Exide Industries - Sales Pack a Potent Punch, But Margins Miss The Mark; Result Update Q3FY15 :: Edelweiss

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Exide Industries’ (Exide) Q3FY15 top line belied our estimate by 4% and EBITDA was 14% below expectation. Key positives were: (a) 19.5% YoY sales surge led by 20% and 15% YoY jump in four wheeler (4W) and two wheeler (2W) replacement sales, respectively, and 37% YoY rise in industrial sales; (b) market share gains led sales growth versus price led; and (c) sustenance of double digit growth trajectory in 4W replacement for second consecutive quarter (17% YoY in Q2FY15). Key negative was 195bps YoY decline and flat QoQ gross margin at 32.9% (Amara Raja’s expanded 73bps QoQ). EBITDA margin plummeted 30bps QoQ to 11.6% (140bps lower than estimate). As a result, we have revised down EPS 4%/5% for FY15/FY16E. While Exide has set target operating margin of ~15-16% over FY16, we have factored in 13.8%/14.3% margin in FY16/17 giving a 24% earnings CAGR over FY15-17E. With strong market share of >60% in OEM segment (~25% of sales), arrested market share loss in replacement segment, gradual improvement in margin driven by cost-cutting initiatives.

Robust sales spurt, lower EBITDA margin; strong guidance

Exide clocked robust market share gain led sales surge of 19.5% YoY riding strong 20% YoY growth in 4W replacement sales, 15% YoY rise in 2W replacement sales and 34% YoY jump in industrial segment. Sales fell 11.6% QoQ due to cyclically weak quarter for home inverter business. Gross margin dipped 195bps YoY and was flat QoQ at 32.9% on higher dealer incentives. EBITDA jumped 26% YoY to INR2.9bn on strong revenue growth and 63bps YoY EBITDA margin improvement. EBITDA margin, however, fell 30bps QoQ due to 41bps QoQ rise in staff expenses. Exide has guided for an operating margin of 15-16% over one year based on the cost cutting measures undertaken, productivity gains from upgrading technology and declining selling expenses.

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