Exide Industries (Exide) posted strong Q1 FY19 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 (125 bps q-o-q) owing to higher lead costs, Ebitda margin dipped a mere ~141 bps y-o-y (up 36 bps q-o-q) driven by cost control and technology upgradation.
Ebitda shot up ~21% y-o-y (~5% above estimate) 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 `318 (`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 `21.4 billion at end-March 2018 (from `20.4 billion 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. Going ahead, lower lead prices (down ~11% YTD) and cost control are the key margin levers. We remain positive on: 1) Auto replacement recovery; 2) Strong OEM growth; 3) Technology upgradation and launches; and 4) Emerging opportunities (e.g. solar and e-rickshaws).