Exide Industries
Lower base beckons; Buy
Key takeaways
Weak demand. During the quarter, following a weak demand trend, Exide
Industries’ had been forced to reduce prices. Competitors followed this move
after a two month lag. This move came about after a disappointing
performance in 2QFY14, where revenues declined 5.9% yoy, with subdued
demand from both auto OEMs and industrial segments (telecoms,
infrastructure, inverters).
Subdued sales growth. While OEM sales continue to be subdued in
3QFY14, auto-replacement demand is expected to be the major growth
driver. We expect sales growth to come at just 4.9% yoy, to `15.3bn. In FY13,
the company had regained some of its lost market share and hopes to further
recover lost share.
Margin to improve yoy. We expect a 300bps yoy EBITDA margin growth
(80bps higher yoy), to 14.7%. On the lower base of the previous year, we
expect 26.1% yoy profit growth, to `1.4bn.
Our take. While FY13 performance was average, 4QFY13 and 1QFY14 had
registered a markedly better trajectory. 2QFY14 saw a subdued trend again
due to weak demand, which price increases could not counter. Consistency in
operating performance and pricing discipline ahead would be crucial. We have
a Buy rating, with a price target of `144, based upon a one-year forward
standalone PE of 16x (amounting to `130), and value the company’s
investments in ING Vysya Life Insurance and Hathway Cable at `14. At the
ruling price, the stock trades at 15.3x FY15e standalone earnings.
Risks. Market-share loss, sustained low demand, price wars, commodity risk
and currency depreciation.
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Lower base beckons; Buy
Key takeaways
Weak demand. During the quarter, following a weak demand trend, Exide
Industries’ had been forced to reduce prices. Competitors followed this move
after a two month lag. This move came about after a disappointing
performance in 2QFY14, where revenues declined 5.9% yoy, with subdued
demand from both auto OEMs and industrial segments (telecoms,
infrastructure, inverters).
Subdued sales growth. While OEM sales continue to be subdued in
3QFY14, auto-replacement demand is expected to be the major growth
driver. We expect sales growth to come at just 4.9% yoy, to `15.3bn. In FY13,
the company had regained some of its lost market share and hopes to further
recover lost share.
Margin to improve yoy. We expect a 300bps yoy EBITDA margin growth
(80bps higher yoy), to 14.7%. On the lower base of the previous year, we
expect 26.1% yoy profit growth, to `1.4bn.
Our take. While FY13 performance was average, 4QFY13 and 1QFY14 had
registered a markedly better trajectory. 2QFY14 saw a subdued trend again
due to weak demand, which price increases could not counter. Consistency in
operating performance and pricing discipline ahead would be crucial. We have
a Buy rating, with a price target of `144, based upon a one-year forward
standalone PE of 16x (amounting to `130), and value the company’s
investments in ING Vysya Life Insurance and Hathway Cable at `14. At the
ruling price, the stock trades at 15.3x FY15e standalone earnings.
Risks. Market-share loss, sustained low demand, price wars, commodity risk
and currency depreciation.
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