Q2: Exide, Amara Raja low on charge

Exide's margins were better and should improve, while Amara's could be close to peak

The results of battery makers Amara Raja and Exide Industries did not enthuse the Street as both stocks ended in the red with the former losing as much as six per cent at the close on Wednesday. Muted demand across most segments was a clear disappointment. With the outlook, both on the automotive and industrial battery segments, remaining muted expect the stock prices to be under pressure going ahead.

While revenues for Exide were below estimates, the Street was disappointed with the margins for Amara Raja. On the net profit front, while Exide's at Rs 156 crore, up 24 per cent year-on-year (y-o-y), was above estimates and were due to margin gains, those of Amara Raja at Rs 122 crore up 22 per cent y-o-y were in line.

Exide reported revenues which were down 1.4 per cent as most segments barring replacement reported a decline. Sixty-two per cent of the revenues for Exide come from the auto segment, while the rest is from the industrial segment. The company indicated demand across segments (industrial and vehicle makers) continues to be muted due to the economic slowdown and the situation is unlikely to improve in the near-term.

For Amara Raja, while revenues were in line, its operating profit and margins were below estimates. While operating profit grew by 10 per cent y-o-y, it was five per cent below estimates. Thus, margins at 17.2 per cent were 50 basis points (bps) lower than estimates. While the company continues to benefit from soft lead prices, higher other expenses and staff costs restricted operating profit growth. Ashish Poddar of IDBI Capital says Amara Raja’s margin profile has peaked at 17.5 per cent (achieved in June quarter) and should contract from here as commodity price benefits reverse.

Exide Industries, on the other hand, saw an outperformance on the margin front. Earnings before interest, taxes, debt and amortisation margins came in at 14.8 per cent on the back of a 23 per cent y-o-y increase in operating profit. The gains were led by softer lead prices and lower other expenses. While the company passes on lead price gains to its original equipment manufacturer clients (auto makers), it keeps the gains for replacement sales. The management indicated there is a scope to improve margins by about 100 bps over the next two years given its technology upgradation and cost-cutting plans. The target margin is pegged at 16 per cent.

The Exide management, however, said demand for industrial batteries was down across segments both due to lower demand and better power supply. While its market share is stable across various categories, it has gained in the telecom segment where its share has improved by 700 bps to 10 per cent over the past year.