Negative overhang on Exide to remain in near term: Quant

Automobile battery manufacturer Exide Industries’ Q3 net profit has fallen 25.5 percent year-on-year to Rs 77.5 crore, impacted by weak demand.The revenue for the quarter has declined to Rs 1,301.4 crore from Rs 1,462.1 crore in corresponding quarter of the last fiscal.

Also Read: Exide Q3 misses forecast, net falls 26% to Rs 77.5 cr Speaking on CNBC-TV18, Basudeb Banerjee from Quant Broking said both employee cost and other expenses (because of poor economies of scale) have hurt the company’s margin.“This is the second successive quarter of poor numbers from Exide and definitely the negative overhang on the stock will continue at least for the near term,” he said.Below is the edited transcript of Basudeb Banerjee interview on CNBC-TV 18Q: How would you read Exide now after these Q3 numbers which were very disappointing?A: This is a second consecutive quarter of revenue declining on a year-on-year (YoY) basis. That is a – in last five to six years a rare event now. Two successive quarters of revenue decline. Primarily if you see the margin, there are negative surprises only because of the revenue being down around 11percent YoY , so both employee cost and other expenses because of poor economies of scale has hurt the margin and which has trickled down to bottomline level.

If you compare the numbers with main competitors, it is below gross profit level cost, which are the prime differentiators in terms of margin. So, this is the second successive quarter of poor numbers from Exide and definitely the negative overhang on the stock will continue at least for the near term.Q: The valuation catch up, is that coming into play because it used to trade at historic levels of around 16-17 times. We have seen a 30 percent – a nearly around 20 percent correction in the past four months odd. Do you think now that it is around 13-14 times it doesn’t look attractive?A: Fortunately or unfortunately speaking the stock is still trading somewhere around that 15 times only. The 30 percent correction is primarily because of you can say 30 percent cut in consensus estimates. So, there has not been any major de-rating in the stock at all despite all these poor set of numbers.

At the end of the day, because of the strong franchise and branding and being the leader across the automotive segment, the stock has corrected because of de-rating. It will be wrong to infer and primarily I will say that any softness in the lead price and stronger rupee along with overall demand sentiment improvement can lead Exide manage that 14 percent margin level along with a gain in some market share. So, that will be sole criteria for the overall management to look upon and improve the overall bottomline in the coming quarters.