Stock Market Update on Exide Industries for 1QFY2012

Stock Market Update on Exide Industries for 1QFY2012 with a Neutral recommendation.

Exide Industries (Exide) reported a weak performance in 1QFY2012, missing our top-line and bottom-line estimates, largely due to lower-than-estimated growth in automotive replacement battery volumes and lower demand for inverter batteries. Further, slowdown in demand growth restricted Exide’s ability to completely pass on raw-material cost increases, thus negatively affecting its operating margin. We maintain our long-term positive outlook on the battery industry; however, considering the lower-than-expected 1QFY2012 results and subdued guidance for the next couple of quarters going ahead, we revise our revenue and earnings estimates downwards. We recommend Neutral on the stock.

Lower automotive and industrial battery demand and raw-material cost pressures led to weak quarterly performance: For 1QFY2012, Exide reported modest 8% yoy growth (1.4% qoq) in its total revenue to `1,244cr, led by a ~5% increase in sales realisation. Revenue growth was restricted on account of muted volume growth due to 1) slower growth in the automotive vehicle segment, resulting in lower OE demand for automotive batteries and 2) pleasant weather conditions in north Indian markets, leading to a 25.7% decline in inverter battery volumes. EBITDA margin declined substantially by 498bp yoy (88bp qoq) to 17.9%, impacted by lack of buoyancy in industrial and automotive batteries demand and increased lead prices. Lead prices jumped by 31% yoy, leading to a 400bp yoy increase in raw-material costs – which accounted for 63.6% of sales. However, higher other income of `31cr and lower tax outgo restricted the fall in net profit to a large extent. Thus, the bottom line reported a marginal 1.3% yoy decline (0.3% qoq) to `163cr.

Outlook and valuation: We expect Exide to post a ~15% revenue CAGR over FY2011–13E, leading to a 12% CAGR in net profit. At `155, Exide is fairly valued at 16.6x FY2013E earnings. We recommend Neutral on the stock. Our fair value for Exide works to `161. We value Exide’s core operations at 16x its FY2013E earnings at `149 and its stake in ING Vysya Life Insurance at `12/share on FY2013E NBAP.

Stock Market Update on FAG Bearings for 2QCY2011

Stock Market Update on FAG Bearings for 2QCY2011 with a Neutral recommendation

For 2QCY2011, FAG Bearings’ (FAG) results were in-line with our expectations on the top-line front and ahead on the net profit front, led by better-than-expected operating margin. Bottom-line growth was also supported by a substantial increase in other income. We revise our earnings estimates upwards to factor in better-than-expected quarterly results. We believe the recent run-up in the stock price factors in the expected earnings growth and, considering the rich valuations, we maintain our Neutral view on the stock.

Strong operating performance: FAG registered strong 17.1% yoy (3.1% qoq) net sales growth to `319.3cr, in-line with our expectation of `324.4cr. Revenue performance was largely in-line with the automotive industry’s growth. EBITDA margin improved by healthy 120bp yoy (down marginally by 13bp qoq) to 20.3% vs. our estimate of 19.5%. This was primarily due to a ~370bp decline in costs related to purchase of traded goods at 24.7% against 28.3% of sales. As a result, operating profit jumped by 24.5% yoy (2.3% qoq) to `64.9cr. Net profit posted a strong 32.2% yoy (4.3% qoq) increase to `44.7cr. Further, a substantial jump in other income (up 77.2% yoy) helped FAG report strong earnings growth.

Outlook and valuation: We believe healthy demand in the auto and industrial segments will aid FAG in registering a CAGR of ~16% in net sales and ~20% in net profit over CY2010–12E. At `1,344, the stock is trading at 13.7x and 12.6x CY2011E and CY2012E earnings, respectively. We believe the recent run-up in the stock price factors in the expected earnings growth and, considering the rich valuations, we maintain our Neutral view on the stock.

Stock Market Flash on Page Industries for 4QFY2011

Stock Market Flash on Page Industries for 4QFY2011 with an Accumulate recommendation and a Target Price of `1898 (12 months).

Page Industries – 4QFY2011 and FY2011 financial result highlights  

·         For 4QFY2011, net sales increased by 34.7% yoy and declined by 16.9% qoq to `111cr and was inline with our estimates.

·         The company ended FY2011 with a 44.8% yoy increase in net sales to `492cr vs. our expectation of `493cr.

