Exide Industries : BUY

Margins Recover as Capacity Constraints Ease

Exide Industries’ (Exide) Q4 performance was above expectations with strong 17% QoQ revenue growth (vs. est. of 7%) aided by a 217 bps improvement in EBITDA margins QoQ to 17.4% (after adjusting for Rs 200 mn towards gain on loan repaid). Margins have expanded on higher vols and an improved product mix due with easing capacity constraints.  

Key Highlights 

• Exide reported revenue of Rs 12.2 bn (up 17% QoQ, up 19% YoY), EBITDA of Rs 2.1 bn (up 34% QoQ, 2% YoY) and adj. PAT of Rs 1.43 bn (up 15% QoQ and 7% YoY) in Q4FY11.  
• Exide’s product mix (replacement: OEM) at 1.25:1 has marginally improved over Q3 (1.17:1). We expect this to improve  further  as  new  capacities  come  on  stream  in Q1  and Q3 of FY12. The co. has taken price increases of ~5% in Q4 and 3% in April-11, within the replacement market. 
• Performance of the industrial business remains muted for Q4 as well. The mgmt expects the industrial vertical to start improving from Q1FY12 onwards on higher seasonal demand for inverters. 
• Losses in FY11 from investments in ING Vyasa life insurance have reduced sharply to Rs 350 mn (vs. Rs 683 mn in FY10). We understand that this is due to a higher contribution from renewal premiums being collected. 

Upgrading est on higher volume growth. Maintain BUY rating

With increased available capacities and strong volume outlook for the replacement market (~20% volume growth), we raise our FY12 revenue est by 4%. On the other hand, we have tempered our profitability est marginally to 20.5% (vs. 20.8%) on higher lead prices. Our resultant FY12E EPS is higher by 2% at Rs 9.1.

Our revised TP of Rs 167 is based on 16x FY12E core earnings (incl smeltors) + Rs 16/ share as value of insurance. We maintain our BUY rating on the stock.