Exide raises prices as ruee negates input-cost gains

For Exide Industries, this fiscal could offer quite a bumpy ride.
Hemmed in by a falling rupee and rising costs of a key input, the country’s largest lead acid battery maker has raised prices across categories by about 2.5%, effective June 1.

While the move may protect its dwindling margins, it may push its customers in the replacement market to competitors like Amara Raja, most of which sell their products at a discount to Exide’s.

Following a 2% price cut on a blended basis in March, Exide, which posted dismal fourth-quarter results, had told analysts earlier this month that it would maintain a pricing premium of 5-6% over competitors.

Though lead prices softened after remaining volatile for most of the last fiscal, it did not give Exide much respite as the fall in the rupee value negated most of the input cost gains. With rupee likely to fall further, Exide will have to brace for a northbound movement of lead prices.

“We are keeping a close watch on the rupee and also on lead prices, we might have to take price hikes again if both these factors go against us,” a director of the company told DNA Money.
In a tumultuous journey, lead prices have fallen 30% from a peak of $2,994 a tonne a year back to about $2,090 a tonne now, and are poised to reach a level of $2,270 by December, as per reports, driven by likely slowing down in supplies during 2012 to a three-year low even as global battery consumption to run mobile towers and cars is rising.

Exide’s margin fluctuates in tandem with lead prices, typically with a lag of one to two quarters.

According to a just released report by Citi Investment Research, every 10% change in lead prices results in a 550 basis-point swing in margins. “On a 9% PAT margin (FY12E) this is equivalent to a 55% oscillation in profits. At an Ebitda (earnings before interest, tax, depreciation and amortisation) margin of 13% (FY12E), this is equivalent to a 40% impact on Ebitda,” the report said.

This also means Exide is likely to miss its targeted operating margin of 17-18% by end of 2012-13. The profit before depreciation, interest and tax margin forecast by Exide was based on assumption that both international lead prices and exchange rates won’t move against the interest of Exide, which is increasingly appearing unlikely.

Exide’s operating margins were at a low 15.7% during the last quarter when depressed demand, mainly for automobiles, pulled its profits down 13% year on year.