Angel broking neutral on Exide after September quarter results

For 2QFY2011, Exide reported a decent top-line performance, though it was
below our expectations. However, the company’s operating margins and net
profit adjusted for one-time gains came largely in line with our estimates.
We maintain our positive outlook on the battery industry due to changing
demographics, which in turn will support secular consumption growth in Indian
markets. However, owing to the recent run up in the stock price, we recommend
Neutral on the stock. Investors with a long-term perspective can consider investing
in the stock at lower levels.
Net sales up 18.6%; adj. net profit up 10.9%: For 2QFY2011, Exide reported
below-expectation yoy growth of 18.6% in net sales to `1,127.2cr. Growth was
aided by ~15% yoy growth in volumes. EBITDA margins declined by 421bp yoy,
which was in line with our estimate of 21.8%. Margins fell due to higher
raw-material costs and other expenditure. However, higher other income and
one-time gains of `46.9cr from transfer of leasehold land helped net profit to
grow by 42.3% yoy to `212.9cr (`149.7cr). Thus, adjusting for the one-time gain,
the bottom line grew 10.9% yoy to `166cr as against our estimate of `161.4cr.
Outlook and valuation: We estimate Exide to post 22.5% revenue CAGR over
FY2010–12E, leading to a substantial 19.7% CAGR in the bottom line. At `172,
the stock is quoting at 21.5x FY2011E and 19x FY2012E earnings. Our fair value
for Exide works out to `174. Hence, we recommend Neutral on the stock. Owing
to Exide’s defensive appeal and healthy and consistent fundamentals, we value its
core operations at 17.3x (20% premium to historical average of 14.4x) its
FY2012E earnings at `157. We have valued Exide’s stake in ING Vysya at
`11/share on FY2012E NBAP and have assigned a value of `6/share to its lead
smelters (8x FY2012E PAT).