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| Exide: Lower input costs drive margins |
| Ram Prasad Sahu & Sarath Chelluri / Mumbai Oct 13, 2009, 00:23 IST |
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Cost savings due to its two captive lead smelting units, lower import costs on lead due to the rupee appreciation, a better product mix and benefits from technology upgradation have helped Exide improve its operating profit margin (OPM) by 950 basis points y-o-y to 26 per cent. The two units acquired over the last two years currently contribute close to 40 per cent of the total lead requirement for the company. Lead metal forms 70 per cent of total raw material costs.
 Driven by the improving business climate and higher sales in the automobile replacement market and UPS/inverter market, sales volumes were up 12 per cent over the June 2009 quarter. While gross sales were flat y-o-y, excise duty cuts have helped the company improve its net revenues by about 5 per cent y-o-y. Excise duties on batteries have come down from 14 per cent last year to about 8 per cent now.
Going ahead, while the company expects double digit volume growth, profitability hinges on lead prices which are currently at $2,200 per tonne and climbing. Captive units, which produce lead at 15-20 per cent lower cost than imports, helped the company keep average lead costs at around the $1,900 a tonne. Though the rupee appreciation will help in controlling costs (the company imports 60 per cent of its requirement), analysts say that the 46 per cent increase in lead prices over the past six months and a possible increase in prices going ahead will put pressure on margins.
The company is better placed than its competitors to maintain its market share and profitability, and also withstand cyclical pressures due to backward integration (competitor Amara Raja imports its entire requirement of lead). But analysts believe that its cost-competitiveness and growth in earnings are already built into the price and there is limited scope for appreciation.
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