UBS: Buy Exide Industries- Look beyond the headline; target Rs200

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UBS Investment Research
Exide Industries
Look beyond the headline
􀂄 Stock corrects on concern over price cuts
Exide stock price has corrected 9% over the past week on news of 8-10% price
cuts made by Exide for its aftermarket car batteries.
􀂄 Our channel checks suggest cuts yet to be implemented nationwide
Our channel checks (30+ dealers across India) suggest the 8-10% price cuts have
not yet been made across all cities. The prices have been cut by 8-10% in
September in Mumbai, Bangalore & Delhi. However, some dealers have not yet
received any formal communication in e.g. Kolkata and Hyderabad. The dealers
cited that YoY demand is weak YTD but has improved marginally in the past
couple of months.
􀂄 Management confirmed price "rationalisation", confident on margins
Management did confirm this price cut of 8-10% and indicated it is part of its
initiative to regain market share in the car battery aftermarket, which it had
strategically let go last year due to capacity constraints. While it declined to
comment on the impact on margins in the immediate couple of quarters, it remains
confident of maintaining 18-20% EBITDA margins over the medium term.
􀂄 Valuation: Maintain our estimates and SOTP-based  target Rs200.00
The price cut is only for the car battery aftermarket (28%/46% of
revenues/EBITDA as per our est.) and is made after a 5-6% price hike in Q1 FY12
and a limited price hike (in few products) in August. Lead prices (45-50% of rev)
have come off by 10- 12%. Price cuts should help regain market share and is timed
with increasing capacity—which should have some operating leverage benefits.
The impact on margins, if any, is likely to be limited—at worst to a couple of
quarters.

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