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Exide Industries (EXID)
Automobiles
Rising competitive pressures to moderate earnings growth. Exide’s automotive
and industrial business profitability has been impacted due to rise in competitive
intensity and the company has not been able to take commensurate pricing actions to
offset sharp rise in lead prices. We believe despite increase in battery capacities, the
company will find it difficult to increase market share significantly which could
moderate revenue growth. Hence, we downgrade the stock to REDUCE (from ADD).
1QFY12 profitability got impacted by lower inverter revenues and adverse mix
Exide reported a 1% yoy decline in net profits impacted by a muted 8% yoy increase in revenues
and a ~5% yoy decline in EBITDA margins. Revenues were impacted by 26% yoy decline in
inverter revenues and adverse replacement/OEM battery volume mix in the 4-wheeler segment.
Replacement/OEM automotive battery volume mix in 1QFY12 for 4-wheeler battery was 1.13X
(versus 1.11X in 4QFY11 and 1.33X in 1QFY11) while for 2-wheelers the mix was 0.38X (versus
0.39X in 4QFY11 and 0.35X in 1QFY11). Automotive battery revenue growth was flat qoq while
industrial revenues grew by 4% qoq in 1QFY12. Industrial battery revenues declined by 6% yoy
due to 26% yoy decline in inverter battery segment partly offset by growth in UPS, traction and
export segment.
We downgrade the stock to REDUCE (from ADD)
We downgrade the stock to REDUCE from ADD due to – (1) our expectations of lower-than-earlier
forecasted improvement in replacement automotive battery volumes due to increase in
competitive intensity from Amararaja and (2) muted growth in the industrial automotive battery
revenues due to decline in inverter battery revenues and increase in competition from players like
Mahindra Powerol, Hyderabad batteries, Amararaja batteries and local players in the UPS/inverter
battery segment.
We reduce our target price to Rs160 (from Rs175 earlier) as we have revised our earnings
downwards by 7% over FY2012-2013E factoring in lower replacement/OEM mix in automotive
battery volumes and 5-8% cut in our industrial battery segment revenues. Our valuation is based
on – (1) standalone operations which are valued at 15X on our FY2013E EPS and (2) Exide’s 50%
stake in ING Vysya Life insurance is valued at Rs12/share. Stock trades at 14X on our FY2013E EPS
(excluding value of stake in ING Vysya) and we believe it is fairly valued at these levels.
We downgrade the stock to REDUCE (from ADD)
We downgrade the stock to REDUCE from ADD due to – (1) our expectations of lower-thanearlier
forecasted improvement in replacement automotive battery volumes due to increase
in competitive intensity from Amararaja and (2) muted growth in the industrial automotive
battery revenues due to decline in inverter battery revenues and increase in competition
from players like Mahindra Powerol, Hyderabad batteries, Amararaja batteries and local
players in the UPS/inverter battery segment.
We reduce our target price to Rs160 (from Rs175 earlier) as we have revised our earnings
downwards by 7% over FY2012-2013E factoring in lower replacement/OEM mix in
automotive battery volumes and 5-8% cut in our industrial battery segment revenues. Our
valuation is based on – (1) standalone operations are valued at 15X on our FY2013E EPS and
(2) Exide’s 50% stake in ING Vysya Life insurance is valued at Rs12/share. We include
dividend paid by lead smelters in our standalone estimates as per company reporting and
believe the smelter earnings are core part of company’s earnings.
1QFY12 earnings impacted by decline in inverter revenues and lower
replacement/OEM automotive battery mix
Exide reported a 1% yoy decline in net profits impacted by a muted 8% yoy increase in
revenues and a ~5% yoy decline in EBITDA margins. Revenues were impacted by 26% yoy
decline in inverter revenues and adverse replacement/OEM battery volume mix in 4 wheeler
segment.
Replacement/OEM automotive battery volume mix in 1QFY12 for 4-wheeler battery was
1.13X (versus 1.11X in 4QFY11 and 1.33X in 1QFY11) while for 2-wheelers the mix was
0.38X (versus 0.39X in 4QFY11 and 0.35X in 1QFY11). Automotive battery revenue growth
was flat qoq while industrial revenues grew by 4% qoq in 1QFY12. Industrial battery
revenues declined by 6% yoy due to 26% yoy decline in inverter battery segment partly
offset by growth in UPS, traction and export segment.
Company has also increased capacities by 0.4 mn units in the 4-wheeler batteries and by 2.6
mn units in the 2-wheeler batteries in 1QFY12. Capacity of the 4-wheeler automotive
batteries is 10.1 mn while 2-wheeler battery capacity is 18.6 mn at the end of July 2011.
Company plans to increase capacities of 4-wheeler batteries to 12 mn by December 2011
and to 21 mn in 2-wheeler batteries by October 2011.
