Gross margin jumped 200 bps YoY (up 50 bps QoQ) on soft lead price and better product mix.
Exide Industries (Exide) posted in-line flat revenue (up 0.2%; 33% YoY growth in base quarter) in Q1FY20, driven by growth in UPS, telecom and other infra segments which offset decline in automotive batteries. EBITDA grew 4% YoY (in line) as gross and EBITDA margins expanded 200 bps and 50 bps YoY, respectively, led by favourable lead cost. Despite current slowdown in the auto OE market (18% of overall sales), we remain positive due to: i) launches in aftermarket; ii) future-ready solutions (JV with Leclanche for lithium ion batteries – invested INR410 mn in FY19); and iii) soft lead cost.
However, considering slowdown in automotive sales, we trim FY20/21E EPS 7%/11% and earnings multiple of battery business to 20x (22x earlier). We have also cut our multiple assigned to life insurance business’s EV to 1x (1.5x earlier) on March FY19 basis due to INR 1bn incremental capital infusion in the same. Maintain ‘BUY’ with revised TP of INR237 (INR291 earlier) on SOTP basis.
Net sales were flat (on a high base of 33% YoY growth) driven by healthy volumes in UPS and telecom. Volumes declined in automotive and Exide has cut prices in two-wheelers (8% of sales) due to the weak demand. Amara Raja (AMRJ) also clocked similar performance — revenue grew 2% (on base of 19% growth) riding healthy spurt in auto replacement and industrials, offsetting sharp decline in auto OEM sales.
Gross margin jumped 200 bps YoY (up 50 bps QoQ) on soft lead price and better product mix. EBITDA margin, however, improved mere 50 bps YoY (up 30 bps QoQ) on higher other expenses (up 6%) and high base quarter OPM of 14.2%. AMRJ’s gross/EBITDA margins expanded 390/300 bps led by lower base quarter EBIDTA margin of 12.4%. Exide’s focus on cost control and technological upgradation as well as soft landed cost of lead — should support margin over ensuing quarters.