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B. Krishnakumar

AIDED by increased automobile production and the pick-up in activity in the telecom sector, storage battery major Exide Industries has come up with a sharp improvement in performance in the recent quarters.

The improved performance along with the recent decision to issue bonus shares has resulted in a sharp rise in the company's share price in the past few months.

The scrip has appreciated by about 60 per cent since the earlier buy recommendation (November 3, 2002). Considering the expansion in equity base after the bonus issue and the recent increase in share price, shareholders could book profits. Fresh buying may be considered at lower levels.

Exide Industries is the dominant player in the domestic storage battery market and enjoys strong presence in the industrial and automotive battery segments. Close to 60 per cent of the turnover accrues from the automotive segment and the balance 40 per cent 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 drop in earnings in recent years, the performance has improved over the past few quarters.

The recovery in the automobile sector and the entry of private sector players in the telecom sector has helped Exide stage a sharp recovery in performance.

For the year ended March 2003, the turnover rose by about 12 per cent to Rs 878.5 crore and post-tax earnings 67 per cent to Rs 52.33 crore. This translates into a per share earnings of Rs.14.7.

Apart from the recovery in demand, the soft trend in price of lead (key input) has also helped Exide post improved performance. The efforts taken to expand geographical reach have also helped the company gain a bigger presence in the lucrative replacement market.

With the unorganised sector accounting for over 40 per cent of the replacement segment of automotive battery market, the company's efforts to expand its dealership network, coupled with the launch of lower priced batteries, appears to be paying off.

Going forward, the growth prospects for Exide Industries hinge on the economic growth and sustained increase in automobile production. In the meantime, the storage battery industry is getting more competitive.

Amara Raja is aggressively tapping the automotive battery market. Besides, it is also expanding the product base in the industrial battery segment.

The bloat in equity base consequent to the to 1:1 bonus share issue is another cause for concern. Though the company appears well-positioned to withstand competitive forces, shareholders could use the recent up move in price to book profits.

Taking into account the strong position of the company in the industry and the long-term positive outlook, fresh buying may be considered on price declines below Rs 100.

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