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B. Krishnakumar

ALONG with a host of auto-ancillary companies, the storage battery major — Exide Industries — too has seen a steady improvement in financial performance and market capitalisation over the recent quarters.

Taking into account the recent surge in price of lead (the key raw material), growing competitive pressure within the industry and the bloat in the equity base consequent to the bonus issue, investors may reduce exposure by booking at least partial profits. Fresh buying may be considered either on price declines or on the evidence of sustained growth in automobile production.

Exide Industries derives about 60 per cent of the turnover from the automotive segment and the rest from batteries used in industrial applications.

After a slowdown in 2001-02, the imposition of anti-dumping duty on batteries along with the recovery in the automobile sector helped the company record a healthy improvement in performance in the previous recent quarters.

Apart from the recovery in demand, the soft trend in price of lead, the key raw material, has helped the company record improved performance.

Besides, the improved business environment in industries such as telecom, banking and information technology had spurred the demand for industrial batteries. The company has managed to sustain the growth in earnings this fiscal too.

The government's recent decision to implement the more stringent lead recycling norms is another major development from a long-term perspective.

Once fully operational, the order could result in the dilution of unorganised sector stake in the lucrative replacement battery market. This, in turn, could have a positive impact for organised sector players including Exide. On the flip side, the entry of new players is likely to foster competitive pressure. The aggressive stance adopted by Amara Raja along with the entry of new brands such as Speed and Panasonic is likely to aggravate the competitive pressure.

The sharp rise in the price of lead in the past few months is another cause of concern. This is likely to affect the profitability in the ensuing quarters. In the mean time, the equity capital of the company has doubled to Rs.71.22 crore after the recent 1:1 bonus. The bloated equity base is another worrying factor from the equity investors' viewpoint.

Taking into account the rise in input cost, increased equity base and growing competitive pressure, shareholders could capitalise on the recent rally and take profits.

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