Exide Industries Ltd

5/28/2018 Exide Industries Ltd

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One year Price Chart

Exide Industries Ltd (Exide) is a leading manufacturer of lead acid batteries for

automotive, telecommunications, UPS, naval and power applications. Exide

manufacture the widest range of storage batteries in the world like lead acid

batteries that ranged from 2.5 Ah to 20,400 Ah capacity. Exide enjoys a

dominant position in the automotive battery segment with 72% market share

in automotive batteries and 71% for Motorcycle Batteries and ~30% market

share in the auto replacement. It also has ~30% market share of the power

back-up segment.

Investors Rationale

We expect Exide to post a CAGR revenue growth of ~19% over FY 12-

FY14 driven by strong replacement demand for batteries to commence for

automobiles sold between FY10-FY12. Exide reported a strong sales growth of

26% YoY in 9MFY13that reflects the replacement demand remains buoyed.

Exide continues to witness strong growth in the auto and industrial

battery segments, led by robust demand-pull on account of higher auto and

industrial production and increased consumer spending. The company is also on

an expansion spree and is expanding capacities across segments. Exide has

expanded the two-wheeler, four wheeler and industrial battery capacity to 22.8mn, ~10mn and 2,500mnAH respectively in FY13. We believe the capacity

addition help Exide to meet the rising auto battery demand going forward.

Exide has displayed a considerable amount of pricing power and has

increased prices in the recent times to offset the impact of higher lead prices and

also plans to take further hikes in the range of 5-6%. The full benefit of the price

hikes should help margin performance going forward.

Exide has agreed to acquire the remaining 50% stake in ING Vysya Life

Insurance for `5.5 bn. Going ahead the company intends to find another

strategic partner for the life insurance business to cap its further investment in

the insurance business.

Improvement in sales of diesel cars has helped to boost the realisation of

Exide as the diesel vehicle batteries are sold at premium to the petrol variant

batteries. Enhancement in dieselisation of domestic passenger vehicle would

help to maintain the realisation growth. Further, most of two wheelers are now

coming with electric start and use VRL batteries which have short replacement

cycle and thus the volume from the two-wheeler segment is expected to grow at

a better pace.

Rating

CMP ()Target ()Potential Upside

Duration

Face Value (`)

52 week H/L (`)

Adj. all time High (`)

Decline from 52WH (%) Rise from 52WL (%)

Beta

Mkt. Cap (` bn)

Enterprise Value (` bn)

Promoters 45.99 45.99

FII 16.69 17.57

DII 13.29 13.84

Others 24.03 22.6

Shareholding Pattern Dec12 Sep12

Market Data

Y/E FY11A FY12A FY13E

Net Sales (`bn) 45.5 51.1 61.7

EBIDTA (`bn) 8.8 6.8 8.0

PAT (`bn) 6.6 4.6 5.1

EPS (`) 7.8 5.4 6.1

P/E (x) 16.6 25.6 22.8

P/BV (x) 4.3 3.9 3.4

EV/EBIDTA(x) 13.4 17.2 14.7

ROA (%) 24.9 15.9 15.6

ROE (%) 26.0 15.1 15.1

Fiscal Year Ended

April 29, 2013

BSE Code: 500086 NSE Code: EXIDEIND Reuters Code: EXID.BO Bloomberg Code: EXID:IN

Exide Industries Ltd.


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Exide Industries: a leading battery maker of India

Exide Industries Ltd., manufacture the widest range of storage batteries in the world

acid batteries that ranged from 2.5 Ah to 20,400 Ah capacity, covering the broadest s

of application. Exide supplies batteries to automotive, industrial, infrastructure devel

information technology and defense sectors. Exide has 7 battery manufacturing facIndia, which excludes two Home UPS manufacturing facilities. During FY12, the c

acquired home UPS system business of M/S Kevin Power Solutions Limited. Exide e

dominant position in the automotive battery segment with72% market share in aut

batteries and 71% for Motorcycle Batteries and ~30% market share in the auto replace

also has ~30% market share of the power back-up segment. The company also ex

products to Europe, South and South East Asia and other overseas markets either dir

through its subsidiaries. Exide sells its products under Exide, SF, Sonic and Standard Fu

brands. In the international market, the products are sold under Dynex, Index an

brands.

Exide currently owns 50% stake in ING Vysya Life Insurance Company (IVL) and has deacquire the remaining 50% stake in IVL for `5.5 bn.

Exide is a leading battery maker of

India with the widest range of

storage batteries in the world like

lead acid batteries that ranged

from 2.5 Ah to 20,400 Ah capacity.

Exides product mix

Auto and industrial batteries demand scenario to remain robust

EIL continues to witness strong growth in the auto and industrial battery segments p

economic downturn, led by robust demand-pull on account of higher auto and in

production and increased consumer spending. This has been proved from the fact th

realizations has improved across the auto and industrial battery segments, that has

offset the movements in input prices. Besides, EIL has planned to raise prices for repla

auto batteries by ~5-6% due to rising input costs (continuous hike in lead prices whic

main raw material). This reflects the companys strong pricing power and should h

company to improve margins.

