PAGE vs EXIDE – Which business is good?
Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Equity Valuation Techniques
Forum Discription: While valuing equities no individual technique works. Mostly it is a combination of techniques. Discuss the various techniques in equity valuation ranging from PE to RoE to Market Cap
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=3293
Printed Date: 26/Jun/2024 at 2:34pm
Topic: PAGE vs EXIDE – Which business is good?
Posted By: manish_okhade
Subject: PAGE vs EXIDE – Which business is good?
Date Posted: 08/Jun/2011 at 5:20pm
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Qualitative: 1) Both the businesses are essential for human being. We need kachcha as well battery both routinely. 2) Both businesses are repetitive and leaders in their area Quantitative: The great master mentioned in 2007 AR that the great business is the one which need small amount of working capital to generate big amount of profit. See’s Candy is one such business. Page Industry: Data point for FY07-FY10
Exide Industry: Data point for FY07-FY10
Now what above data shows? First, generated profit on working capital is far more in case of EXIDE to Page. Page is a growing business hence they require probably some investment in assets too which is reducing the NP/NCA metrics. Second let’s check how the return is over net tangible assets or Book Value. RoE is way ahead of Page in case of EXIDE. On top of that growth rate too is on average ahead of Page. In spite of all above market values newcomer Page more than EXIDE. Am i wrong in above interpretation or market is crazy for new thing, TEDs to decide? |
Replies:
Posted By: Catalyst
Date Posted: 08/Jun/2011 at 5:52pm
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ROE of Page is much higher in excess of 40%, Growth rate for Page is also high.
Moreover if you need to buy a battery and if exide is not available, its very likely that the customer would settle for alternate brand such as Amaron, While it seems very unlikely in case of Katcha.
And with a katcha brand lot of brand extensions are possible which can help in growth and the company can also use lot of marketing gimmicks like one-for-one free, end-of-season sale types.
Lastly, these two businesses are not comparable, as Page is more of a marketing driven (read perception) business, while Exide is more of a distribution driven business(it has to be there when the customer needs it, else the customer is gone), while in case of Page customer can afford to wait...
------------- What’s Euphoria, think of it as obscenity. Though its probably impossible to formulate a test for Obscenity but you know when you see it. |
Posted By: manish_okhade
Date Posted: 08/Jun/2011 at 6:16pm
Check youself Profit Margin and NP growth rates for past 5 years. Page Growth Rates:
EXIDE Growth Rates:
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Posted By: subu76
Date Posted: 10/Jun/2011 at 8:15am
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Manish, IMO this is an excellent way of looking at companies. If nothing else it forces us to look at companies as a whole. Relative valuation rocks. On this specific point i'd like to point out Multiple issues which is not captured by the numbers: On Business models: 1. Page is a much smaller company than Excide. (2000 cr vs 13,000 cr) 2. Page is at a baby stage in terms of it's evolution and Excide is middle aged 3. From a high level Page topline is probabily much less cyclical than Excide 4. Catalyst's points above around the business models. Which company has the potential to introduce new products to drive sales? 5. Much easier to call out threats to Excide than to Page. 6. Which company can raise prices easily? On Pricing: 1. Page isn't cheap at 30 PE but who says Excide is dirt cheap at 20 PE To me .....Excide seems to be a company where you need to time a good purchase price while Page seems to be an all weather company. Here's a test for you... If you have to put your entire life time saving on one of the two and you can't withdraw it for the next 20 years which one would that be?
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Posted By: tigershark
Date Posted: 10/Jun/2011 at 10:05am
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add to the above the replacement cycle(turnover) is much higher in page than in exide.i bought a new freedom battery a week back and the co salesperson told me not to come back for at least 5yrs!
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |
Posted By: manish_okhade
Date Posted: 11/Jun/2011 at 7:52pm
I am happy that you like the approach. Regarding your above question, i prefer to put my entire life saving in EXIDE as compared to PAGE. Reason is simple though Page looks rewarding but it may saturate out or new competition will kill it in next 4-5 years. Page is a branding game while EXIDE is more of mix of technology, back end integration, distribution network and relationship mgmt. EXIDE's competitiors will always be there but they will require more time to catch with above attributes as compared to Page. Moreover as evident from my posting that EXIDE is much ahead of financial efficiency wrt Page so it worths to inevest in EXIDE than page when the window is of 20 years!
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Posted By: wildandfree
Date Posted: 11/Jun/2011 at 8:30pm
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Can you please compare the size of opportunity also for Exide vis-a-vis Page ? |
Posted By: manish_okhade
Date Posted: 11/Jun/2011 at 10:53pm
Looks same, those who buy Page products also sit in the vehicles running on EXIDE batteries
 . But there is one very big difference here, Kachcha replacement can wait but Battery replacement can NOT wait
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Posted By: subu76
Date Posted: 11/Jun/2011 at 8:41am
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Manish, good point on Excide's capital efficiency. I looked up their account and fixed cap expenditure to disprove your theory and found that they indeed have the ability to fund their growth easily.....this year they're planning to invest 300 cr in capacity expansion as they've used up their current capacity almost fully...the other advantage of increasing their output is that they'll be able to serve the replacement market (which has better margins) better An important aspect about this company is the way they've consistently reduced their Working Capital/Sales. Normally one would have expected these to be directly proportional more so for a company which has substantial B2B sales . Do you know how they've achieved this? Not sure about PE but the company surely seems to have earning upside from here... Personally, i have some sort of bias against car companies. I bought a car about 6-7 years back for about 6-7 odd lakhs and i find a more improved version of the car still sells at the same price.....As per Excide accounts average prices have moved only marginally over 2007-2010. Offcourse, excide is not just about new cars and the thought process downplays the growth opportunity for this sector. Comparing the 2 companies which are totally disparate is really hard yaar...... For any such exercise please choose similar market cap or similar profit or similar industry companies
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Posted By: manish_okhade
Date Posted: 11/Jun/2011 at 9:21am
You are trying above the pricing power but havent you noticed that for example take any Maruti Car, it would have become cheaper by now what it was few years back, true but is it reducing the profit margine of the company? Answer is no.
