Exide Pakistan Limited

Exide Pakistan Limited (PSX: EXIDE) was incorporated in Pakistan as a private limited company in association with Chloride Group PLC of United Kingdom and was later converted into a public limited company. The principal activity of the company is the manufacturing and sale of batteries, chemicals and acid as well as solar energy solutions. EXIDE acquired Furukawa Battery in 1991 which further strengthened its position in the industry.

Pattern of Shareholding

As on March 31, 2023, EXIDE has a total of 7.768 million shares outstanding which are held by 2080 shareholders. Directors, CEO & children have the major shareholding of 75.54 percent in the company. This is followed by local general public holding 7.76 percent in the company. Mutual funds and Insurance companies have a stake of 6.67 percent and 5.5 percent respectively in EXIDE. Around 1.47 percent of the company’s shares are held by foreign companies. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-22)

After 2018, EXIDE made net losses for the three successive years until 2021 but started making profits from 2022 onwards to boast the highest ever net profit in 2023. Conversely, its topline slid in 2019 and 2020 but embarked on an uphill journey from 2021. The company’s margins dropped until 2020 but rebounded in the subsequent year to reach their optimum level in 2023. The detailed performance overview of each of the years under consideration is given below.

In 2019, EXIDE’s topline nosedived by 23 percent year-on-year due to massive decline in battery sales on account of lackluster performance of the automotive industry. While rising inflation and dropping purchasing power of the consumers appeared to be the major culprit behind tamed automobile sales in 2019, restrictions on non-filers to purchase new vehicles also played its due role in suppressing the industry’s volumes. This created a direct impact on the sale of batteries. While the chemical division performed better in 2019 and its net sales grew by 15 percent year-on-year in 2019, however, it constituted only 3.6 percent of the total net revenue of EXIDE in 2019 and hence couldn’t produce much of a difference in its topline. Owing to high prices of refined and recycled lead coupled with depreciation of Pak Rupee, the gross profit dropped by 28 percent year-on-year, with GP margin clocking in at 10.2 percent in 2019 from 11 percent in 2018. 8 percent higher distribution expense was the result of higher provisioning against battery warranty claims coupled with increased advertising and promotion budget to cope up with the intense competition prevailing in the market. Administrative expense also grew by 12 percent year-on-year in 2019 due to higher payroll expense on account of inflation. The rise is payroll expense was despite considerable drop in the number of employees from 477 in 2018 to 374 in 2019 due to low capacity utilization. Other income grew by 54 percent year-on-year in 2019 due to reversal of rent and higher scrap sales made during 2019. Other expense also inched up by 50 percent year-on-year in 2019 mainly on the back of exchange loss. This culminated into an operating loss of Rs.151.73 million in 2019 as against an operating profit of Rs.336.22 million in 2018. To make things worse, finance cost also posted an 82 percent year-on-year rise in 2019 due to higher discount rate coupled with increased short-term borrowings to meet working capital requirements. EXIDE’s gearing ratio grew from 34.67 percent in 2018 to 47.02 percent in 2019. The company made a net loss of Rs.504.51 million in 2019 as against the net profit of Rs.21.62 in 2018. Loss per share stood at Rs.64.96 in 2019 versus an EPS of Rs.2.78 in 2018.

In 2020, EXIDE’s topline further shrank by 8 percent year-on-year on the back of 55 percent slippage in the automobile sales during the year due to high inflation and discount rates which kept the prospective buyers at bay. This translated into weak performance of the battery division in 2020. Low sales coupled with high cost of production resulted in a 25 percent year-on-year erosion in EXIDE’s gross profit with GP margin ticking down to 8.3 percent in 2020. Distribution and administrative expense also shrank by 19 percent and 4 percent respectively in 2019. This was due to considerably lesser advertisement and promotion charges as well as provision against battery warranty claims. The number of employees further streamlined to 354 in 2020 which also kept the payroll expense in check. Other income posted a staggering rise of 799 percent year-on-year in 2020 due to gain on the disposal of property, plant and equipment. Other expense, on the other hand, plummeted by 37 percent year-on-year in 2020 due to lesser exchange loss as the company imported lesser raw materials due to reduced demand. Operating loss tapered off by 78 percent year-on-year in 2020 to clock in at Rs.32.69 in 2020. Finance cost grew by 56 percent year-on-year in 2020 due to higher borrowings and increased discount rate. During 2020, the company also restructured its running finance facility into a term loan as consistent losses rendered the company unable to settle its short-term financial commitments. Gearing ratio fell to 40.02 percent in 2020. Higher finance cost resulted in an 11 percent year-on-year rise in the net loss which clocked in at Rs.558.85 million in 2020 with a loss per share of Rs.71.94.

