HDFC BANK INVESTMENT ADVISORY GROUP

AAG
Market Impact August 7, 2018

Impact on Our Comments

Company Rating Exide Industries Ltd. (Exide) reported mixed set of numbers for Q1FY19,
Company
where topline was better than expectation while bottom line was in-line
Exide Industries with market expectations. Total income increased by 32.6% YoY to
Hold Neutral Rs.27.7 bn. EBITDA grew by 20.6% YoY to Rs.3.9 bn. However, EBITDA
Ltd. (Rs.285)
margin fell marginally by 141 bps YoY to 14.1% due to sharp jump in raw
material cost that was partially offset by fall in other expenses and
Brief:
employee cost as a percentage of total income. Lower other income,
 Exide Industries Ltd. (Exide) higher tax rate (242 bps YoY) and higher depreciation impacted the net
reported mixed set of numbers for profit that came in at Rs.2.1 bn, up by 9.1% YoY. The company reported
Q1FY19, where topline was better an EPS of Rs.2.5 for the quarter.
than expectation while bottom line During the quarter, the raw material cost as a percentage of total income
was in-line with market grew by 304 bps YoY to 66.4% due to rise in Lead prices (key raw
expectations. material) and rupee depreciation. However, employee cost fell by
100 bps YoY to 5.8% and Other expense fell by 63 bps YoY as a
 Total income increased by percentage of total income to 13.6% due to cost control initiatives
32.6% YoY to Rs.27.7 bn. undertaken by the company. As a result, the EBITDA margin fell by
141 bps YoY to 14.1%.
 EBITDA grew by 20.6% YoY to
Rs.3.9 bn. As per the management, the revenue growth during the quarter was on
the back of good volume growth in automotive and motorcycle segments
 However, EBITDA margin fell while growth in UPS, Telecom, Solar as well as other infrastructure
marginally by 141 bps YoY to segments remained buoyant. The management also highlighted that
14.1%. while the higher lead costs coupled with currency depreciation had an
adverse impact on the margin, the Company continues to focus on cost
 Lower other income, higher tax control measures and technology upgradation to improve the bottom line.
rate (242 bps YoY) and higher
Exide is India’s largest manufacturer of lead acid storage batteries
depreciation impacted the net
and power storage solutions provider with strong presence in
profit that came in at Rs.2.1 bn, up automotive, power, telecom, infrastructure projects, computer
by 9.1% YoY. industries, railways, mining, renewable energy and defence sectors.
 The company reported an EPS of Going ahead, the steady demand for Automobile in India especially
Rs.2.5 for the quarter. in passenger vehicle bodes well for Exide’s Original Equipment
Manufacturers (OEM) segment. Further, the strong market share in
 Currently, we have a Hold rating Industrial segments of Solar, Backup Power, Manufacturing and
on the stock with the target price Project sector may drive the volume growth with the expected
of Rs.301 at 22x (maintaining recovery in industrial capex cycle over the long term. The company
earlier multiple) FY20E EPS of is working on expanding its portfolio for emerging requirements
Rs.12.5 and adding Rs.25 per like electric vehicles, hybrid cars and start-stop batteries and has
share for the embedded value in recently added e-rickshaw battery and completely sealed and
Insurance business (as of March maintenance-free battery in its portfolio. The management in its
2018). recent media interaction has highlighted that the company would be
manufacturing lithium-ion batteries at the recently acquired facility
of Tudor India in Gujarat in collaboration with Swiss company,
‘Leclanché’. The company expects module and battery-pack
assembly line to be operational by Q2CY19 and a lithium-ion cell
production plant is expected to be operational by mid-CY20.
Further, it is focusing on capturing market share from the
unorganized commercial vehicles and tractor battery markets with
target to enhance customer outlet and launch of nine new products
in the aftermarket segment across categories and price points. The
company is also expanding its reach in overseas markets like GCC
(Gulf Co-operation Council) countries, South East Asian countries
and select African nations. The lead prices (key raw material) had
been very volatile and would be the key parameter to watch out for
in the near term. However, the management is working on various
cost cutting initiatives and improving the product mix to maintain
its margins. Currently, we have a Hold rating on the stock with the
target price of Rs.301 at 22x (maintaining earlier multiple) FY20E
EPS of Rs.12.5 and adding Rs.25 per share for the embedded value
in Insurance business (as of March 2018). Any earning/target price
revision would depend on the improvement in margin, changes in
market share, implementation of GST and its tax structure, value in
Insurance business and changes in general business momentum.
Please refer to Disclaimer on the next page
 Daily closing price for last 3 years of Exide Inds.
300

250

200

150

100 Rating Interpretation

50 Rating Expected to
0
Buy Appreciate more than 10% over a 12 to 15 month period
Hold Appreciate below 10% over a 12 to 15 month period
Dec-15

Dec-16

Dec-17
Jun-16

Jun-17

Jun-18
Oct-15

Apr-16

Oct-16

Oct-17
Feb-16

Feb-17
Apr-17

Feb-18
Apr-18
Aug-15

Aug-16

Aug-17

Aug-18
Under Review Rating under review
Source: Bloomberg Exit Exited out of the Model Portfolio

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