Exide Life’s net sales grew 23.3% y-o-y to Rs 1,760 crore (our estimate: Rs 1,690 crore). While sales to OEMs were flat y-o-y, four-wheeler batteries grew 21% y-o-y, led by 17% growth in replacement segment. Motorcycle batteries grew 12% y-o-y and industrial batteries grew 37% y-o-y.
The management expects Ebitda margins of 16-17% over the next 18-24 months. Benefits of cost reduction measures would be seen from 4QFY15. Major source of savings would be raw material cost (250-300bp savings on value engineering and technology upgradation). The company will be taking a 5% price hike on inverters effective from November. It invested Rs 150 crore in Exide Life during the quarter to fund its growth. The management does not expect any further material investment in FY15 and guided capex of INR5.5b over FY14-16.
We cut our EPS estimates for FY15-16 by 6.9%/3.4% to Rs 7.1/Rs 9.5 to reflect weaker Q2FY15 performance. The stock trades at 21.4x/16x FY15E/16E EPS of Rs 7.1/9.5 (18.6x/13.9x adjusted for insurance valuation of Rs 20/share). Maintain buy with a target price of Rs 197.
Margin declines 340bp QoQ to 11.8% (est 14.2%). RM and Other expenditure were sequentially higher by 80bp and 170bp to 67.1% (est 65.8%) and 15% (est 14%) respectively. Sequentially high margin inverter sales were down 30% (seasonality). Other expenses were high due to heavy investment in technology and up gradation of current facility along with higher freight and forwarding, distribution expense which went up due to increase in volumes, diesel price increase and also charging cost which was higher due to volumes growth.
