Revenue growth of 7% y-o-y was higher than our estimate of flat y-o-y growth. Management indicated that demand for automotive and industrial segment has seen some improvement during Q4FY16. We believe demand for Inverter and UPS battery was strong and led to the beat. Going ahead, sustained growth in the automotive segment remains critical to achieve our estimates of 7% revenue CAGR FY17-18 (from -1% in FY16)
Gross margin declined 80 bps q-o-q and was a disappointment. We believe adverse product mix (lower replacement to OEM mix) has impacted margins.
We maintain ‘neutral’ rating and target price of R137 on the stock. Revenue at R17.6 billion was below our estimate of R16.3 billion. RM/Sales at 63.2% was higher than our estimate of 62.7%. Staff costs/Sales at 7.2% was lower than our estimate of 7.5%.
We value the core business at Rs 115/share based on target multiple of 14x on FY18F EPS. Our target multiple is at the lower end of its historical trading band (14-24x) given subdued earnings growth (8% CAGR FY17/18).
We factor in higher growth for organised players compared to the industry.
However, if Exide is unable to gain share, there may be downside risks to growth. We have built in 5% volume growth for the industrial segment over FY17-18F. However, if volume growth fails to pick up, there could be downside risks to our estimates. We have not assumed further investment in the insurance business.
