Charged up

Lead acid storage batteries manufacturer Exide Industries posted a whopping 92.2% year-on-year growth in net profit to Rs149.67 crore.

Profitability was helped by strong operating performance and a 67% decline in interest expenses to Rs4.4 crore. Interest cost declined due to partial repayment of debt.

Analysts expect interest costs to drop further in the days to come.

Total raw material cost fell 12.6% to Rs521.45 crore, helped by the fact that the company sourced nearly two-fifth of its lead and lead alloy requirements from its own captive smelters. Lead is the key raw material for making batteries.

Further, market penetration increased, as Tier 2 and Tier 3 cities were connected through a hub and spokes model.

A favourable rupee-dollar rate helped offset the impact of the recent rise in lead prices. Total overall cost thus fell 6.4%, resulting in a 952 basis points year-on-year improvement in operating profit margins to 25.99%.

Revenues increased 5.5% to Rs950.7 crore, led mainly by double-digit volume growth in automotive and industrial batteries. However, lower battery prices offset the gains.

Going forward, Exide is expected to benefit from better outlook of the auto industry, leading to good demand for automotive batteries. Also, the cost of imported coal would reduce because of increasing smelter capacity. On the flip side, operating margins are expected to be under pressure, as lead price continue to increase. Lead prices ruled at $2,170 per tonne on the London Metal Exchange on Tuesday. Average lead prices in the September quarter stood at $1,942 per tonne.

At Rs101.40, the stock trades at 15 times its estimated earnings for 2010. Analysts are positive on the stock and investors could consider it on declines.