Analyst Corner| Exide Industries: Maintain ‘buy’ with TP of Rs 235

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Updated: September 07, 2021 8:35 AM

The said consideration would be paid through a) 87m shares in HDFC Life at a price of Rs 685/sh and b) the balance in the form of cash of rs 7.26b.

excideWith EXID possibly looking to invest in lithium-ion cell manufacturing under the PLI scheme, this monetization of the Insurance business could not have come at a better time.

Exide Life Insurance value unlocked, sold for Rs 66.9b: EXID has entered into an agreement to sell its 100% stake in Exide Life Insurancen to HDFC Life Insurance for consideration of Rs 66.9b. The said consideration would be paid through a) 87m shares in HDFC Life at a price of Rs 685/sh and b) the balance in the form of cash of Rs 7.26b. EXID had invested Rs 16.8b, with its initial stake purchased in Jul’05.n The sale consideration is much higher than the value we had ascribed to thisn stake. Our estimate of fair value was Rs 35.4b, to which we had assigned a 40% Holdco discount, to arrive at Rs 24/sh in fair value for our SOTP. This deal unlocks Rs 60b or Rs 70/sh after tax (based on our estimate) forn EXID. While this deal unlocks the full value of its non-core Insurance business, there isn no communication from the management on how it plans to deploy this cash.

Our view: This stake sale boosts EXID balance sheet considerably, with overn Rs 60b worth of stake in HDFC Life now available at its disposal. With EXID possibly looking to invest in lithium-ion cell manufacturing under the PLI scheme, this monetization of the Insurance business could not have come at a better time. The core business is vulnerable to the tech disruption from newer chemistry, with the immediate risk to the 2W/3W Battery business. Lithium further poses a risk to the Industrial battery business (~26% of revenue). We prefer EXID within the Lead Acid Battery segment as it offers a superior riskreward considering its market leadership, technological alliances, and sizable war chest available for the foray into New Energy. The stock trades at ~18.4/14.7x FY22E/FY23E EPS. Maintain Buy, with TP of Rs 235 (14x Mar’23 EPS + Rs 56/sh for HDFC Life stake post 20% Holdco discount).

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