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Buy
Exide Industries (EXID.BO)
Return Potential: 40% Equity Research
Looking beyond the near-term trough – poised for a sharp upswing
Source of opportunity
We reiterate our Conviction Buy on Exide Industries with a 12-m FY13E P/E
based TP of Rs184 implying a 34% potential upside. We believe the market is
underestimating the potential upswing in revenues in FY13-14E. We came
away with a positive outlook after interviewing 14 battery dealers in Mumbai,
Bangalore, Gujarat and Delhi. Highlights: 1) Duopolistic dominance of Exide
and Amaron brands, with limited traction for newcomers like Tata Green and
Bosch, and other smaller players. 2) Shorter replacement cycle for newer
technology cars and 2-wheelers, with first time replacement segment being
the largest, consistent with our own industry simulation analysis.
Catalyst
Beyond the near term, demand potentially looks poised for a sharp upswing
due to the strong historical correlation of industry revenues with trailing auto
demand. Our analysis suggests that FY13E-FY14E could be the strongest
demand period for the Indian battery industry vs. the previous 10 years, with
FY12E marking a trough. Exide maintained its share of industry revenue and
improved its profit share during FY10-FY11, when industry demand was
relatively weak, in our view. The company ranks in the top quartile on cash
returns on capital invested within our India coverage universe of 131 stocks,
with significant change in quartile performance from the 3rd quartile in FY03,
largely driven by higher fixed cost efficiency as a proportion of revenue.
Valuation
The stock is trading at a 33% discount to its 10-year historical average P/E
of 17X, and closer to its average 3.0X P/B, with an improved RoE profile vs.
its 10 year history. Exide Ind also scores highly on Quality-Value-Growth
metrics (see Initiate on Indian auto parts leaders dated Aug. 11, 2011)
relative to our Indian parts coverage, along with Bosch India (Buy).
Key risks
Higher-than-expected near term weakness in demand, commodity costs.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Buy
Exide Industries (EXID.BO)
Return Potential: 40% Equity Research
Looking beyond the near-term trough – poised for a sharp upswing
Source of opportunity
We reiterate our Conviction Buy on Exide Industries with a 12-m FY13E P/E
based TP of Rs184 implying a 34% potential upside. We believe the market is
underestimating the potential upswing in revenues in FY13-14E. We came
away with a positive outlook after interviewing 14 battery dealers in Mumbai,
Bangalore, Gujarat and Delhi. Highlights: 1) Duopolistic dominance of Exide
and Amaron brands, with limited traction for newcomers like Tata Green and
Bosch, and other smaller players. 2) Shorter replacement cycle for newer
technology cars and 2-wheelers, with first time replacement segment being
the largest, consistent with our own industry simulation analysis.
Catalyst
Beyond the near term, demand potentially looks poised for a sharp upswing
due to the strong historical correlation of industry revenues with trailing auto
demand. Our analysis suggests that FY13E-FY14E could be the strongest
demand period for the Indian battery industry vs. the previous 10 years, with
FY12E marking a trough. Exide maintained its share of industry revenue and
improved its profit share during FY10-FY11, when industry demand was
relatively weak, in our view. The company ranks in the top quartile on cash
returns on capital invested within our India coverage universe of 131 stocks,
with significant change in quartile performance from the 3rd quartile in FY03,
largely driven by higher fixed cost efficiency as a proportion of revenue.
Valuation
The stock is trading at a 33% discount to its 10-year historical average P/E
of 17X, and closer to its average 3.0X P/B, with an improved RoE profile vs.
its 10 year history. Exide Ind also scores highly on Quality-Value-Growth
metrics (see Initiate on Indian auto parts leaders dated Aug. 11, 2011)
relative to our Indian parts coverage, along with Bosch India (Buy).
Key risks
Higher-than-expected near term weakness in demand, commodity costs.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
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