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B. Krishnakumar

Riding piggy-back on the auto boom.

LONG-TERM investors may include Exide in their portfolio. Strong fundamentals, dominant position in the industry and the recently-commissioned capacity expansion projects are the major positive features from an investment perspective.

Helped by the growth in automobile production, Exide Industries' financial performance has improved steadily in the recent quarters. Being the market leader in the original equipment market of the automobile industry, Exide has benefited the most from the recent buoyancy in automobile production.

Apart from the original equipment market, the company has presence across other segments such as the replacement and exports. To gain a better presence in the lucrative replacement market, the company has adopted various strategies, including launch of batteries at different price points. The company has expanded its distribution network and has also reoriented its product mix in the last couple of years.

For the year-ended March 2004, turnover rose 11 per cent to Rs 978.1 crore and post-tax earnings 39 per cent to Rs 72.9 crore. The strength in FY04's performance appears to be carried into the first quarter of this fiscal; turnover rose 19 per cent to Rs 276 crore and post-tax earnings 32 per cent to Rs 18.4 crore.

Profitability was under pressure last year owing to the sharp rise in the price of lead, the key raw material. Exide managed to hike product price in the fourth quarter of the previous fiscal. This has helped the company record higher operating profit margin in the quarter-ended June 2004, in relation to the preceding quarter ended March 2004.

The performance is likely to improve further in this fiscal. The sustained increase in automobile output, commercial vehicles and tractors in particular, would have a positive impact on business volume. The commissioning of the new plant at Bawal in Haryana in 2003 and the initiatives undertaken to expand presence in export market would aid volume growth.

The sustained increase in automobile production over the past few years would also translate into higher demand for batteries from the replacement market. Taking into account the relatively higher profitability associated with batteries sold in the replacement market, Exide appears well-placed to log higher earnings growth. The sops extended to the tractor industry and the steady demand from the technology sector for VRLA batteries are other positives.

Taking into account these factors, Exide's performance is likely to improve in the remaining quarters of this fiscal. Long-term investors may include Exide in their portfolio. Price declines may be used to add to holdings. The "buy" recommendation is subject to the sustained growth in automobile sector and lead prices holding steady.

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