SECTOR:
AUTO ANCILLARY
Exide Industries
STOCK INFO.
BLOOMBERG
BSE Sensex: 20,213
S&P CNX: 6,145
EXID.IN
REUTERS CODE
21 May 2013
Initiating Coverage
(Rs CRORES)
Buy
Rs141
EXID.BO
We recommend to BUY Exide Industries with a target of
Rs
166.
GROWTH DRIVERS :
Higher auto sales = better OEM demand, terms & margins :
Domestic auto sales rose by 2.6% in FY13 given tight liquidity, poor
consumer sentiments and relatively high interest rates. Due to pressure
on Auto manufacturers, Exide's OEM margins declined from 12% at
FY12 end to nearly 1% at FY13 end. OEM sales for Exide dropped
4% in FY13 as a result of pressure on OEMs. SIAM & MOSL
estimates for industry sales in FY14 are for a high single-digit growth.
We estimate Exide's OEM sales to rise 8% and 17% in FY14E and
FY15E respectively. Price hikes and lead price declines should see
OEM margins move back into the double digit range.
Replacement demand driving strong sales growth :
Replacement
sales grew 25% in FY13 as 4-year rolling vehicle sales rose from
4.7cr to 5.5cr units. The FY14 4-year rolling vehicle sales number
rises marginally to 6.3cr units and this slowdown in potential first-time
replacement market is likely to slow replacement sales to 14% in FY14
before a slight rise to 20% as pick-up in the economy contracts the
replacement cycle. With higher margins in the replacement segment,
we see improvement in margins in FY14.
Industry sales growing even in a weak demand environments :
Sales to the Industrial segment contributed 34% of EXIDE's revenues
in FY13. This segment has seen a 11% growth in FY13 and should
continue to grow in the 8-12% range for the next 2 years.
Backward integration adds to margins :
In-house smelters met
~40% of lead requirements with a price advantage of 6-8%. This cost
advantage (in addition to benefits of recycling lead) boosts margins.
RISKS to our Investment Recommendation:
(1) Spike in
international lead prices or sharp depreciation of the INR vs the USD
(2) Prolonged slowdown in OEM sales and (3) Hyper competition
between Amara Raja and Exide.
Valuations & View:
Exide trades at 22.9xFY13A and 18.4xFY14E
earnings. We value the company based on an average of 2.2xFY14
sales and 20xFY14 earnings (in line with historical average) to get a
target price of
Rs166.
Investments even at book value would add a further 10-15% over this
target. However, we ignore the upside from the investment and will
consider the same when the ING Insurance NBAP value moves above
Cost or Sale of stake in the Insurance business to a new partner lightens
the book and leads to a spike in valuations for EXIDE.
Y/E MARCH
FY12
FY13E
FY14E
Net sales
EBITDA
RPAT
BV/Share (Rs)
Adj. EPS (Rs)
EPS growth (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div yld (x)
ROE (%)
RoCE (%)
KEY FINANCIALS
Shares Outstanding (cr)
Market Cap. (Rscr)
Market Cap. (US$ m)
6,071
860
523
40.3
6.2
13%
22.9
3.5
13.8
1.1%
16%
22%
6,790
1,052
652
46.0
7.7
25%
18.4
3.1
11.3
1.2%
18%
24%
7,901
1,221
763
52.8
9.0
17%
15.7
2.7
9.7
1.3%
18%
25%
85.0
11968.0
2176.0
13%
-1%
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
STOCK DATA
52-W High/Low Range (Rs)
Major Shareholders (as of Mar 2013)
Promoter
Non Promoter Corp Holding
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rscr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
166/113
46.0
31.3
22.7
1665438
22.23
3 / -10 / -9
'11 / 1 / 17
Ravi Shenoy
(ravi.shenoy@motilaloswal.com);Tel:+912230896865