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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EXIDE INDUSTRIES LTD.
Transport and communication are the key drivers of the Indian Growth Story. Exide Industries
Ltd (EIL) is the company which supplies engines to these drivers. Exide Industries Limited
(EIL) is the biggest lead acid battery manufacturer in the country catering to industries such as automobiles, railways, telecom, power plants, solar cells and submarines. With its
consistent performance, diversified risk and strong cliental, the company has earned itself the reputation of being the industry leader.
RESEARCH REPORT
Investment Rationale
Strengths
Exide Inustries Ltd. (EIL) manufactures a wide range of storage batteries from capacities ranging
from 2.5 Ah to 20600 Ah (Ampere-hours) servicing the Original Equipment Manufacturer (OEM)
market as well as the widely spread battery replacement market. EIL has a strong geographical
presence with 7 manufacturing plants spread across the country in places such as Chinchwad,
Bawal, Hosur, Taloja, Shamnagar, Haldia and Ahmednagar. It has a pan-India distribution
network of 4000 dealer outlets, 202 Area offices and 40 branches spread over 9 regions. EIL has
technical collaborations with companies in Japan, China and Shenzhen to develop innovative
products. EIL is one amongst just 5 companies in the world that can manufacture submarine
batteries giving it an edge over competitors. Along with a strong foothold in the Indian market,
EIL also exports its batteries to the Middle East, Japan and CIS countries. EIL possesses 2 inhouse
lead recycling smelters taking care of EIL’s raw material requirements at a price 10-15%
cheaper than international LME prices. Contribution of these in-house smelting units is expected
to increase from 42% in FY10 to 55% in FY11 and 70% for the next two years, significantly
bringing down its cost of production.
Weakness
EIL’s faced capacity constraints during the current fiscal, forcing it to concede market share in
the replacement market, due to its primary focus on the OEM market. The Rs.600 crore capex
plans of the company will enable it to augment its production capacity, thus easing its capacity
constraints.
Opportunities
The long term view on the automobile sector looks attractive due to low penetration and
government’s impetus on road building, ensuring increase in demand for batteries too.
Automobile batteries are generally believed to have a life span of around 3-4 years and hence
need to be replaced. To tap this opportunity, EIL has a strong presence in the battery
replacement segment too, which insures the company from cyclical demand in the OEM market.
Apart from automobiles EIL has its cliental list extended to other growth sectors like railways,
telecom, and power plants. Increased government focus towards the growth of these sectors is
also working in favor of EIL. Large scale computerization across segments and regions has given
massive opportunity to the company’s UPS batteries. Regular power cuts have also led to
increased demand for Invertors manufactured and supplied by the company. Under the
eleventh plan, the government is planning to invest Rs.2000 billion to expand pan-India railway
connectivity and modernize its facilities, giving immense opportunity to EIL. Second green
revolution is round the corner which will necessitate an increase in the mechanized farming and
rural electrification projects. EIL by developing products that can cater those situations is already
working to tap this opportunity. The company is making plans to capitalize on the hybrid and
electric technology segment, which is believed to be the future of the automotives. EIL has a
50% stake in insurance company ING Vyasa Ltd, which as per the JV was not divestible till
October 2010. But now the company has an option to divest its funds to face any unforeseen
fund requirements.
Threats
OEM auto sales are likely to slow down due to hardening of interest rates. But company’s strong
foothold in the replacement market, diversifies this risk to a great extent. The battery
replacement segment though is plagued by a strong presence of unorganized sector, which
supply batteries at cheaper prices. Cheaper imports from neighboring countries such as China,
Singapore, Thailand, Bangladesh, Hong Kong, Korea, etc. also pose a threat to the company’s
market share. But EIL with its aggressive brand awareness initiatives such as the Bat Mobile
program, Project Kissan, Humsafar, after-sales service, targeted advertising campaigns and
competitive pricing across select brands is leaving no stone unturned to fight these problems.
Lead prices have been on a northward trajectory since q2 of the current fiscal and are a serious
threat to margins, lead being its primary raw material. Questions are being raised on the safety
of the health of the workers working on lead plants and also its harmful effects on the
environment, posing a threat to the company’s manufacturing units.
ACCUMULATE
CMP: 140
SL: 130
Medium Term Target: 165
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EXIDE INDUSTRIES LTD.
