Battery manufacturer, Exide Pakistan (PSX: EXIDE) was incorporated in 1953 in association with Chloride Group PLC of the United Kingdom. The Chloride group had associates worldwide across 35 destinations and was supported by Chloride Technical. Exide Pakistan operates in the manufacturing and sales batteries, chemicals and acid with its manufacturing facilities for batteries located at SITE Karachi and HUB Balochistan while its facilities for chemicals and acid located at SITE and Bin Qasim Karachi. In 1991, the company acquired Automotive Battery Company Limited, Furukawa Battery
Exide offers automotive, industrial and household solutions by providing a wide range of batteries for cars, tractors, rickshaws, SUVs, trucks, buses, marine transport, earth-moving equipment as well as off-the-road vehicles. In addition, the company manufactures special application industrial batteries for standby power, locomotive engine starting and train lighting systems. The batteries also have household applications, providing reliable power backup in case of load shedding and voltage fluctuations. Another major market for batteries is the after-sales market which caters to the millions of vehicle already on the roads that require a replacement for existing batteries.
The company's shares are primarily held by the Hashwani family (over 75%) with 20.5 percent shares each held by Sana and Zaver Hashwani while 16 percent held by Hussain Hashwani and 18.2 percent held by Altaf Hashwani both of whom are part of the board of directors. The State Life Insurance holds 5.5 percent of the company's shares as well as per the annual shareholding pattern ending Mar-19. The public held about 8 percent of the shares in total. Exide has a wholly owned subsidiary Chloride Pakistan (Private) Limited which was established in 1994 but has not commenced production till date. The subsidiary was incorporated to utilise the tax exemption offered by the government in Hattar. However, the exemption was taken away after the company's incorporation and so the company did not commence its operations.
Financial and operational performance
Exide manufactures battery and chemicals, for which it has separate plants. Battery is the main revenue generator for the company. Since there are many difference varieties and types of batteries manufactured catering to a vast array of industrial, automotive and household solutions, the company has not put a capacity number to its production capabilities. The installed capacity of the chemical plants is 33,000 tons in 2019 against the same capacity last year, while actual production in 2019 stood at 26,032 tons against 30,128, last year (see graph for historical capacity utilisation). To date, the company's capacity utilisation for chemicals has remained above 75 percent peaking at 91 percent in 2018 coming down to 79 percent in 2019. Evidently, the company's demand in the chemicals segment has suffered in the last year but remaining within its historical range. There is no way to ascertain battery production except from its revenues.
Overall, since 2010, the company's revenues had doubled by 2017 but came down in 2019 as the country's macroeconomic fundamentals headed south. The company's performance is closely tied to the automobile industry, and in times when the automotive sector boomed, battery sales also improved. In 2018 and 2019, as automobile demand especially in the light and heavy commercial vehicle as well as tractor segments slowed down, Exide's performance also suffered. In 2018, revenues remained stagnant and in 2019, they came down by 23 percent. Declining demand was coupled with rising costs that eventually hurt margins. Over the years, the company had improved its margins-from 13 percent in 2010 coming up to 20 percent in 2017. These plummeted to 11 percent and 10 percent in 2018 and 2019. The cost dynamics have changed dramatically in the past year or so. Lead prices globally increased while exchange rate also exposes the company to the risk of incurring higher costs due to depreciation. Fuel prices are also a factor. The company shifted to SNG based LPG in 2015 that increased its expenses on that front.
Inflationary pressures and higher fuel prices have added to all sundry costs include transportation and distribution expenditure. The company's short term borrowings depend on KIBOR which exposes it to cash flow risk interest rate risk. Higher mark-ups together with higher borrowings took the company's financial charges up as well. In 2019, the crisis had come to a head and the company incurred a loss, with a loss margin of 5 percent.
Outlook The company will remain vulnerable to exchange risk, interest rate risk, and shrinking battery demand. The automobile sector is hardly headed toward any major recovery as the real impact of the slowing down economy hits manufacturing. In the commercial vehicle and tractor segments, the lethargy started to show since last year, which has now also hit the passenger car and motorcycle segments. Despite new entrants coming into the playing field, it is unlikely the immediate demand for batteries would go up as localisation has not started in these manufacturing facilities. Meanwhile, older players are witnessing the market size shrink.
This is evident in the company's first quarter financials ending Jun-19. The company's revenue profile has shrunk 9 percent and the losses have ballooned in the quarter.
The company saw negative earnings per share of Rs 29.26. While expensive imported content, higher fuel prices and rising refined and recycled lead against overall inflation may have hit margins, the losses came about also due to other expenses. The company's financial expenditure grew as the company's mark-up rates increase. Other expenses for the company also grew from 10 percent of revenues to 11 percent which further applied pressure to the bottom-line.
The company faces competition from not only existing battery manufacturers who are expanding capacity, but also an inflow of imported batteries. Higher raw material prices, any further depreciation, increased utility and power prices will all impact its bottom-line in the ensuing quarters. Depleting demand for batteries in the OEM as well as the replacement market will also cause balance sheet unrest.
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Exide Pakistan
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Rs mn Jun-19 Jun-18 YoY
1st Quarter
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Sales 2,680 2,946 -9%
Cost of Sales 2,477 2,610 -5%
Gross Profit 203 336 -40%
Administrative 38 35 7%
Distribution costs 266 336 -21%
Other operating charges 0.8 20.7 -96%
Finance charges 87 38 126%
Other income 1 2 -76%
Profit (Loss) before tax -187 0.16
Taxation 40 37 9%
Profit (Loss) after tax -227 37
Earnings per share (Rs) -29.26 -4.72
GP margin 8% 11% -34%
NP margin -8% 1%
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Pattern of Shareholding (as on March 2019)
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Categories of Shareholders Share
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Directors and their spouse(s) and minor children 75.3%
Sana Arif Hashwani 20.5%
Zaver Hashwani 20.5%
Altaf Hashwani 18.2%
Hussain Hashwani 16.1%
NIT and ICP 0.0%
Foreign companies 1.5%
Insurance Companies 6.1%
State Life Insurance Corporation 5.5%
Joint Stock Companies 0.0%
Charitable, Modrabas 0.008%
Banks, development finance institutions, 0.005%
insurance, non-banking finance companies etc.
Mutual Funds 6.7%
General Public 7.7%
Others 2.6%
Total 100%
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