Exide’s strong 23% y-y revenue growth benefited from strong volume growth in automotive and motorcycle batteries and encouraging growth in UPS, telecom other infrastructure segments, as per management.
Exide’s strong 23% y-y revenue growth benefited from strong volume growth in automotive and motorcycle batteries and encouraging growth in UPS, telecom other infrastructure segments, as per management. We believe that inventory build-up post GST in 1QFY18 also benefited volumes. Thus, revenue growth for 1HFY18 of ~14% y-y would be a better way to look at growth. This is largely in line with our FY18F revenue growth estimate of 15% y-y. However, current lead prices are 12% higher than 2QFY18 levels (assuming 1.5-month lag). Thus, price increases in the replacement segment become important for margin trajectory to improve from current levels.
We are currently factoring in 14.8%/15% margin in FY18/19F compared with 13.9% in 1HFY18. We have a BUY rating on the stock, as we expect lead cost increases to be passed on given the consolidated nature of the industry. The stock is currently trading at 15.2x/13.4x FY19/20F EPS, which we view as reasonable. We use a SOTP valuation to arrive at our TP of Rs 251, which implies 20% potential upside. We value the core business at Rs 204/sh, based on 18x average FY19F-20F EPS of Rs 11.3. We value investments in the insurance business at Rs 47/share, based on 2x FY19F EV and 20% holding discount. We factor in higher growth for organised players compared with the industry. However, if Exide is unable to gain share, there may be downside risks to growth. We have built in 12% volume growth for the industrial segment over FY18-19F. However, if volume growth fails to pick up, there could be downside risks to our estimates. We have not assumed further investment in the insurance business. If Exide invests further, there could be a downside risk to our cash flow and earnings estimates.