Transport and communication are the key drivers of the Indian Growth Story. Exide Industries
Ltd (EIL) is the company which supplies engines to these drivers. Exide Industries Limited
(EIL) is the biggest lead acid battery manufacturer in the country catering to industries such as automobiles, railways, telecom, power plants, solar cells and submarines. With its
consistent performance, diversified risk and strong cliental, the company has earned itself the reputation of being the industry leader.
RESEARCH REPORT
Investment Rationale
Strengths
Exide Inustries Ltd. (EIL) manufactures a wide range of storage batteries from capacities ranging
from 2.5 Ah to 20600 Ah (Ampere-hours) servicing the Original Equipment Manufacturer (OEM)
market as well as the widely spread battery replacement market. EIL has a strong geographical
presence with 7 manufacturing plants spread across the country in places such as Chinchwad,
Bawal, Hosur, Taloja, Shamnagar, Haldia and Ahmednagar. It has a pan-India distribution
network of 4000 dealer outlets, 202 Area offices and 40 branches spread over 9 regions. EIL has
technical collaborations with companies in Japan, China and Shenzhen to develop innovative
products. EIL is one amongst just 5 companies in the world that can manufacture submarine
batteries giving it an edge over competitors. Along with a strong foothold in the Indian market,
EIL also exports its batteries to the Middle East, Japan and CIS countries. EIL possesses 2 inhouse
lead recycling smelters taking care of EIL’s raw material requirements at a price 10-15%
cheaper than international LME prices. Contribution of these in-house smelting units is expected
to increase from 42% in FY10 to 55% in FY11 and 70% for the next two years, significantly
bringing down its cost of production.
Weakness
EIL’s faced capacity constraints during the current fiscal, forcing it to concede market share in
the replacement market, due to its primary focus on the OEM market. The Rs.600 crore capex
plans of the company will enable it to augment its production capacity, thus easing its capacity
constraints.
Opportunities
The long term view on the automobile sector looks attractive due to low penetration and
government’s impetus on road building, ensuring increase in demand for batteries too.
Automobile batteries are generally believed to have a life span of around 3-4 years and hence
need to be replaced. To tap this opportunity, EIL has a strong presence in the battery
replacement segment too, which insures the company from cyclical demand in the OEM market.
Apart from automobiles EIL has its cliental list extended to other growth sectors like railways,
telecom, and power plants. Increased government focus towards the growth of these sectors is
also working in favor of EIL. Large scale computerization across segments and regions has given
massive opportunity to the company’s UPS batteries. Regular power cuts have also led to
increased demand for Invertors manufactured and supplied by the company. Under the
eleventh plan, the government is planning to invest Rs.2000 billion to expand pan-India railway
connectivity and modernize its facilities, giving immense opportunity to EIL. Second green
revolution is round the corner which will necessitate an increase in the mechanized farming and
rural electrification projects. EIL by developing products that can cater those situations is already
working to tap this opportunity. The company is making plans to capitalize on the hybrid and
electric technology segment, which is believed to be the future of the automotives. EIL has a
50% stake in insurance company ING Vyasa Ltd, which as per the JV was not divestible till
October 2010. But now the company has an option to divest its funds to face any unforeseen
fund requirements.
Threats
OEM auto sales are likely to slow down due to hardening of interest rates. But company’s strong
foothold in the replacement market, diversifies this risk to a great extent. The battery
replacement segment though is plagued by a strong presence of unorganized sector, which
supply batteries at cheaper prices. Cheaper imports from neighboring countries such as China,
Singapore, Thailand, Bangladesh, Hong Kong, Korea, etc. also pose a threat to the company’s
market share. But EIL with its aggressive brand awareness initiatives such as the Bat Mobile
program, Project Kissan, Humsafar, after-sales service, targeted advertising campaigns and
competitive pricing across select brands is leaving no stone unturned to fight these problems.
Lead prices have been on a northward trajectory since q2 of the current fiscal and are a serious
threat to margins, lead being its primary raw material. Questions are being raised on the safety
of the health of the workers working on lead plants and also its harmful effects on the
environment, posing a threat to the company’s manufacturing units.
ACCUMULATE
CMP: 140
SL: 130
Medium Term Target: 165
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