In its marketing year ending Mar-17, Exide's gross margins had grown from 15 percent in 2015 to 20 percent and the company was on a growing path. That faith has shifted. In the outgoing year ending Mar-19, the company incurred a net loss margin of 5 percent after margins fell to 10 percent. For the quarter ending Jun-19, this net loss margin stands at 8 percent. Multiple factors are affecting Exide's somber beginning and will dictate its likely somber finish for the year.

Evidently, the company is not doing too well on demand which started to show lethargy since last year. The company supplies batteries for the automotive industry as well as industrial batteries used for standby power and other solutions. Reduced demand in the automotive industry particularly in the light and heavy commercial vehicles segments and tractor segment has put pressure on battery sales. On the cost side, prices of refined and recycled lead went up. Import costs are also up due to a weaker rupee. Margins as a result shrank.

The company has also not kept its other expenses in check—which as a share of revenue grew by 12 percent in the quarter against this period last year. Higher finance costs (grew to 3 percent of revenues from the earlier 2 percent) owing to rising interest rates have also put pressure on the pre-tax bottom-line that drew to a substantial loss. Granted this loss is against a paltry profit earned last year since demand fundamentals and cost pressures started steering the company south about that time. The company has been faced competition from smuggled batteries, and is regular with discounts to customer to stave off that competition and retain market share, though that amount is small. Along with some other members, the company also complained to the CCP a couple of months ago about predatory pricing by a competitor that has caused loss of demand. A positive outcome may help, but not by a lot.

The demand in the commercial vehicle and tractor segment is expected to keep at the same levels or lower, even as new entrants launch their models. Meanwhile, steady electricity supply to industries and households will also reduce demand for industrial batteries. To top it all, dwindling margins and rising expenditure does not give confidence to shareholders, of which 7 percent are in the general public.

Copyright Business Recorder, 2019