Exide Pakistan Limited (PSX: EXIDE) was set up as a private limited company in 1953. It was later listed on the Karachi Stock Exchange (now, Pakistan Stock Exchange) in 1982 and converted into a public limited company.
The company manufactures and sells batteries, chemicals, and acid. It also supplies solar energy solutions. Some of its clients include Suzuki, Toyota, Honda, Mercedes-Benz, Audi, etc. EXIDE financial year end is in March.
EXIDE is primarily held by its directors, CEO, and their children, with over 75 percent shares held under this category. Of this, Ms. Sana Arif Hashwani is a major shareholding holding nearly 21 percent shares of the company. Close to 8 percent shares are held by the local general public followed by almost 7 percent shares in mutual funds. The remaining about 10 percent shares are distributed with the rest of the shareholder categories.
Historical operational performance
Through the first half of the decade, the topline had been rising at various rates, while the profit margins had been relatively stable. FY16 and onwards the revenue decreased four times in half a decade, and profit margins also reached their lowest level thus far.
The economy performed relatively better during FY17 as the service sector, industrial sector and the agricultural sector exhibited better growth rates than that seen in last year; GDP growth was marked at 5.3 percent. The automotive sector particularly had performed decently in the preceding years that generated sales for EXIDE’s products as is reflected in the turnover increase of 10 percent for 2017. With sales of locally produced cars, LTVs, trucks/buses, and tractors, two wheelers and three wheelers increased, sales volumes for the company also improved. Therefore, cost of production also reduced as a percentage of revenue, improving profit margins; a net margin of 5.7 percent was posted for the year which was the highest seen throughout the decade.
During FY18, the economy witnessed some of the highest growth rates in the agricultural and industrial sector, while the service sector also grew at over 6 percent. Despite the positive economic environment and increase in sales of nearly all segments of the auto industry, revenue for EXIDE fell by close to 5 percent. The decline was mostly volume driven, in addition to greater discounts given to distributors and customers. This adversely affected the profit margin that was further exacerbated by the cost of production that rose to claim nearly 89 percent of the revenue. Net margin further contracted to less than 1 percent as finance costs escalated year on year due to profit on short-term running musharakah.
GDP growth rate contracted to 3.9 percent in FY19, and the sectors of the economy witnessed relatively lower growth rates than the previous year. Nearly all the segments of the auto industry posted lower sales. Demand contraction was a result of the general economic uncertainty combined with high interest and inflation rates. With lower sales of various vehicles, EXIDE also faced lower demand for its products, particularly the batteries division; net turnover declined by a significant almost 23 percent. Coupled with an increasing cost of production (nearly 90 percent of the revenue) due to currency devaluation and inflationary pressure in addition to a near doubling of finance cost, the company incurred a loss of Rs505 million, and a negative net margin of 5 percent.
A year after the general election, FY20 began with some economic recovery in sight, although the auto sector was still adversely affected due to the crippling purchasing power of the consumer in addition to the high interest rates. The second half of FY20 was affected by the onset of the novel coronavirus pandemic that led to the shut-down of many plants in the country, hampering production and sales. This significantly affected the auto industry as demand and hence sales plummeted by 50 percent or more. This is also reflected in the company’s revenue that declined by 8 percent. Due to a fall in revenue, cost of production claimed more than 90 percent of the topline, causing gross margin to decrease. Although other income provided some support, it made only 2 percent of the revenue. Thus, et margin reduced to a negative 6.4 percent.
Recent result and future outlook
Revenue continued to contract for EXIDE as it fell by 35.4 percent year-on-year during the first quarter of the year ending March 31, 2021. Apart from cars, all the other segments of the auto industry experienced a decline due to the economic environment that was worsened by the pandemic; the company remained close for half of the first quarter that dampened turnover. Since costs remained intact, cost of production rose to claim 99 percent of revenue, leaving behind little room for absorption of other costs. Thus, profit margins, with net margin recorded at a negative 13 percent.
On account of reduced short-term borrowing and mark-up rate, the company hopes to decrease its finance expense. In addition, it has revised the prices in Replacement and Exports segment in anticipation of competition from capacity expansion by existing battery plants. Thus, it hopes to improve operating performance in the future.