Exide Pakistan Limited

Exide Pakistan Limited (PSX: EXIDE) was set up in 1953 as a private limited company. it was 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 in addition to supply solar energy solutions. Part of the company’s clientele includes Suzuki, Toyota, Honda, Mercedes-Benz, Audi, etc., and its financial year end is in March.

Shareholding pattern

As at March 31, 2021, over 75 percent shares of Exide Pakistan Limited, are owned by the directors, CEO, and their children. Within this, roughly 20 percent shares are held by each of the following: Sana Arif Hashwani and Zaver Hashwani. Another 8 percent shares are owned by the local general public, followed by 5 percent in insurance companies and over 6 percent in mutual funds. The remaining around 4 percent shares is held by the rest of the shareholder categories.

Historical operational performance

Exide Pakistan Limited has mostly seen a growing topline, with the exception of a few years. Profit margins, on the other hand, were stable until MY17 after which they followed a declining trend until MY20; there was some improvement in MY21.

After growing for by mostly double digits in the previous years, revenue declined by 4.7 percent in MY18. This was attributed to a volumetric decline, along with greater discounts given to distributors and vendors. Along with a decline in sales revenue, cost of production also adversely affected profitability as production cost grew to claim nearly 89 percent of revenue, increasing drastically from 80 percent in the previous year. As a result, gross margin reduced to 11 percent. This also trickled down to the bottomline, along with the increase in finance expense also affecting profitability. Thus, net margin, at less than 1 percent, was recorded at the lowest seen thus far.

Revenue in MY19 reduced considerably by nearly 23 percent, bringing topline to Rs 9.5 billion, compared to Rs 12.3 billion in the previous year. This was again attributed to a volumetric decline in the battery division. Overall, in the auto industry, sales for locally produced cars, LTV, jeeps declined by 7 percent, trucks and buses declined by 31 percent, and farm tractor sales reduced by 30 percent, as a restriction was placed on non-filers for purchase of new vehicles. Moreover, production cost increased to nearly 90 percent of revenue that reduced gross margin to 10 percent. Operating expenses cumulatively also increased due to a general inflationary pressure, while finance expense grew due to higher borrowings and interest rates. Unable to cover costs, the company incurred a loss for the first time of Rs 505 million.

Revenue declined for the third time in a row in MY20, by over 8 percent due to decline in sales volume in the batteries division. FY20 generally was a difficult year for the auto sector as prices surged, imposition of taxes, rupee devaluation and rise in interest rates that affected demand adversely. Production cost was recorded at its highest ever, at close to 92 percent, reducing gross margin to over 8 percent- in single digits for the first time. While significantly higher other income supported the operating margin, net margin was affected by finance expense that continued to make a larger share in revenue. Thus, net loss for the year increased year on year to Rs 559 million. The unusually higher other income of Rs 166 million, was a one-off event of a gain on disposal of property, plant and equipment.

After contracting consecutively for three years, revenue increased in MY21 by over 34 percent, with topline nearing Rs 12 billion in sales. This was attributed to better volumes, prices, thus higher demand also. The country’s economy grew by 3.94 in FY21, as per the company’s report with recovery seen across all sectors. Auto sales were encouraged on the back of low interest rates and better farm income. Production reduced marginally to 90 percent, raising gross margin to nearly 10 percent. Distribution and finance expense also reduced considerably- latter due to lower borrowings and reduction in borrowing rate. Thus, the company was able to post a nominal profit of nearly half a million.

Quarterly results and future outlook

Revenue in the first quarter of MY22 was more than double year on year, at Rs 4.6 billion, compared to Rs 1.7 billion in 1QMY21. This was attributed to better sales volumes, prices and hence, demand. The entire auto sector performed considerably well, as car and light commercial vehicle sales increased by over 56 percent, farm tractors sale by nearly 55 percent and two/three wheelers by 39 percent. production cost also came down to below 90 percent, compared to 99 percent of revenue in 1QMY21. In addition, finance expense also reduced owing to lower interest rates. Thus, net margin was recorded at 0.5 percent, compared to a net loss of Rs 228 million in 1QMY21.

While the auto industry demand is visible after the outbreak of the Covid-19 pandemic, it is expected that profitability will be impacted due to increase in prices of raw material, utilities, inputs in addition to currency devaluation, particularly if increase in selling price is unwelcomed. Moreover, the battery industry, the organized sector in particular, will face competition due to “capacity expansion of existing battery plants and the changing market dynamics”.