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Q3 FY12 - Sequential improvement
On the back of strength shown from 2 wheeler segment, Exide was in a
position to put up a sequential improvement in numbers. Total income
increased by 6% qoq, while 19% yoy. At the EBITDA levels, there was an
increase of 84% qoq and a 3% yoy. RM to sales came down significantly to
67.4% v/s 72.3% qoq while it was still up from 62.7% yoy. The reason for
sequential dip was the exhaustion of high cost lead which impacted Q2
margins. EBITDA margins came in at 13.2% v/s 7.6% qoq and 15.2% yoy.PAT
almost doubled to Rs1.04 mn on strong operational performance.
2W volumes strong, 4W subdued, industrial post a growth
The volume improvement in the quarter was on the back of strong 2W battery
sales. The auto battery volumes grew 19% yoy and 3% qoq to 3.55mn while 4W
volumes declined by 21% yoy, while grew by 6% qoq. On the industrial side,
volume growth was 13% yoy and 3% qoq on harsh October summer and demand from
telecom industry increasing. On the capacity side, the company is through
with 4W capacity expansion at 12mn units, while is still in the process of
increasing 2W capacity which is slated to move up to 21mn. The management is
confident about 2W demand getting back on track quickly, while has
pessimistic outlook on 4W demand. In Q3 FY12, the company functioned at 82%
utilization rate on the auto side while 81% on the industrial side, which
was a sequential improvement of 72% and 62% respectively. The replacement:
OEM ratio on the auto side was 1.24:1 which was an improvement qoq. Going
forward, we believe that 2W demand on the OEM side will be slightly soft as
the sector has seen some slowdown off late, while on the 4W side OEM demand,
we believe softness will continue over a couple of quarters. On the
replacement side, we believe that Q1 FY13 will see some turnaround emanating
from the demand for automobiles 3 years ago, both on 2W as well as 4W.
Margin improvement may come in coming quarters
The improvement in margin performance was in line with our expectations as
high cost lead was expected to get over this quarter. The composition of
replacement in the total volumes also improved and is expected to improve
even more from FY 13. This will assist margin performance.Softening of lead
prices as seen in Q3 is expected to continue and help the margins going
forward. We have already factored in about 400 bps improvement in margins in
FY 13 to 15.7%.
Industrial segment to remain subdued
Going forward with improving power conditions,we see the demand for
inverters going down from current levels in the long term. In Q3, inverter
sales were up due to strong summer in October, while stronger winter in most
parts of the country would be reducing the sales of inverters in Q4. We
expect the contribution of inverter sales to reduce in the total topline
from FY 13, though the company is planning to enter the inverter business.
On the telecom side of the industrial batteries, winning of contract by
rival Amara Raja for supplying batteries to Bharti's Africa business may
take some market share from Exide.
Outlook and valuation
With results coming inline and the stock having rallied to reach our target
price of Rs128, we believe the stock is fairly priced at current levels.
With all the positives factored in our numbers and replacement demand yet to
pick up, we believe the stock will hover in the range of Rs125 and Rs135. At
CMP of Rs 128, the stock trades at 16.8x FY13E earnings. We maintain Exide's
standalone business value at Rs 116(15x times FY 13E EPS of Rs 7.7) and
insurance business at Rs 12 taking the total TP to Rs128, thus downgrading
the stock from a Neutral to Underperformer.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Q3 FY12 - Sequential improvement
On the back of strength shown from 2 wheeler segment, Exide was in a
position to put up a sequential improvement in numbers. Total income
increased by 6% qoq, while 19% yoy. At the EBITDA levels, there was an
increase of 84% qoq and a 3% yoy. RM to sales came down significantly to
67.4% v/s 72.3% qoq while it was still up from 62.7% yoy. The reason for
sequential dip was the exhaustion of high cost lead which impacted Q2
margins. EBITDA margins came in at 13.2% v/s 7.6% qoq and 15.2% yoy.PAT
almost doubled to Rs1.04 mn on strong operational performance.
2W volumes strong, 4W subdued, industrial post a growth
The volume improvement in the quarter was on the back of strong 2W battery
sales. The auto battery volumes grew 19% yoy and 3% qoq to 3.55mn while 4W
volumes declined by 21% yoy, while grew by 6% qoq. On the industrial side,
volume growth was 13% yoy and 3% qoq on harsh October summer and demand from
telecom industry increasing. On the capacity side, the company is through
with 4W capacity expansion at 12mn units, while is still in the process of
increasing 2W capacity which is slated to move up to 21mn. The management is
confident about 2W demand getting back on track quickly, while has
pessimistic outlook on 4W demand. In Q3 FY12, the company functioned at 82%
utilization rate on the auto side while 81% on the industrial side, which
was a sequential improvement of 72% and 62% respectively. The replacement:
OEM ratio on the auto side was 1.24:1 which was an improvement qoq. Going
forward, we believe that 2W demand on the OEM side will be slightly soft as
the sector has seen some slowdown off late, while on the 4W side OEM demand,
we believe softness will continue over a couple of quarters. On the
replacement side, we believe that Q1 FY13 will see some turnaround emanating
from the demand for automobiles 3 years ago, both on 2W as well as 4W.
Margin improvement may come in coming quarters
The improvement in margin performance was in line with our expectations as
high cost lead was expected to get over this quarter. The composition of
replacement in the total volumes also improved and is expected to improve
even more from FY 13. This will assist margin performance.Softening of lead
prices as seen in Q3 is expected to continue and help the margins going
forward. We have already factored in about 400 bps improvement in margins in
FY 13 to 15.7%.
Industrial segment to remain subdued
Going forward with improving power conditions,we see the demand for
inverters going down from current levels in the long term. In Q3, inverter
sales were up due to strong summer in October, while stronger winter in most
parts of the country would be reducing the sales of inverters in Q4. We
expect the contribution of inverter sales to reduce in the total topline
from FY 13, though the company is planning to enter the inverter business.
On the telecom side of the industrial batteries, winning of contract by
rival Amara Raja for supplying batteries to Bharti's Africa business may
take some market share from Exide.
Outlook and valuation
With results coming inline and the stock having rallied to reach our target
price of Rs128, we believe the stock is fairly priced at current levels.
With all the positives factored in our numbers and replacement demand yet to
pick up, we believe the stock will hover in the range of Rs125 and Rs135. At
CMP of Rs 128, the stock trades at 16.8x FY13E earnings. We maintain Exide's
standalone business value at Rs 116(15x times FY 13E EPS of Rs 7.7) and
insurance business at Rs 12 taking the total TP to Rs128, thus downgrading
the stock from a Neutral to Underperformer.
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