Weak quarter; hopes pinned on margin recovery Exide’s 3QFY15 results:: HDFC Sec

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Weak quarter; hopes pinned on margin recovery Exide’s 3QFY15 APAT at Rs 0.97bn missed consensus estimates by a wide margin. Besides its weak operating performance, lower other income and higher tax rate resulted in disappointing earnings for the quarter. While topline growth at 19.5% YoY was broadly in-line, EBITDA margins came in lower than expected at 11.6% (-20bps QoQ). Per the company, benefits of lead prices should reflect in its gross margin performance from next quarter onwards. Over the next 1 to 1.5 years, Exide mgt hopes to improve EBITDA margins to ~15-16% levels on the back of its cost reduction efforts and pick-up in segments wherein it enjoys higher pricing power. In our view, benefits from lower lead prices and improvement in demand environment are largely baked into consensus estimates. At the current price, Exide trades at a P/E of 21.2x/17.5x on FY16E/FY17E, which is already above its mean valuations. We raise our target price to Rs 181 (earlier Rs 158) as we roll forward to FY17E earnings and maintain our Neutral rating on the stock. Key highlights for the quarter  Exide reported healthy volume growth across segments. Four-wheeler segment grew ~20% YoY, twowheelers by around 15% YoY and industrial battery volumes increased 34% YoY.  Per the company, its Auto replacement volumes grew almost 2x of industry growth in the past year as a result of its aggressive marketing efforts. Having attained the desired market share, focus would now shift towards improving profitability.  Exide believes that there is a fair amount of pricing discipline amongst the battery makers and hence benefits of lower lead prices would be fully retained.  Over the past nine-month period, Exide’s 4W/2W/Indl battery capacity utilisation stood at 79%/83%/83%. Its expansion plans should be operational in the next 12 months and would increase capacities by 10%.  Exide Insurance is witnessing healthy growth and the mgt does not envisage any investments in this business in the current fiscal.

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