4-wheeler battery volumes increased by 4% yoy in 1QFY12 while 2-wheeler battery volumes
increased by 40% yoy in 1QFY12. Company also indicated that they have taken an average
price hike of 5% across automotive and industrial segment over the last 12 months,
however lead prices have increased by 21% yoy during the same period which impacted
EBITDA margins. We believe this clearly indicates that company’s pricing power is declining
as competition from players like Amararaja and unorganized players has incrementally
increased and it won’t be easy for the company to take price increases in future to fully
compensate for increase in lead prices.
Company also stated that smelter contribution in lead sourcing remained at 52% and
company expects it to increase in 2HFY12E.
EBITDA margins declined by ~5% yoy but improved sequentially by 50 bps. Company
indicated that automotive EBITDA margins increased by 50 bps qoq to 16.6% in 1QFY12
while industrial EBITDA margins increased by 200 bps qoq to 18.9% as company completely
exited the low margin telecom battery segment. However, we believe industrial EBITDA
margins could be lower than company’s guidance as overall margins improved by only 50
bps qoq.
Key assumptions
We highlight the key changes in our assumptions below:
�� We have cut our 4-wheeler battery volume assumptions by 9-11% yoy over FY2012-
2013E factoring in lower growth in both OEM and replacement battery volumes. We now
forecast replacement/OEM battery volume mix to decline to 1.16X in FY2012E from
1.27X earlier and to 1.2X in FY2013E from 1.3X earlier.
�� We have, however, increased our two-wheeler battery volumes by 5-8% yoy over
FY2012-2013E factoring in higher growth in OEM volumes. We have, however, cut our
replacement/OEM volume mix forecast to 0.38X and 0.4X from 0.43X and 0.47X earlier
in FY2012 and FY2013E, respectively.
�� Hence, our overall automotive volume assumptions remain unchanged but replacement
automotive volumes have been cut by 9-10% while OEM volumes have been increased
by 4-7% over FY2012-2013E, respectively.
�� We have also cut our industrial revenue forecast by 5-8% over FY2012-2013E
respectively as we forecast increase in competitive intensity in the UPS/inverter segment
and expect Exide to lose market share in this segment.
�� Hence, we have cut our revenue estimates by 4-5% over FY2012-2013E and EBITDA
estimates by 9% factoring in lower EBITDA margins. We now forecast EBITDA margins of
18.4% in FY2012E and 19% in FY2013E.
�� We have thus cut our earnings estimates by 7% over FY2012-2013E due to the abovementioned
reasons.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Exide Industries (EXID)
Automobiles
Rising competitive pressures to moderate earnings growth. Exide’s automotive
and industrial business profitability has been impacted due to rise in competitive
intensity and the company has not been able to take commensurate pricing actions to
offset sharp rise in lead prices. We believe despite increase in battery capacities, the
company will find it difficult to increase market share significantly which could
moderate revenue growth. Hence, we downgrade the stock to REDUCE (from ADD).
1QFY12 profitability got impacted by lower inverter revenues and adverse mix
Exide reported a 1% yoy decline in net profits impacted by a muted 8% yoy increase in revenues
and a ~5% yoy decline in EBITDA margins. Revenues were impacted by 26% yoy decline in
inverter revenues and adverse replacement/OEM battery volume mix in the 4-wheeler segment.
Replacement/OEM automotive battery volume mix in 1QFY12 for 4-wheeler battery was 1.13X
(versus 1.11X in 4QFY11 and 1.33X in 1QFY11) while for 2-wheelers the mix was 0.38X (versus
0.39X in 4QFY11 and 0.35X in 1QFY11). Automotive battery revenue growth was flat qoq while
industrial revenues grew by 4% qoq in 1QFY12. Industrial battery revenues declined by 6% yoy
due to 26% yoy decline in inverter battery segment partly offset by growth in UPS, traction and
export segment.
We downgrade the stock to REDUCE (from ADD)
We downgrade the stock to REDUCE from ADD due to – (1) our expectations of lower-than-earlier
forecasted improvement in replacement automotive battery volumes due to increase in
competitive intensity from Amararaja and (2) muted growth in the industrial automotive battery
revenues due to decline in inverter battery revenues and increase in competition from players like
Mahindra Powerol, Hyderabad batteries, Amararaja batteries and local players in the UPS/inverter
battery segment.
We reduce our target price to Rs160 (from Rs175 earlier) as we have revised our earnings
downwards by 7% over FY2012-2013E factoring in lower replacement/OEM mix in automotive
battery volumes and 5-8% cut in our industrial battery segment revenues. Our valuation is based
on – (1) standalone operations which are valued at 15X on our FY2013E EPS and (2) Exide’s 50%
stake in ING Vysya Life insurance is valued at Rs12/share. Stock trades at 14X on our FY2013E EPS
(excluding value of stake in ING Vysya) and we believe it is fairly valued at these levels.