EIL is concentrating to increase 2-

wheeler VRLA batteries to meet the

rising auto battery demand going

forward and improve the forgoing

realisation.


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EIL has been operating at ~90% utilization levels over the past five years. In order to m

robust battery demand from both the automotive and industrial segment, the compa

increased the two-wheeler and industrial battery capacity by ~6% (to 22.8 mn) and

2,500mnAH) respectively in FY13. The expected four-wheeler battery capacity is to be

in FY13 from 7.8 mn units in FY12. As a result of increased capacity, we believe EIL

placed to meet the rising auto battery demand going forward.

Replacement demand is expected to remain robust

Strong replacement demand from automobiles (likely from cars, trucks and two-whee

set to benefit the battery manufacturers. Post the global economic turmoil, the dema

automobiles was strong, with the automobile sector sales posting a CAGR of ~19% ove

FY12. So we expect the replacement demand from the vehicles sold during this pe

remain sturdy over the next two years, as the life of battery continues over a period of

three years. During FY11, two wheeler sales grew ~24% YoY while, the passenger vehic

grew by ~29% YoY. So the strong replacement demand for batteries is round the corne

spread over FY13-FY15 from automobiles sold in FY10-FY12. Thus, we expect repla

demand to remain strong in FY13-FY15.

EIL, being the market leader, is likely to reap maximum benefits out of the replacdemand. EIL has high exposure to the OEM segment, which has a very thin marg

continuously focuses towards improving the exposure in the replacement market which

high margin. With the reputation of having richer product mix, EIL is better placed am

peers to exploit the expected replacement demand for batteries from two wheelers

FY10-11 that may come in the next two quarters and would inturn boost the margins

company in FY14-FY15. Thus, we expect the companys EBITDA margin and PAT ma

improve to 13.9% and 9.2% YoY in FY14 against 13.4% and 9.0% in FY12.

Exide to benefit from the strong

replacement demand for

batteries from two wheelers sold

in FY10-11 that may come in the

next two quarters and would

inturn boost the margins of the

company in FY14-FY15.

EILs automotive batteries volume trend


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Emphasis on batteries intended for diesel cars and two-wheelers to

improved realisation

Structural shift in demand from petrol cars to diesel cars following the de-regulation o

prices has increased the demand of batteries meant for diesel cars. Significant increase

petrol prices has severely impacted the sales of petrol based vehicle models. While the

marginal increase in the diesel price is a step to narrow down the gap between price p

of diesel and petrol, still the difference is huge, ~`22/lt. We expect higher sales of die

will proved to be a major catalyst towards growth for the companies indulge in

manufacturing, as diesel car batteries require higher cranking power compared to pe

batteries. The average price of diesel car batteries are also sold at a ~70-100% pr

compared to petrol car batteries, which will further boost the realisation.

Consequently, the twowheeler segment witnessed a demand shift to automatic-start v

from kick-start vehicles. The two wheeler vehicles with kick-start facility are now havin

(valve regulated lead acid) batteries. The batteries have a shorter replacement cycle

average price of VRLA batteries are priced at a ~50-60% premium compared to pet

batteries, which will further aid the revenues of batteries manufacturers. In order to

the burgeoning opportunities in the two-wheeler battery space, EIL has increased its c

in two-wheeler batteries to 22 mn from 14 mn in FY13.

Exide is continuously focusing

towards technology

upgradation and also acquiring

new technology to meet the

increasing demands of the

customers and to maintain its

dominancy.

Sales trend of Passenger and Commercial vehicle

Estimated automotive battery demand


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Hike in lead price and Rupee depreciation impacted the business

Lead is the main raw material for the battery manufacturers and constitutes ~75% of t

raw material cost. Overall 50-60% of the price is passed on to the customers. The harde

prices of lead coupled with the high depreciation in the value of the Rupee against US

always a major concern and has a serious impact on the cost of the products andmargins. However, considering the robust volume growth in replacement segment has

offset the margin pressure. With the companys ability to pass on the increase in mater

to the customers has helped offset sharp volatility in lead prices.

Robust Q3FY13 performance on healthy replacement demand

Exides overall sales growth during Q3FY13 was ~17% YoY to `14.6 bn, led by 25% YoY

growth in the replacement market for automotive batteries. In two-wheeler repla

market, the company witnessed a 53% volume growth, however the OE segment

subdued, though in line with the two wheeler vehicle Industry. Business for solar b

recorded healthy growth of almost ~100 % while, demand for UPS batteries remained

to the adverse weather condition during the period. Further, the volumes were hamp

slowdown in the economic growth and lower investment from the bulk customers lik

and other major players in the service sector.

Operating profits however remain muted as it grew 1.3% YoY at `1.6 bn, while, OPM dec

11.3% against 13.0% YoY, impacted by higher raw material cost as well as adverse c

movement.

