Exide Industries' focus on profitability makes it an attractive stock
Since the firm has excess capacity now, it should be able to regain its market share in the future without compromising on its margins.
What are the reasons for the jump in analyst rating? First, the small revenue/ profit growth this time is remarkable if one considers the condition of the auto component industry. Second, while the low-margin original equipment manufacturer (OEM) segment reported a 6% fall in sales on a year-on-year basis, the sales from the high–margin replacement segment grew by 13% during the same period. Third, the pressure on the industrial segment was because of seasonal factors: the early onset of monsoon this time reduced the demand for inverter batteries.
Another important reason is that the company has got its pricing power back, mostly because of the capacity constraints of competitors. It has managed to implement three price increases of 15-18% in the past nine months. Though it is facing currency head winds in the form of higher raw material costs, the recent price hikes compensate the depreciation of the Indian rupee up to 60 levels. Since the firm has excess capacity now, it should be able to regain its market share in the future without compromising on its margins.
The counter has also become attractive after its under performance in the recent past due to the problems faced by the auto component industry, and the market leader is trading at a discount to its historical averages. Investors should also consider the embedded value of its holding in ING Vysya Life Insurance.
Selection methodology: We pick the stock that has shown the maximum increase in consensus analyst rating during the past month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weightages to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in the rating indicates that the analysts are becoming more bullish on the stock. To ensure that we pick only companies with a decent analyst coverage, this search is restricted to stocks that have been covered by at least 10 analysts.