We reiterate our ?buy? rating on Exide Industries and assign an SoTP-based price target of R165, which is based on 16x FY14/15e earnings for Exide?s core battery business. We add another R16 per share for its investments at P/BV of 1x. In our view, Exide?s recent price hike are sticking and reflects improved industry dynamics.
The company hiked price by 5-6% this month, coupled with a series of price hikes taken earlier, that suggests return of pricing power. As highlighted earlier, declining competitive intensity is a positive for margins, with competitors facing capacity constraints. Better terms with auto OEMs would potentially provide further upside.
As a result, our EPS estimates are 7% and 12% higher versus Street for FY14 and FY15, respectively. We see potential earnings upgrade as Exide?s capacity utilisation at 75-80% vs competitor that is now running near-full capacity provides an opportunity to consolidate market share. We currently assume an Ebitda margin of 14.8% in FY14 (versus 16.1% in Q1). Building in an Ebitda margin of 16% for FY14 and FY15 would lead to an 8 and 5% earnings upside, respectively.
The company’s Q1FY14 PAT at R160 crore (up 4% y-o-y) was in line with UBS estimates and above consensus estimates of R150 crore. Operational results were above estimates with Ebitda margins expansion of 120 bps y-o-y. Margin expansion was aided by a better product mix.