Fixed assets of EXIDE have trippeled in last 5-6 years but their working capital has become only 2.5 times what it used to be 5-6 years back. It means their operation does not find hard to meet day to day cpital arrangement and the bonus is return over working capital, its simpley fabulous!!! Compare it with many other companies, its mostly sub 30-50% only.
Also look at the PM for EXIDE it has grown 40% in these 5-6 years i.e. 8+% to 14+%.
So the bottomline is EXIDE is growing the net assets due to capcitiy expansion and they need small dose of debt and capaex for plant maintenance. Growing PM and very high return on working capital is what an investor should lok for, should't it?
Purpose comparing Page to EXIDE is that as an investor one should see which business is more strong and lucrative. Investor is not marrying to any segment instead focus on RoIC on his invested sum in LONG term.
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Posted By: subu76
Date Posted: 11/Jun/2011 at 9:30am
| I agree on the work cap performance...do you know how it was acheived? I's expecting working capital to rise it to be in line with their sales growth but that is not the case... |
Posted By: manish_okhade
Date Posted: 11/Jun/2011 at 9:36am
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Come on Subu! You are asking obvious things.
Working capital is typically made up of inventory, sundry debtors and less current liabilities. Following is the reasons for high values: 1) EXIDE should be getting cash upfront hence they don't need to struggle for money. Mostly manufactures dump the product to the dealers/end customers on credit but that does not seem to be the case with EXIDE. 2) EXIDE is definitely having pricing power. If you look at the growth rate theey i got shocked and still wondering why EXIDE is quoting so cheap? Net Profit 155.21 250.33 284.39 537.09 666.36 61.28% 13.61% 88.86% 24.07% |
Posted By: values
Date Posted: 11/Jun/2011 at 10:24am
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Manish Sir, how would you compare Amara Raja vs Exide ? I am sure you have some information on Amara Raja as well considering you are so excited in Exide ? ------------- Knowledge is power! |
Posted By: subu76
Date Posted: 11/Jun/2011 at 10:24am
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No yaar.....revenues/total number of units produced is almost same over the years I'm really doubtful that large OEMs who are bulk buyers would make upfront payments The growth rate is probabily a reflection of the growth in the overall automotive market as this company is a leader in the space I think the Working capital improvement might have more to do with good systems integration with the OEMs and overall prosperity in this sector (which all resulted in timely payments) My understanding is that the numbers we're currently looking at are all good times numbers and no cyclical down turn occured during these time (which is not to say that one will happen anytime soon)
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Posted By: smartcat
Date Posted: 12/Jun/2011 at 5:50pm
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According to car enthusiasts, Amaron is a better battery than Exide - because it lasts really long (ting tong).
However, Exide has stronger OEM tie-ups. |
Posted By: photon
Date Posted: 19/Aug/2011 at 8:49pm
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So what is the verdict ? Without any bias towards Page (which is a great stock and I own it), I feel Batteries is a very interesting play and consumption per capita is minuscule in India.
Moreover I think there is some moat around the business as Manish Ji mentioned: 1. It is not just product quality - Distribution network, Technology, guarantee - These take time to build. 2. Consumers are becoming more brand conscious - How many of us will use a local battery in an inverter or car ? 3. Exide (and Amara raja) are cash rich, great financial efficiencies, decent growth but geting clubbed with rest of "auto basket". |
Posted By: manishdave
Date Posted: 19/Aug/2011 at 12:08pm
And you need only one battery!! But seriously comparing these two business is pointless. |
Posted By: basant
Date Posted: 19/Aug/2011 at 10:03am
Good point! ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 20/Aug/2011 at 12:21pm
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Posted By: manish_okhade
Date Posted: 20/Aug/2011 at 12:24pm
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Kulamanji, Apple kaun and orrange kaun, ye to aapane bataya hin nahi :-).
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Posted By: kulman
Date Posted: 20/Aug/2011 at 12:30pm
It depends on parameters like relative valuations, opportunity cost etc. Fresh fruits mostly are seasonal! |
Posted By: manish_okhade
Date Posted: 20/Aug/2011 at 12:32pm
Good one
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Posted By: manish_okhade
Date Posted: 20/Aug/2011 at 4:32pm
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Somehow below statement from FY11 AR does not arouse the same ecstatic pleasure as of Hawkins, i dont know why? As stated earlier, your Company was unable to cater to the entire market demand inspite of running its Plants in full capacity. Consequently, your Company has invested 275 crores in the year under review and proposes to invest a further amount of 370 crores in 2011-12 in capacity expansion. A new facility for production of twowheeler batteries has also been commissioned at Ahmednagar, Maharashtra. Disclaimer: Above is not hurt Hawkin's investor's sentiment in any way. I am putting it more of an independant observer. |
Posted By: Shadofax
Date Posted: 24/Aug/2011 at 11:22am
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Hi Manish,
Can you point out to the page number where you read this ? ------------- $ |