Flat operating profit growth coupled with rise in depreciation resulted to a marginal de

PAT by 0.2% YoY to `1.04 bn. The sharp rise in the other income by 22.1% YoY to `121

restricted the further decline in the bottomline.

Exide has been able to take

price increases to offset the

impact of higher lead prices

that reflects the companysstrong pricing power.

EIL recorded decent revenue

growth 17.4% YoY for Q3FY13

mainly on back of healthy

replacement demand,

although OEM demand

declined YoY.

Lead price and Indian Rupee trend


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in mn Q3FY13 Q3FY12 YoY (%) 9MFY13 9MFY12

Total Revenue 14,632 12,467 17.4 45,345 36,638

EBITDA 1,647 1,625 1.3 5,857 4,751

EBITDA Margin (%) 11.3 13.0 - 12.9 13.0

Other Income 121 99 22.1 394 486

Depreciation 289 250 15.5 847 734

Interest 11 14 (25.5) 34 43

PBT 1,469 1,460 0.6 5,370 4,460

Tax 428 417 2.5 1,607 1,274

PAT 1,041 1,043 (0.2) 3,763 3,187

PAT Margin % 7.1 8.4 - 8.3 8.7

Performance analysis:

Exide over the past two years has gone through a rough phase viz; loss of market shar

replacement segment, high cost inventory, contracting margins and the slowdown in the

demand, affecting the companys performance. As a result, the financial performance

company impacted significantly as the lower sales volume and realisation dragged the

margin consequently impacting the net profitability.

However, EILs balance sheet remains strong as the company does not have debt on it

Thus, despite operating margin contraction, the net margins are at reasonable 8-9%

ratios continues to be above 15%. The company has done capacity expansion in

capitalise on the strong replacement demand.

We expect EILs performance to improve as the company has regained market share

replacement segment in 9MFY13. EIL has increased prices in last Nov12 and in Feb13 a

to take further hikes in the range of 5-6%. The price hike impact has yet to translate fu

the financials. Hence we expect realisations to improve in next 3-4 months.

Performance ratios trend

Exides capacity addition

programme and the price hike

initiative will help to boost

realisation further.


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Y/E (mn) FY11A FY12A FY13E FY14E

Share Capital 850 850 850 850

Reserve and surplus 26,575 29,724 33,442 38,645

Net Worth 27,425 30,574 34,292 39,495

Long term debt 33 41 42 43

Long Term Provisions 465 542 676 795

Current liabilities 7,472 8,962 11,158 10,496

Deferred Tax

Liabilities675 825 953 910

Total liabilities 36,070 40,944 47,120 51,738

Fixed Assets 8,833 9,932 11,605 12,582

Non-Current

Investment8,748 9,066 9,066 9,066

Loans & Advances(LT) 312 175 494 580

Other Non-current

Assets3 9 10 11

Current Assets 18,174 21,762 25,946 29,500

Total assets 36,070 40,944 47,120 51,738

Y/E (mn) FY11A FY12A FY13E

Net Revenue 45,473 51,070 61,705

Expenses 36,688 44,232 53,745

EBITDA 8,786 6,839 7,960

EBITDA margin

(%)19.3 13.4 12.9

Other Income 1,041 673 526

Depreciation 835 1,007 1,127

EBIT 8,993 6,505 7,359

Interest 60 53 45

Profit Before

Tax8,932 6,452 7,314

Tax 2,738 1,840 2,142

Net Profit 6,664 4,612 5,172

NPM (%) 15.7 9.0 8.4

Y/E FY11A FY12A FY13E FY14E

EBITDA Margin (%) 19.3 13.4 12.9 13.9

EBIT Margin (%) 19.8 12.7 11.9 13.2

NPM (%) 15.7 9.0 8.4 9.2

ROCE (%) 31.4 20.3 20.5 23.2

ROE (%) 26.0 15.1 15.1 16.9

EPS (`) 9.4 6.6 7.4 9.3

P/E (x) 16.6 25.6 22.8 17.7

BVPS (`) 32.3 36.0 40.3 46.5

P/BVPS (x) 4.3 3.9 3.4 3.0

EV/Operating Income (x) 12.0 15.7 13.8 10.8

EV/EBITDA (x) 13.4 17.2 14.7 11.6

Key Ratios (Standalone)

Profit & Loss Account (Standalone)Balance Sheet Standalone

Valuation and view

Strong replacement demand will be the key trigger towa

companys volume growth and realization. We expect EIL r

to grow at a CAGR of ~19% over FY12-14. The focus on two-

VRLA batteries and diesel vehicle batteries is likely to improve

product mix and will further aid the revenues. During 9MFY

companys flagship products like Automotive Batteries, Mot

Batteries and ion ( applic12V-7/9Ah SMF VRLA Batteries) co

robust performance and are expected to maintain the mo

going forward.

We believe the company is in a transitory phase to regain its

share and improve profitability and is a good long te

considering the leadership position.

Considering the above aspects, we rate the stock as BUY

current market price of `139, which implies a P/E of ~22.8x

EPS of `7.4 and 17.7x on FY14E EPS of `9.3 respectively.


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