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WEEKLY NEWSLETTER
DEC 03 DEC 07, 2012 EDITION: 02 VOLUME: 31
Additionally, investor's would be tracking corporate third installments of advance tax for the financial year 2012-13, an advance indicator of corporate profits during the quarter. Telecom stocks too could witness some action in the coming week as roadmap over unsold spectrum, is expected to be unveiled. On the global front, investor's would be eyeing the release of few economic data from US, starting with International Trade data on December 11, followed by FOMC Meeting Announcement, FOMC Forecasts, Jobless Claims, Producer Price Index and finally, the Consumer Price Index and Industrial Production data on December 14,2012.
GLOBAL OUTLOOK
US Markets The US markets encountered huge bout of volatility for the passing week as political leaders wrangled in budgets talks to avert steep tax hikes and spending cuts that could push the economy into recession. The market has already sensed that if US politicians cannot reach a compromise over the so-called fiscal cliff, it could trigger more than $600 billion in tax hikes and spending cuts that could push United States back into recession. Though there were some counter-offer from House of Republicans to avert the fiscal cliff but it was of no help. President Barack Obama stated that the latest Republican budget proposal remains out of balance. Obama dug in his heels and voiced that there could not be a fiscal-cliff deal without higher taxes 13,165 on the wealthy. Finally, a few dozen Republicans 13,155 13,105 joined a bipartisan call to break the impasse 13,045 13,074 13,034 between President Barack Obama and House 12,985 12,966 12,952 Speaker John Boehner over taxes for the highest- 12,925 earning Americans, signing a letter calling for 03-Dec 04-Dec 05-Dec 06-Dec 07-Dec DOW JONES exploration of all options. The Dow Jones was up by 1% for the week. European Markets The Europeans sensed some relief during the passing week after Spain requested formally for the disbursement of 39.5 billion euros of European funds to recapitalize its crippled banking sector. Besides, Germany Chancellor Angela Merkel opened the possibility that Germany may ultimately accept a write-off of Greek debt. Meanwhile, the ECB President Mario Draghi voiced his concern that he continues to see downside risks to the economic outlook for the euro area. The European Central Bank slashed its economic forecasts for 2013, offering little hope to the euro zone's weaker members as they struggle to emerge from the region's debt crisis. The central bank took no new steps to spur business activity, instead putting the onus on governments to find ways to restore prosperity across the 17-member currency zone. Moreover, the euro area economy slipped into recession in the third quarter. The gross domestic product contracted 0.1% in the third quarter from a quarter ago, when it dropped 0.2% matching the preliminary estimate released on November 15.
Asian Markets The Asian markets remained in jubilant mood in the passing week and the Chinese market that has been underperforming the regional indices too bounced to post its best weekly closing since September. Though, the concern of US fiscal cliff to avert steep tax hikes and spending cuts that could push the economy into recession kept looming large. Chinese manufacturing expanded last month, signaling recovery in the region. Data released by the National Bureau of Statistics and China Federation of Logistics and Purchasing stated that China's official Purchasing Managers' Index, a gauge of the manufacturing industry, was 50.6 in 101.0 November, the highest in seven months. There was some good news from Japan too, Japanese 100.5 companies increased capital spending more than 100.0 expected in the three months to September. Capital spending excluding software rose 2.4 percent in the 99.5 period from a year earlier, after rising 6.6 percent in 03-Dec 04-Dec 05-Dec 06-Dec 07-Dec YEN NIKKEI the previous quarter.
FY12 was a bad year for Exide with the company facing multiple issues, most important being, capacity constraints and a resultant shift in product mix towards the lower margin OEM segment. Loss of market share owing to capacity constraints warranted a price cut, further impacting margins. Moreover, poor inverters demand owing to a relatively pleasant summer, lead to accumulation of high cost lead inventory which needed to be liquidated. We believe that the worst of these are behind us and business has started looking up and should deliver better-than-anticipated results on more than one parameter.
Replacement demand to kick in; expect market share gains: Exides capacity commissioning, which got delayed, is now on stream adding further capacity of 2.0 million for 2 wheelers and 1.4 million for 4 wheelers. Resolution of capacity constraints, in our view, will position Exide favorably to capitalize on the uptick in the replacement demand in FY13/14, which we expect on the back of the strong 26% growth seen in FY10/11 and a three year replacement cycle. Also, the company is likely to regain some of its lost market share in the replacement market with the capacity addition and aggressive marketing initiatives undertaken. Product mix improvement to drive margins: With stronger growth coming from the high margin replacement segment (owing to both, a cyclical recovery and market share gains) as against low-single-digit margins in the OEM business, we expect Exides margin profile to improve over the next couple of years. Replacement demand for 2wheelers is also in a structural growth phase given increased usage of electric-start two-wheelers. In-house smelters give Exide a competitive edge, providing it with a source for cheaper and stable supply of lead, the key raw material. We expect the company to report margin improvement of 200 bps over the next two years and stabilize at ~17%. Inverter battery sales remain buoyant: Of the 30% unit (volume) growth YTD, 15% is accounted for by inverters. The power outage situation remains a challenge especially in South India. Exide has turned its focus on the UPS and inverter segment due to increase in demand. Recently, the company has forayed into manufacturing and marketing of inverters for home segment by acquiring a manufacturing unit at Roorkie, Uttarakhand with an investment of `1.75 Billion. It is using its existing network of nationwide dealers to market the product. Meanwhile, the company is planning to invest `2.70 Billion as capital expenditure during this fiscal. Exide has introduced its new Power Safe XCD series valve regulated lead acid batteries. The new range of batteries is intended to offer uninterrupted back-up and unmatched life for UPS applications, so it is useful in areas having longer power outages. CONCERNS Lower than expected auto volume growth due to an adverse macro environment. A higher than expected increase in lead prices, which could suppress margins. Higher than expected competitive intensity resulting in market share erosion. Price wars by an aggressive new comer in the industry or by incumbent competitors could force Exide to cut prices, resulting in margin erosion.
NIFTY
EXIDE
RECOMMENDATION In P/E terms the stock is currently trading at 28.40x its TTM EPS of `5.30, We recommend a BUY on the stock, purely on fundamental terms.
4 Anush Shares and Securities Private Limited
INDEX PERFORMANCE
INDEX NIFTY SENSEX BANK NIFTY CNX IT CNX MIDCAP Current 5907.40 19424.10 12363.70 6006.25 8376.30 Change 27.55 84.20 204.80 -257.00 236.50 % 0.47 0.44 1.68 (4.10) 2.91
FII ACTIVITY
Date 03-Dec 04-Dec 05-Dec 06-Dec 07-Dec Net 1567.90 361.60 564.00 926.00 845.80
in ` Cr.
Nifty (8.90) 18.30 11.25 30.40 (23.50)
NET
*In Stock Exchange
4265.30
27.55
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