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Why there is a Steep fall in Exide Industries PE Ratio?

Why there is a Steep fall in Exide Industries PE Ratio?

Published on 27 May 2022 .Views 81 .Comments 0
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Exide Industries Ltd is an Indian multinational storage battery manufacturer, headquartered in Kolkata. It is the largest manufacturer of automotive and industrial lead-acid batteries in India and the fourth-largest in the world. It has plants in India and Sri Lanka and a dealership network in 46 countries spanning 5 continents. The price-to-earnings ratios of Exide Industries fall below 3 after the result of the Q4FY22 which generally trailed with 18 to 20 this is due to a huge increase in the profit of Exide Industries in Q4FY22. So, let’s discuss this fall in P/E in this article as we move ahead.

How did Exide Industries have booked a huge profit in Q4FY22?

  • Exide Industries sold its subsidiary Exide life insurance to HDFC life insurance for Rs. 6,687 crores. Payment has been made by HDFC life insurance in two parts cash of Rs. 726 crore and 8.7 crores shares have been received by Exide which was valued at Rs. 5,967 crores at the time of this deal.
  • In the standalone balance sheet of Q2FY22 of Exide Industries under the heading of their non-current assets, the investment amount of Rs.2,241.38 crore under financial assets is the amount they have invested in Exide life insurance.
  • The actual value for which they have sold the Exide life insurance is Rs. 6,687 crores so the profit is Rs. 4,445.62. This profit is shown in the profit/loss account of the Q4FY22 under exceptional items, Exide has a profit of Rs 4,693 crore and after the deduction of the tax the profit of the Exide is close to 4000 crore which means the PAT of the company is increased a lot due to this sale.
  • The company presented the entry of this sale in Q4 as it was mentioned in the notes of the financial statement. Post receipt of such requisite regulatory approval the aforesaid transaction was completed on January 1st, 2022.
  • An increase in the exceptional item has created a huge difference in the price-to-earnings ratio. This means we should not focus on only one thing while understanding the valuation of a company, there are multiple ratios like EV/EBITDA, Price to cash flow, price to free cash flow, etc.
  • The EV/EBITDA of Exide has not been changed, earlier it was 8 and the current EV/EBITDA is also 8. EBITDA is the operating profit of the company and it does not include the exceptional items so this sale has not affected the operating profit of the company.
  • The balance sheet of the company as ofQ4FY22 has a value of Rs. 5340 Cr. investment under financial assets of non-current assets, this is the value of share which company has received from the HDFC life insurance.
  • In cash flow, under the heading of Cash flow from investing activities, there is an entry of Rs. 721 Cr. proceed from the sale of investment in subsidiaries this is the amount they have received in cash.

What should Investors do?

The Exide industries are not undervalued, the company’s profit is increased a lot because of the sale of the Exide life insurance. An investor should always analyze all the ratios related to a valuation not only one, as one can be misleading.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or

 

 

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