Welcome to Sana Securities! Login | Subscribe Now.

Exide Industries Equity Research

HomeCompanyExide Industries Equity Research

Date of Research – 14 January 2016

Price – 137.00

About the Company

Exide Industries Limited (“Exide” or the “Company”) is leading indian manufacturer of lead acid storage batteries. The Company was incorporated in 1947 and is engaged in the business of manufacturing storage batteries from 2.5 ampere-hour to 20,400 ampere-hour capacity. The products manufactured by the Company include automotive batteries, industrial batteries and submarine batteries. The Company sells its products under EXIDE, SF, SONIC and Standard Furukawa Brands.

In the international market, Exide Industries’s products are sold under DYNEX, INDEX and SONIC brands. The Company’s industrial batteries are of three types: conventional lead acid batteries, valve regulated lead acid batteries and nickel-cadmium batteries. As of March 31, 2016, the Company had seven factories located all over India: two in Maharashtra, one in West Bengal, two in Tamil Nadu and one in Haryana. The Company has a market share of 72% of Automotive OEM and 70% of Organized Retail. The Company also manufactures submarine batteries.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 6,372.26 8,331.47 9,568.48 9,528.64  12,228.79 
Expenses 5,513.75 7,444.93 8,598.04 8,424.33  10,828.49  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 858.51 886.54 970.44 1,104.31 1,400.30  
Depreciation 122.00 140.40 155.32 179.96  225.93  
Finance Costs 9.06 7.61 3.21 1.65  146.29  
Other income 49.68 48.18 61.62 85.89  69.06  
PBT 777.13 786.71 873.53 1,008.59  1,097.14  
Tax 237.13 240.55 257.20 292.17  293.12  
PAT (before Minority Interest and share of Associates) 540.00 546.16 616.33 716.42  804.02  
Profit/ (loss) attributable to Minority Interest 1.87 1.50 1.78 2.72  – 
Share of profit / (loss) of Associates (11.22) –  – 
Consolidated Profit / (Loss) for the year 549.35 544.66 614.55 713.70  804.02  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 13.47 10.64 10.14 11.59  11.45 
Net Profit Margin Ratio 8.47 6.56 6.44 7.52  6.57 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 85.00 85.00 85.00 85.00 85.00
Reserves & Surplus 2,972.32 2,994.69 3,374.66 3,756.04 4,245.39
Net worth (shareholders funds) 3,057.32 3,079.69 3,459.66 3,841.04 4,330.39
Minority Interest 11.16 11.68 12.78 14.61
Long term borrowings 2.38 4.30 2.62 1.90
Current liabilities 896.17 1,820.28 2,194.16 2,235.17 2,390.27
Other long term liabilities and provisions 58.38 6,291.54 6,712.30 7,664.27 8,458.28
Deferred Tax Liabilities 82.5 103.66 111.78 131.47 130.51
Total Liabilities 4,094.37 11,308.71 12,493.88 13,887.35 15,325.96

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 993.19 1,156.15 1,166.94 1,313.90 1,602.14
Noncurrent Investments 906.55 3,696.64 4,794.30 5,869.18 6,992.36
Current assets 2,176.23 3,390.17 3,529.44 3,720.39 4,177.26
Long term advances and other noncurrent assets 18.40 2,483.85 2,421.30 2,401.98 1,972.30
Deferred Tax Assets
Goodwill on consolidation (net) 581.90 581.90 581.90 581.90
Total assets 4,094.37 11,308.71 12,493.88 13,887.35 15,325.96

Efficiency Analysis

  (%)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 24.59 27.75 25.51 25.16 25.40
ROE / RONW 15.20 17.84 15.74 16.00 16.54

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 6,372.26 8,331.47 9,568.48 9,528.64  12,228.79 
Growth (%) 19.65 % 30.75 % 14.85 % (0.42 %)  28.34 % 
PAT (Rs. Cr.) 540.00 546.16 616.33 716.42   804.02  
Growth (%) 16.21 % 1.14 % 12.85 % 16.24 %  12.23 % 
Earnings Per Share – Basic (Rs. ) 6.46 6.41 7.23 8.40  9.46 
Earning Per Share – Diluted (Rs. ) 6.46 6.41 7.23 8.40  9.46 
Price to Earnings 20.00 20.57 21.45  16.46 24.08 

Dividend History

The Company has maintained an average dividend yield of 1.16 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Exide Industries’s average current ratio over the last 5 financial years has been 2.00 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Exide Industries’s average long term debt to equity ratio over the last 5 financial years has been 0.00 times which indicates that the Company is operating with negligible level of debt and is well placed to meet its obligations.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Exide Industries’s average interest coverage ratio over the last 5 financial years has been 130.22 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Exide Industries reported a promoter holding of 45.99 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 32.85 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

Leave a Comment