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Exide Industries Ltd (updated - 15 Sept 2009)
While Exide should be able to pass on the higher cost of lead to its customers, soaring prices of the commodity that recently crossed $2,400 a tonne, are nonetheless worrying.

That’s probably why the stock of the country’s largest producer of lead acid storage batteries has lost more than 7 per cent since the start of September. Lead prices have gone up by more than 80 per cent since May 2009.

While Exide purchases a fair share of lead on a contract basis, analysts say the company may just have to absorb some part of the increase.

The good news is that the company will benefit from better-thanexpected pick-up in car sales. Sales of batteries are expected to grow by about 15 per cent in the current year since the demand from original equipment manufacturers (OEMs) is now fairly strong.
Moreover, according to analysts, the demand from the inverters segment is now estimated to grow by 20 per cent, up from the earlier 12 per cent.

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In the current year, the company is expected to turn in revenues of Rs 3,700 crore, an increase of 8.5 per cent over 2008-09. The net profit, however, is expected to increase by 60 per cent over the Rs 291 crore reported last year, thanks to better operating leverage and lower interest costs.

At the current price of Rs 89, the stock trades at just under 15 times estimated 2009-10 earnings with room for upside, especially since the company has a 50 per cent stake in ING Vysya Life Insurance. The stake, according to analysts, could be worth Rs 11-12 a share.
source - BS

Exide Industries Ltd (updated - 13 Oct 2009)
Cost savings due to its two captive lead smelting units, lower import costs on lead due to the rupee appreciation, a better product mix and benefits from technology upgradation have helped Exide improve its operating profit margin (OPM) by 950 basis points y-o-y to 26 per cent. The two units acquired over the last two years currently contribute close to 40 per cent of the total lead requirement for the company. Lead metal forms 70 per cent of total raw material costs.

Driven by the improving business climate and higher sales in the automobile replacement market and UPS/inverter market, sales volumes were up 12 per cent over the June 2009 quarter. While gross sales were flat y-o-y, excise duty cuts have helped the company improve its net revenues by about 5 per cent y-o-y. Excise duties on batteries have come down from 14 per cent last year to about 8per cent now.

Going ahead, while the company expects double digit volume growth, profitability hinges on lead prices which are currently at $2,200 per tonne and climbing. Captive units, which produce lead at 1520 per cent lower cost than imports, helped the company keep average lead costs at around the $1,900 a tonne. Though the rupee appreciation will help in controlling costs (the company imports 60 per cent of its requirement), analysts say that the 46 per cent increase in lead prices over the past six months and a possible increase in prices going ahead will put pressure on margins.

The company is better placed than its competitors to maintain its market share and profitability, and also withstand cyclical pressures due to backward integration (competitor Amara Raja imports its entire requirement of lead). But analysts believe that its cost-competitiveness and growth in earnings are already built into the price and there is limited scope for appreciation.
source - BS