
of 16x. Stock looks fairly valued on Director’s Cut vs. GS India coverage.
Key risks
Higher/lower than expected demand, competition and lead costs.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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