Base effect of Exide Industries

The stock of battery manufacturer Exide Industries increased 4.7% on Monday to Rs 121.65 per share on expectations of good financial results for the quarter ended December. The BSE Sensex closed the day flat.

The company indeed posted good numbers post market hours, helped by low-base effect. Last year’s December quarter was the worst on account of global financial crises, one reason most companies are expected to perform well during the quarter.

Total operating revenues increased 15.6% year on year to Rs 912.91 crore. Growth in revenues was mainly on account of volume growth and better product mix. Exide derives around 60-65% of its revenues from automobile batteries, about 35-40% from industrial batteries and a meagre 1-2% from submarine applications.

Operating performance was strong and operating profit margins increased by 940 basis points (100 basis points make one percentage point) year on year to 23.96%. Operating performance got a boost from a 1.3% decline in total raw material cost. Net profit increased by a whopping 132% to Rs 130.48 crore on account of strong operating performance and drop in interest expenses to Rs 2.9 crore from Rs 12.35 crore last year.

On a sequential basis, however, Exide’s performance was less than impressive. Revenues fell 3.9% and net profit by 12.8%. Operating margins too shrunk by 200 basis points. The company attributed this to a relatively better first half, riding on good demand for inverter batteries.

Most analysts are positive on the stock, which is at 15.2 times its estimated earnings for 2011.

“We expect standalone earnings per share of Rs 6.7 in FY2010 and Rs 8 in FY2011. We are initiating coverage with the sector Outperformer rating and target price of Rs 151 (sum of total parts based), a 27% upside from the current market price of Rs 119,” Sahil Kedia and Jyothsna Murthy of Enam Securities wrote in a note to clients on January 7.

Investors could consider the stock on declines.