We downgrade the stock to REDUCE (from ADD)
We downgrade the stock to REDUCE from ADD due to – (1) our expectations of lower-thanearlier
forecasted improvement in replacement automotive battery volumes due to increase
in competitive intensity from Amararaja and (2) muted growth in the industrial automotive
battery revenues due to decline in inverter battery revenues and increase in competition
from players like Mahindra Powerol, Hyderabad batteries, Amararaja batteries and local
players in the UPS/inverter battery segment.
We reduce our target price to Rs160 (from Rs175 earlier) as we have revised our earnings
downwards by 7% over FY2012-2013E factoring in lower replacement/OEM mix in
automotive battery volumes and 5-8% cut in our industrial battery segment revenues. Our
valuation is based on – (1) standalone operations are valued at 15X on our FY2013E EPS and
(2) Exide’s 50% stake in ING Vysya Life insurance is valued at Rs12/share. We include
dividend paid by lead smelters in our standalone estimates as per company reporting and
believe the smelter earnings are core part of company’s earnings.
1QFY12 earnings impacted by decline in inverter revenues and lower
replacement/OEM automotive battery mix
Exide reported a 1% yoy decline in net profits impacted by a muted 8% yoy increase in
revenues and a ~5% yoy decline in EBITDA margins. Revenues were impacted by 26% yoy
decline in inverter revenues and adverse replacement/OEM battery volume mix in 4 wheeler
segment.
Replacement/OEM automotive battery volume mix in 1QFY12 for 4-wheeler battery was
1.13X (versus 1.11X in 4QFY11 and 1.33X in 1QFY11) while for 2-wheelers the mix was
0.38X (versus 0.39X in 4QFY11 and 0.35X in 1QFY11). Automotive battery revenue growth
was flat qoq while industrial revenues grew by 4% qoq in 1QFY12. Industrial battery
revenues declined by 6% yoy due to 26% yoy decline in inverter battery segment partly
offset by growth in UPS, traction and export segment.
Company has also increased capacities by 0.4 mn units in the 4-wheeler batteries and by 2.6
mn units in the 2-wheeler batteries in 1QFY12. Capacity of the 4-wheeler automotive
batteries is 10.1 mn while 2-wheeler battery capacity is 18.6 mn at the end of July 2011.
Company plans to increase capacities of 4-wheeler batteries to 12 mn by December 2011
and to 21 mn in 2-wheeler batteries by October 2011.
4-wheeler battery volumes increased by 4% yoy in 1QFY12 while 2-wheeler battery volumes
increased by 40% yoy in 1QFY12. Company also indicated that they have taken an average
price hike of 5% across automotive and industrial segment over the last 12 months,
however lead prices have increased by 21% yoy during the same period which impacted
EBITDA margins. We believe this clearly indicates that company’s pricing power is declining
as competition from players like Amararaja and unorganized players has incrementally
increased and it won’t be easy for the company to take price increases in future to fully
compensate for increase in lead prices.
Company also stated that smelter contribution in lead sourcing remained at 52% and
company expects it to increase in 2HFY12E.
EBITDA margins declined by ~5% yoy but improved sequentially by 50 bps. Company
indicated that automotive EBITDA margins increased by 50 bps qoq to 16.6% in 1QFY12
while industrial EBITDA margins increased by 200 bps qoq to 18.9% as company completely
exited the low margin telecom battery segment. However, we believe industrial EBITDA
margins could be lower than company’s guidance as overall margins improved by only 50
bps qoq.
Key assumptions
We highlight the key changes in our assumptions below:
�� We have cut our 4-wheeler battery volume assumptions by 9-11% yoy over FY2012-
2013E factoring in lower growth in both OEM and replacement battery volumes. We now
forecast replacement/OEM battery volume mix to decline to 1.16X in FY2012E from
1.27X earlier and to 1.2X in FY2013E from 1.3X earlier.
�� We have, however, increased our two-wheeler battery volumes by 5-8% yoy over
FY2012-2013E factoring in higher growth in OEM volumes. We have, however, cut our
replacement/OEM volume mix forecast to 0.38X and 0.4X from 0.43X and 0.47X earlier
in FY2012 and FY2013E, respectively.
�� Hence, our overall automotive volume assumptions remain unchanged but replacement
automotive volumes have been cut by 9-10% while OEM volumes have been increased
by 4-7% over FY2012-2013E, respectively.
�� We have also cut our industrial revenue forecast by 5-8% over FY2012-2013E
respectively as we forecast increase in competitive intensity in the UPS/inverter segment
and expect Exide to lose market share in this segment.
�� Hence, we have cut our revenue estimates by 4-5% over FY2012-2013E and EBITDA
estimates by 9% factoring in lower EBITDA margins. We now forecast EBITDA margins of
18.4% in FY2012E and 19% in FY2013E.
�� We have thus cut our earnings estimates by 7% over FY2012-2013E due to the abovementioned
reasons.
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