Exide Industries - Sales Beat; Healthy Operating Margin Guidance; Result Update Q2FY15 :: Edelweiss, PDF link

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Exide Industries’ (Exide) Q2FY15 top line growth surpassed our estimate by 7%, but EBITDA growth was 8% below estimate. Key positives were: (a) robust sales growth of 23.5% YoY led by 17% YoY surge in automotives and industrial sales growth of 37% YoY; and (b) market share loss in the automotive replacement segment was arrested. Key negatives were: (1) gross margin declined 72bps QoQ to 32.9% and EBITDA margin plummeted 328bps QoQ to 11.9% due to 166bps QoQ increase in other expenses. Management has set a target operating margin of 16-17% over FY15-16. Led by cyclical uptick in OEM segment (~25% of sales), arrested market share loss in replacement segment and improvement in margins driven by technology upgradation, cost-cutting initiatives and operating leverage benefits.

Robust sales growth, lower EBITDA margin; strong guidance

Exide’s sales growth of 23.5% YoY exceeded our estimate by 7%, primarily driven by robust surge in the automotive segment—17% YoY growth led by higher replacement sales and 37% YoY growth in industrial segment led by inverter sales decline in the base year and market share gains in the telecom segment. Sales fell 7.6% QoQ led by 30% QoQ decline in industrial sales. Operating profit at 6% YoY was below estimate by ~8% at INR2.9bn. EBITDA margin fell sharply by 328bps QoQ to 11.9% due to 166bps QoQ increase in other expenses led by rise in freight and forwarding costs and higher battery charging expenses. Management has guided for a short-term target operating margin of 16% in FY15 and 16-17% over FY15-16 based on cost cutting measures undertaken by the company, productivity gains from upgrading technology and declining selling expenses. Management expects 1.5-2.0% margin improvement led by price hike in the inverter segment and 2.5% improvement led by reduction in material costs (by weight) with technology upgradation.

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https://www.edelweiss.in/research/Exide-Industries--Sales-Beat;-Healthy-Operating-Margin-Guidance;-Result-Update-Q2FY15/27325.html