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Exide
Exide Industries (Exide) reported its 3QFY2011performance, which missed our sales and
EBITDA estimates by 9.6% and 34.4%, respectively. For 3QFY2011, the company reported
15% yoy growth (down 7% qoq) in net sales to `1,050.2cr, led by ~13% yoy growth in
volumes. EBITDA margins came substantially below our estimate at 15.2%, a fall of 871bp
yoy (down 653bp qoq), leading to a 26.8% decline in operating profit. Performance during
the quarter was impacted by 1) capacity constraints in the automotive batteries segment,
forcing the company to divert the capacities to meet demand from the lower margin OEM
segment 2) lack of buoyancy in the industrial batteries segment and 3) EBITDA margin
contraction due to a substantial 717bp yoy increase in raw-material costs. As a result, Exide
reported a 4.6% yoy decline (down 42% qoq) in net profit to `124.4cr (`130.5cr), as against
our estimate of `150.6cr. Higher other income at `33.1cr (which included net exchange gain
of `11cr), up substantially from `1cr in 3QFY2010, restricted the decline in net profit to a
certain extent.
We maintain our positive outlook on the battery industry on the back of changing
demographics, which in turn support secular growth in consumption in Indian markets.
However, the company will continue to witness some pressure on the operating margin front
due to higher lead prices in the next few months. We recommend Accumulate (from Neutral)
on Exide with an SOTP Target Price of `157. Owing to Exide’s defensive appeal and healthy
and consistent fundamentals, we value its core operations at 16.5x (10% premium to
historical average of 15x) its FY2012E earnings at `140. We have valued Exide’s stake in
ING Vysya Life Insurance at `11/share on FY2012E NBAP and have assigned a value of
`6/share to its lead smelters (8x FY2012E PAT).
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