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Sunday, Nov 03, 2002

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Exide Industries: Buy

B. Krishnakumar

STORAGE battery major — Exide Industries — has reported a steady growth in earnings in the first two quarters of the current fiscal. The company is making efforts to expand its geographic reach and once the pollution control norms pertaining to recycling of lead take effect in full force, it could open a new window of opportunity for Exide and other battery producers.

Long-term investors could include Exide Industries in their portfolio at the current market price of Rs 82. Price declines could also be used to enhance equity exposure in the company.

Exide Industries is the leader in the domestic storage battery industry market. It has a strong presence in both the industrial and automotive battery segments. Close to 60 per cent of the turnover accrues from the automotive segment, while the balance 40 per cent flows from batteries used in industrial application.

While the automotive segment continues to be the major revenue driver, the contribution from the industrial battery segment has been growing steadily over the past few years.

After a steady growth in the 1990s, Exide Industries' performance was affected in the last couple of years owing to flow of cheaper imports and a sharp slowdown in the demand for automotive batteries. With the demand from BSNL (single largest client user of industrial batteries) also drying up, Exide had to contend with a sharp drop in performance.

For the year ended March 2002, the turnover inched up by about 2 per cent to Rs.791.52 crore while post-tax earnings dropped 24 per cent to Rs.31.42 crore. On the equity base of Rs 35.73 crore, the per share earnings works out to Rs 8.80.

However, the imposition of anti-dumping duty, coupled with the pick-up in automotive battery demand, has helped the company stage a comeback in the recent quarters. Besides, the soft trend in price of lead (the key raw material) has improved profitability.

For the quarter ended September 2002, the turnover rose 9 per cent to Rs 216.92 crore while the post-tax earnings improved 18 per cent to Rs 14.43 crore.

Much of the growth this fiscal has accrued from the automotive segment. The company has taken steps to expand its geographical reach, which has helped it make inroads into the more lucrative replacement market.

The only area of concern, however, is the recent increase in the price of lead. Going by the recent trend in performance, it appears that the impact of lead price rise could be marginalised by the growth in sales volumes.

Moreover, the entry of private sector players into the telecom segment, coupled with a recovery in the information technology sector, could propel the demand for industrial batteries. Considering that Exide's second half performance is typically better than the first half, the company is likely to report improved performance in the second half of this fiscal. Long-term investors could contemplate equity exposure in the company at the current level of Rs 82.

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