Motilal Oswal's research report on Exide Industries
Volume growth in Automotive, UPS, Telecom and Infra drives revenue: Net sales increased 23.2% YoY to INR23.7b (est. of INRb21.7), driven by growth in Auto OEM and replacement market (both 2Ws and 4Ws), UPS, Telecom and Infrastructure batteries. Our channel check suggests that the company has taken a cumulative price increase of ~1-2% during the quarter, which also aided growth. Spot lead price rose 7.6% QoQ (+19% YoY) to INR149.6 per kg. In October, lead price grew 21% YoY, and 9.5% v/s 1QFY18. EBITDA margin at nine-quarter low led by inflation and mix impact: EBITDA margin contracted 250bp YoY (-290bp QoQ) to 12.5% (est. of 15.1%), largely led by lead inflation and product mix impact (higher proportion of OE sales in Automotive). However, the decline in staff cost and other expenses by 60bp YoY and 260bp YoY, respectively, restricted further margin contraction. EXID reported an exceptional item of INR0.4b toward the settlement of the trademark-related dispute with Exide Technologies, USA. Lower other income (-40% YoY, +5% QoQ) and weak operating performance led to a 10.3% YoY decline in adjusted PAT to INR1.6b (est. of INR2.0b). Management indicated that growth momentum in Automotive and Motorcycle batteries was healthy, while demand for Telecom, UPS and Other infrastructure segments was also good. EXID is focusing on cost-control initiatives and technology upgradation to improve profitability.
Outlook
We downgrade our EPS for FY18E by 11.5% and for FY19E by 10.1% to factor in higher lead price and tax rate. We factor in revenue/EBITDA/PAT CAGR of 13.7%/12.9%/12.8%. The stock trades at 26.4x FY18E and 17.7x FY19E adj. for Insurance value of ~INR38/share. Maintain Buy with a TP of INR254 (valuing core business at 20x Sep-19E EPS, 20% discount to 25x target multiple for AMRJ + Insurance business value).For all recommendations report, click here
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