·         EBITDA increased by 14.0% yoy in 4QFY2011 to `17.1cr but witnessed a decline of 38.3% qoq on the back of lower revenue generated on a qoq basis. The margin took a hit of 280bp yoy and 532bp qoq to 15.4% because of increased other expenses and staff cost.

·         For FY2011, EBITDA increased by 45.6% yoy to `401cr but margin dipped by 42bp at 18.5%.

·         4QFY2011 witnessed a 17.6% yoy decrease in PAT to `12.9cr on the back of margin compression during the quarter. However, PAT margin only declined by 10bp yoy to 11.6% due to lower tax provisions during the quarter, which stood at 17.5% of PBT.

·         FY2011 witnessed a strong increase in PAT by 47.8% yoy to `59cr on the back of higher revenue. Though OPM contracted during the year, PAT margin increased by 24bp to 11.9% due to higher other income, which increased by 89% to `12cr.

·         Outlook and valuation: Considering the immense potential of India’s consumption story, the company’s predominant presence in a fast-growing market, strong brand recall and consistent financial performance, we remain positive on the stock and. We continue to maintain our Accumulate rating on the stock with a target price of `1,898, valuing it at 24x FY2013 earnings. We may revise our numbers post interaction with the management.

4Q And FY2011 Performance Highlights

Y/E March (Rs cr)	4QFY11	3QFY11	% chg (qoq)	4QFY10	% chg (yoy)	FY2011	FY2010	% chg
Net Sales	111.4	134.1	(16.9)	82.7	34.7	491.6	339.4	44.8
Consumption of RM	51.6	64.7	(20.3)	38.9	32.7	240.9	163.4	47.5
(% of Sales)	46.3	48.3	(196.3)bp	47.0	(70.5) bp	49.0	48.1	86.7 bp
Staff Costs	23.9	23.8	0.5	16.5	44.4	89.7	58.1	54.3
(% of Sales)	21.4	17.7	370.8 bp	20.0	144.2 bp	18.2	17.1	112.3 bp
Other Expenses	18.8	17.8	5.4	12.2	53.5	70.3	53.8	30.5
(% of Sales)	16.8	13.3	357.2 bp	14.8	205.9 bp	14.3	15.9	(156.9) bp
Total Expenditure	94.2	106.3	(11.3)	67.6	39.3	400.8	275.3	45.6
Operating Profit	17.1	27.8	(38.3)	15.0	14.0	90.7	64.1	41.6
OPM	15.4	20.7	(531.7) bp	18.2	(279.6) bp	18.5	18.9	(42.1) bp
Interest	2.2	1.0	109.1	1.0	114.5	5.2	3.0	75.7
Depreciation	2.8	2.5	13.3	2.5	13.1	9.8	9.0	9.4
Other Income	3.5	2.5	38.5	2.7	29.1	12.1	6.4	89.0
PBT (excl. Extr. Items)	15.6	26.7	(41.6)	14.2	9.9	87.8	58.5	50.0
Extr. Income/(Expense)	-	-		-		-	-
PBT (incl. Extr. Items)	15.6	26.7	(41.6)	14.2	9.9	87.8	58.5	50.0
(% of Sales)	14.0	19.9	(592.8) bp	17.2	(316.9) bp	17.9	17.2	61.6 bp
Provision for Taxation	2.7	11.1	(75.4)	4.3	(36.0)	29.2	18.9	54.6
(% of PBT)	17.5	41.6	(2,402.5) bp	30.1	(1,257.3) bp	33.3	32.3	99.3 bp
Reported PAT	12.9	15.6	(17.6)	9.9	29.6	58.5	39.6	47.8
PATM	11.6	11.7	(9.7) bp	12.0	(45.2) bp	11.9	11.7	23.9 bp
Equity shares (cr)	1.1	1.1		1.1		1.1	1.1
EPS (Rs)	11.5	14.0	(17.6)	8.9	29.6	52.5	35.5	47.8

Actual Vs Estimate FY2011

Particulars (Rs cr) Actual Estimated Variance (%) FY2011 Sales (Rs cr) 491.6 493.3 (0.4) EBITDA (Rs cr) 90.7 91.8 (1.1) OPM (%) 18.5 18.6 (14.0)bp PAT (Rs cr) 58.5 54.1 8.2

Source: Company, Angel Research