Exide regains primacy in replacement mart

With demand returning to the replacement battery market, Exide Industries has regained its price-setter position that it lost recently when its market share fell and sales slowed.

Replacement battery sales grew by as much as 25% in the four-wheeler segment and 53% in two-wheeler segment in the October-December quarter.

Exide’s market share rebounded to around 33% from a low of 25% a year back. This will likely encourage it to cash in on the growing demand by exercising its price-setting power.

“We have raised prices by an average 5% in February in the replacement market and are currently negotiating price-hikes with OEMs (original equipment manufacturers),” said an Exide official.

Industry observers said there is an urgent need to raise prices of OEM supplies where margins dropped to a low 1.3% from 4.2% in the second quarter.

Exide is also negotiating with automakers a monthly (rather than the current norm of quarterly) revision of battery prices.

All this is happening at a time when prices of lead, a key raw material, have largely remained subdued, though there has been some strengthening on the back of signs of recovery in the US economy.

Prices, now ruling at around $2,190, are down 6% from the recent peak.

Analysts expect improvement in Exide’s margins to about 14% next fiscal from current levels of about 11.6%.

Exide earns gross margins in excess of 30% from the replacement battery market. Being the market leader, Exide has always been a price-setter and commanded a strong premium over its peers.

However, over the past one year, due to capacity constraints and loss in market share, Exide has played around with its pricing, leading to lower profitability.

“Going forward, we believe the pricing discipline in the sector will be maintained as Exide regains its market share,” said brokerage Nirmal Bang in a recent report.

“Now that the company has regained market share close to its desired level, the focus will likely shift back to profitable growth,” said Nomura in its report.

@SumitMoitra