The net sales of EXIDE which had been declining since 2019 rebounded in 2021 as it posted a handsome 34 percent year-on-year growth. This was on account of encouraging performance of the automotive industry on the back of low discount rate and better farm income. Gross profit improved by 61 percent year-on-year in 2021 with GP margin clocking in at 10 percent. Despite better sales volume, distribution expense sank by 9 percent year-on-year in 2021 on account of a steer on the advertisement and promotion charges, lower carriage and forwarding charges and lower provisioning against battery warranty claims. Administrative expense inched up by 12 percent year-on-year in 2021 due to market induced increase in salaries despite a downtick in the number of employees to 343. Other income slipped by 77 percent year-on-year in 2021 due to one-off gain earned on the sale of property, plant and equipment. This diluted the impact of an exchange gain of Rs.22.7 million earned by EXIDE in 2021 on account of appreciation in the value of local currency. Stronger Pak Rupee also trimmed down the other expense by 37 percent year-on-year in 2021 due to no exchange loss incurred during the year. After two years of booking operating losses, the company was able to post an operating profit of Rs.356.30 million in 2021 which culminated into an OP margin of 3 percent. Finance cost also proved to be favorable as it contracted by 55 percent year-on-year in 2021 due to monetary easing and reduced borrowing during the year. Gearing ratio further lowered to 39.22 percent in 2021. 43 percent higher taxation resulted in the net loss of Rs.0.04 million in 2021 with a loss per share of Rs.0.01.

The growth trajectory continued in 2022 as EXIDE’s topline rose by another 23 percent year-on-year due to superior performance of automotive industry as well as considerable upward revision in prices. Cost of sales grew by 21 percent year-on-year, yet gross profit improved by 41 percent year-on-year, culminating into a GP margin of 11.5 percent in 2022. Distribution expense multiplied by 43 percent year-on-year in 2022 due to significantly higher provision against battery warranty claims coupled with high carriage and forwarding charges. Administrative expense also grew by 17 percent year-on-year in 2022 due to higher salaries and wages despite the fact that the number of employees climbed down to 325 in 2022. Other income narrowed down by 52 percent year-on-year in 2022 as the company made no exchange gain and no scrap sales. Other expense grew by 44 percent year-on-year in 2022 due to exchange loss incurred during the year. Operating profit picked up by 34 percent year-on-year in 2022 with OP margin jumping up to 11.5 percent. Finance cost grew by 47 percent year-on-year in 2022 due to higher working capital requirements and upward revision in discount rate. With increased borrowings, gearing ratio again swelled up to 46.76 percent in 2022. However, after three years of sustained net losses, 2022 proved to be a breath of fresh air for EXIDE and mustered a net profit of Rs.28.86 million. EPS clocked in at Rs. 3.72 while NP margin was recorded at 0.2 percent – the level last seen in 2018.

Recent Performance (Year ended March 2023)

The lucky streak continued in 2023 whereby the company boasted a staggering 63 percent year-on-year growth in its topline. This was the highest ever topline growth magnitude as well as highest ever net sales witnessed by the company. While the automobile sales were not encouraging in 2023 due to Pak Rupee depreciation, import restrictions, commodity super cycle in the global market as well as high auto financing rates during the year. While automobile and industrial batteries didn’t perform well owing to economic and political turmoil and slowdown of business activity, household batteries seem to have performed well due to increased hours of electricity load shedding. The company was also able to drive its prices upward to make the most of high demand. gross profit improved by 104 percent year-on-year in 2023 with GP margin climbing up to 14.4 percent versus 11.5 percent in 2022. Distribution and administrative expense widened by 35 percent and 5 percent respectively in 2023. This was due to higher carriage and forwarding charges coupled with increased provisioning against warranty claims. The company further drove down its human resource count to 323 in 2023, yet high inflation resulted in higher payroll expense. Other income posted a marginal 2 percent rise on the back of improved profit on bank accounts. Other expense posted a 254 percent year-on-year growth due to higher provisioning against WWF and WPPF as well as higher exchange loss. During 2023, EXIDE also booked an allowance of Rs.160.64 million against expected credit losses. Despite tall expenses, operating profit magnified by 230 percent year-on-year in 2023 with an OP margin of 6.7 percent. Finance cost posted a 57 percent year-on-year growth in 2023 due to higher borrowings and discount rate. Gearing ratio slid down to 14.22 percent in 2023 due to increase in cash and bank balances as of March 2023 due to better profitability. EXIDE posted a net profit of Rs.754.56 million in 2023 with an NP margin of 3.2 percent. EPS jumped up to Rs.97.13 in 2023.

Future Outlook

With power outrages seem to show no breather in the coming times, the sale of batteries is expected to go up as two major alternate energy solutions i.e. generators and UPS are powered by batteries. However, with depreciation of Pak Rupee, high inflation and high energy charges, the margins might face pressure in the absence of further price hike.