Exide fails to meet expectations

Tue, 18 Jan 01:30 pm

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The Indian market traded in a range bound manner during the previous two hours of trade. Currently, investors seem to be favoring stocks from the IT, FMCG and banking spaces as their respective indices are trading higher by about 1% to 2% each. On the other hand, stocks from the realty, oil & gas and power spaces are amongst the top underperformers at the moment.

The BSE-Sensex is currently trading higher by about 90 points or 0.5%, while the Nse-Nifty is trading higher by about 30 points or 0.5%. Stocks from the mid and small cap spaces are seeing very little interest as the BSE Midcap and BSE Small cap indices are trading marginally higher as compared to yesterday’s closing levels.

Oil & gas stocks are currently trading mixed with Cairn India and Petronet LNG trading firm, while IOC and ONGC are trading weak. State-owned ONGC is expecting the royalty issue on Cairn India’s oil field in Barmer, Rajasthan, to be resolved before the company’s FPO hits the markets. ONGC is currently paying 100% royalty to the government on oil produced from the Cairn India operated block in Rajasthan. It has wanted the government to split the royalty payments with Cairn India. Total royalty payment over the life of the block is likely to be around US$ 2 bn. ONGC chairman said that the company won’t continue to pay a 100% royalty on the Rajasthan oilfields. He also reported that the government had assured the company of a settlement on the issue.

The company is coming up with a follow-on share sale in the range of Rs 125-140 bn. The government will sell off additional 5% of its stake in the company. ONGC has shortlisted six banks for an aggregate fee of one rupee. Investment bankers competing for the fundraising market have chosen to do business for state-owned companies for free, as it involves lesser work than private ones, and gives a lot of publicity.

Stocks of auto ancillary companies are trading weak led by Exide Industries, Amtek Auto and Apollo Tyres. The stock of battery manufacturer Exide Industries is not in favour today as the company’s results for the quarter ended December 2010 did not meet market expectations. While the company reported a 15% YoY increase in revenues, a 28% YoY increase in expenses led to its operating profits for the quarter to fall by 27% YoY. The rise in expenses was largely due to a 33% YoY increase in raw material costs, which formed about 65% of revenues (as compared to 56% last year). The company’s net profits however, declined by 5% YoY only. This was largely due to a more than 50 fold increase in other income (mainly dividends). On excluding the same, the company’s profits would have declined at an even sharper pace as compared to the decrease in operating profits. This is on the back of a 13% increase in depreciation charges.

During the 9mFY11 period, Exide reported a 20% YoY increase in revenues, while profits were up by 25% YoY. On excluding the Rs 470 extraordinary income it earning during this period, profit growth came in at 13% YoY during this period.