Buy Exide Industries - Karvy

Slowly moving towards normal margins; Maintain BUY

- Exide Industries has reported Rs. 14,476 mn revenue in Q4FY12, registering a growth of 16% both on YoY and QoQ basis. Even though the depreciated INR against the dollar negated the benefits arising out of the softening lead prices, the Company's EBITDA margins expanded by 170 bps QoQ to 14.7% in Q4FY12. Exide's EBITDA margin stood at 13.5% in FY12, which was in line with our expectation of 14%. The Company's net profit stood at Rs. 4,612 mn with an EPS of Rs. 5.43 being higher than our estimate of Rs. 4.50 for the financial year. We reiterate our "BUY" recommendation on the stock with target price of Rs. 155 per share  Quarter Details: Automotive segment remained subdued in both automotive and replacement market. Despite a volume growth of 26% in 2‐wheeler batteries, lower realizations impacted the overall operating margins of the automotive segment by 150 bps. The Company's operative margins in industrial segment grew by 390 bps in the quarter under review - led by 15% volume growth contributed by the inverter and UPS battery segments.

- Other Key Points: Exide's PAT grew by 37% QoQ (down 13% YoY) in the quarter under review - mainly due to a higher interest cost and depreciation cost, which grew by 21% and 20%, respectively as compared to the interest and depreciation cost incurred in the year‐ago quarter.

- Outlook & Valuation: We maintain our "BUY" recommendation on Exide Industries with a price target of Rs. 155 per share, valuing the Company on SOTP basis, by valuing the core battery business at Rs. 136 per share by applying 15x multiple for FY13E EPS and Rs. 9 each for insurance business and two captive smelters.

- Risks: Competition arising out of unorganized players poses significant risk to Exide Industries. which might lead to lower‐than‐expected volume growth for the Company. Moreover, depreciating rupee will keep the raw material cost firm and impact margins.

Source : Equity Bulls

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