Exide top-line growth to be in double digits

By: | Published: March 10, 2016 12:52 AM

We recently interacted with Exide’s management; the key message was the increased focus on profitability. After clocking 4% CAGR in three years, going forward, Exide expects top line growth to accelerate to double digits.

We recently interacted with Exide’s management; the key message was the increased focus on profitability. After clocking 4% CAGR in three years, going forward, Exide expects top line growth to accelerate to double digits. While it has grown slower than Amara Raja, it has maintained share in the overall replacement segment, driven by gains from the unorganised sector. Other growth driver will be industrial segment (ex-invertor), with solar being a particularly high growth area.

Margins have surprised positively of late — the benefit of lower lead and cost reduction efforts — and are also less volatile with the decline in invertor share over time (fluctuates more). While near-term ROEs will stay impacted on higher capex intensity with technology upgrade, it will also lead to 100-200 bp margin gain.

We recently upgraded Exide as a low downside stock with some signs of execution improvement after multiple years of underperformance. Valuations are attractive (12x core FY18 EPS for a duopoly industry and low expectations) at a 40% discount to Amara Raja; insurance stake sale can lead to value unlocking. Exide’s’ revenue growth continues to lag Amara Raja’s (in the core replacement — Exide’s y-t-d growth has been 9% vs mid-teens growth clocked by Amara Raja). As per management, there has been no share loss though, as industry growth has been in only the 6-8% range. There has been a continued shift from the unorganised sector (relevant for CVs, 3Ws and tractors) resulting in share gains for both Exide and Amara Raja; this trend will further accelerate once GST gets implemented.

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