Recharged Exide raises prices, mulls expansion

Exide Industries, the country's largest battery maker which has been downgraded by brokerages including the biggie Bank of America-Merrill Lynch, sees bad days getting over as it starts raising prices and enters new segments.

Exide has regained its lost market share and is now cutting down on all the discounts and freebies being given to dealers to stop decline in sales, its managing director P K Katakay told analysts.

It is also re-entering telecom battery segment and taking a good 5% price in inverter segment effective November to exploit seasonal demand variations despite drop in prices of lead, a key input for batteries.

"We are taking 5% hike in inverter batteries which will give us 1-2% margin improvement. This is the right time to take a price increase considering the season and also looking at competition."

A 10% fall in lead prices will also be reflected in the margins from next month, he said.

Exide is re-entering the telecom battery business, a segment which it had earlier exited as the company couldn't match competitor's pricing.

With volumes coming in, Exide would soon start thinking whether capacity need to be added again.

"We had a problem of losing market share for a pretty long time that has been arrested due to continuous growth over the past six months. Having stopped the de-growth and reclaimed our lost market share it is now our plan to raise margins and profitability. Incentive to dealers were given when we were losing market share. So, having regained market share we are gradually cutting down on incentives," Katakay said.

While he didn't disclose the current market share, the management was earlier on record saying it's share in organised replacement market had dropped steadily from a high 70% due to capacity constraints.

"We are comfortable with the market share that we have now and would be able to protect it without lowering prices but improving our margins gradually," Katakay said.

Volume has grown 17% in the vehicular segment, while in others, including inverter, growth was 37%. In two-wheelers growth was 12%. In the Original Equipment Maker (OEM) segment sales have been flat.
"The growth in the replacement market may get impacted in future in coming quarters if commercial vehicle or taxi sales don't improve," he said.

Capacity utilisation has gone up from 76% in the first quarter resulting in an overall utilisation of 79% in the first half. In motorcycle batteries, capacity utilisation improved from 78% to 83%.
"We would wait for another three months to decide whether we need to create fresh capacities," the managing director said.

Out of its total sales of four-wheeler batteries, 77% come from high-margin replacement sales while balance 23% is contributed by OEMs. In the two-wheeler segment, the ratio is almost reverse with replacement accounting for 39% while the chunk of sales made to the manufacturers. "Tepid growth in the OEM segment for a continued period, however, won't impact future replacements though considering relatively large base for replacement market."

Despite such optimism, why is there a disconnect with analysts' expectations?

"'Profit growth hasn't been satisfactory due to a couple to reasons. Inverter sales fell by 30% on quarter due to normal seasonal variations. Also, we have been investing heavily on technology upgradation to improve quality and cut costs. Some of these have been recognised as revenue expenses. Again, we had 2% increase in lead prices during the quarter.

Distribution costs went up because of higher volume particularly for inverter batteries and also because of charging costs," Katakay said.

Exide has formed formed 6-7 cost groups to manage costs and also set up an energy audit to manage power and fuel costs.

These steps would help in achieving around two-and-a-half to three percentage reduction in costs over the next two-three years' time.