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Exide Industries (EXID)
Automobiles
2QFY12 results impacted by decline in replacement demand. Exide’s 2QFY12
results were significantly below our and consensus estimates due to 15% yoy decline in
4-wheeler battery replacement volumes and higher cost of lead during the quarter. Our
concerns on waning pricing power of Exide in the battery market are coming true and
we believe it will be difficult for the company to raise prices in the future even if
replacement demand revives. We maintain our SELL rating on the stock.
EBITDA margins nosedive sequentially due to decline in replacement demand and high lead cost
Exide’s 2QFY12 profit of Rs512 mn (-72% yoy, -69% qoq) was 61% below our estimates. The
company indicated that replacement demand for 4-wheeler batteries has declined by 15% yoy in
2QFY12. In our view, probably the company has lost significant market share in replacement
market which could be a major cause of worry. We base our assumptions on the following facts:
Replacement market is a stable market and in our opinion the volumes cannot decline in a
growing 4-wheeler market like India. We base our thesis on the fact that replacement tyre
volumes in cars as well as trucks has only declined once (in low single digit) over the past 10-
year history (Exhibit 3).
Replacement tyre volume between April and August has grown by 9% yoy and replacement
tyre volume growth in August was ~3% yoy.
The company had also subsequently cut 4-wheeler automotive battery prices by 10-12% in
September to protect their market share.
The company also indicated that they had purchased high-cost lead in 1QFY12 which impacted
profitability as they could not increase prices in the market because they were losing market share
to competitors. We believe pricing power of the company is waning and it will be very difficult for
the company to raise prices even if replacement demand revives. Other income has also fallen
significantly qoq due to lower smelter profits.
We believe automotive replacement battery demand will revive after a few quarters but the
company’s EBITDA margins may not come back to historical high levels. We will revisit our
estimates post the concall on Monday after we get more clarity on the replacement/OEM mix in
the automotive segment, industrial battery revenue growth and lead smelter contribution in the
company’s lead sourcing. We maintain our SELL rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Exide Industries (EXID)
Automobiles
2QFY12 results impacted by decline in replacement demand. Exide’s 2QFY12
results were significantly below our and consensus estimates due to 15% yoy decline in
4-wheeler battery replacement volumes and higher cost of lead during the quarter. Our
concerns on waning pricing power of Exide in the battery market are coming true and
we believe it will be difficult for the company to raise prices in the future even if
replacement demand revives. We maintain our SELL rating on the stock.
EBITDA margins nosedive sequentially due to decline in replacement demand and high lead cost
Exide’s 2QFY12 profit of Rs512 mn (-72% yoy, -69% qoq) was 61% below our estimates. The
company indicated that replacement demand for 4-wheeler batteries has declined by 15% yoy in
2QFY12. In our view, probably the company has lost significant market share in replacement
market which could be a major cause of worry. We base our assumptions on the following facts:
Replacement market is a stable market and in our opinion the volumes cannot decline in a
growing 4-wheeler market like India. We base our thesis on the fact that replacement tyre
volumes in cars as well as trucks has only declined once (in low single digit) over the past 10-
year history (Exhibit 3).
Replacement tyre volume between April and August has grown by 9% yoy and replacement
tyre volume growth in August was ~3% yoy.
The company had also subsequently cut 4-wheeler automotive battery prices by 10-12% in
September to protect their market share.
The company also indicated that they had purchased high-cost lead in 1QFY12 which impacted
profitability as they could not increase prices in the market because they were losing market share
to competitors. We believe pricing power of the company is waning and it will be very difficult for
the company to raise prices even if replacement demand revives. Other income has also fallen
significantly qoq due to lower smelter profits.
We believe automotive replacement battery demand will revive after a few quarters but the
company’s EBITDA margins may not come back to historical high levels. We will revisit our
estimates post the concall on Monday after we get more clarity on the replacement/OEM mix in
the automotive segment, industrial battery revenue growth and lead smelter contribution in the
company’s lead sourcing. We maintain our SELL rating on the stock.
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