The Exide Industries stock slid nearly eight per cent on weaker-than-expected performance in the March quarter. The company is also trailing smaller peer Amara Raja in Q4 as well as in FY20 at the operating level.
The Q4 disappointment for the country’s largest lead acid player was a 21 per cent dip in revenues over the year ago quarter largely from the sharp decline in demand from auto makers. Moreover, its inverter business too has been hit in the March quarter, a seasonally strong one, due to the Covid-19 outbreak.
Amara Raja, in contrast reported a revenue growth of one per cent both in Q4 and FY20; the annual revenues for Exide fell 7 per cent. Amara Raja has a lower exposure to original equipment manufacturers (OEMs) and inverters than Exide and thus was less impacted by the lockdown. Exide’s revenue under-performance in FY20 comes after two consecutive years of out-performance (FY18 and FY19) over Amara Raja.
Exide's under-performance, according to Elara Capital, is due to the inverter segment, higher exposure to OEMs and likely market share loss in the telecom segment.
Despite the pressure on revenues, the positives for the two lead acid majors who have a near duopoly on the sector, was the relief on the operating performance front given falling raw material costs. Raw material as a percentage to sales fell 154-312 basis points year on year to 62-63 per cent for the two players helping offset pressure on margins.
Amara Raja reported a flattish operating profit performance while Exide’s operating profit was down 28 per cent on y-o-y basis. While there was pressure on margins, the performance for both companies at the operating level was better than estimates.
The other positive for the sector is the shift from the unorganised to the organised sector which will help the two companies gain market share in the higher margin replacement segment.
Given the market share loss for Exide and better revenue performance of Amara across segments, most brokerages prefer the latter. Amara Raja is trading at a 11 per cent discount to Exide on FY22 earnings estimates.