Robust volumes sustain growth momentum.
Exide Industries (Exide) posted strong Q1FY19 revenue growth of 33% y-o-y (8% above estimate) driven by healthy volumes across segments. While gross margin decreased ~300 bps y-o-y (125bps q-o-q) owing to higher lead costs, EBITDA margin dipped a mere 141bps y-o-y (up 36bps q-o-q) driven by cost control and technology upgradation. EBITDA shot up 21% y-o-y led by higher-than-expected top line.
In light of favourable demand outlook for the automotive and industrial segments and Exide’s preparedness — focus on product development (nine launches in aftermarket, trials of Ultra batteries for telecom applications — refer FY18 annual report snippets), investments in Punch Grid technology and future-ready solutions (a JV with Leclanche to manufacture lithium ion batteries), we are revising up the standalone FY20E EPS multiple to 22x (from 20x), a mere 10% discount to key peer Amara Raja.
We estimate 20% FY18–20E EBITDA CAGR amid softening lead price (down 11% YTD) and maintain ‘Buy’ with TP of Rs 318 (Rs 288 earlier).
Business momentum continued to be strong with net sales jumping 33% y-o-y (fourth consecutive quarter of 20%-plus). While volumes of automotive and motorcycle batteries remain in high gear, growth in UPS, telecom, solar and other infrastructure segments picked up too. Embedded value (EV) of the life insurance business had inched up to Rs 21.4bn at end-March 2018 (from Rs 20.4bn at end-September 2017).
Higher lead costs (up ~10% y-o-y) and currency fluctuations dragged gross margin by ~300 bps y-o-y (125bps q-o-q). However, EBITDA margin dipped a mere 141bps y-o-y (up 36bps q-o-q) on account of Exide’s focus on cost control and technology upgradation that powered up EBITDA growth of 21% y-o-y. PAT rose 11% y-o-y on higher effective tax rate and lower other income.
We remain positive on: 1) auto replacement recovery; 2) strong OEM growth; 3) technology upgradation and launches; and 4) emerging opportunities. Maintain ‘Buy’ with a TP of Rs 318. We value the core business at 22x FY20E EPS and Exide Life at 2x March 2018 EV, a 40%-plus discount to ICICI Pru Life.