Exide Industries - Strong performance, but priced in - Edelweiss

Exide Industries' (Exide) Q4 PAT, at INR1,425mn (down 13% YoY, but up 36% QoQ), was 12% above our and 6% above Street expectations. The difference was driven by higher sales and margins. Sales were higher due to better performance of the industrial segment and two-wheeler demand. EBITDA margin expansion to 14.7% from 13.2% in Q3FY12 was led by the industrial segment. Demand for auto OEM segment stays sluggish. Weak INR has eaten into benefit of softening of lead prices. We increase our FY13 and FY14 EPS by 8% and 7% to INR8.0 and INR9.6, respectively. We also increase our target price to INR133 (INR125) and maintain 'HOLD' rating on the stock.

Strong sales performance

Net sales, at INR14.5bn (18% YoY growth, 16% QoQ), were 11% ahead of expectations. The difference was largely due to stronger-than-expected performance in industrial and two-wheeler segments. This led to a better product mix and higher operating leverage. As a result, EBITDA margins went up to 14.7% vs our expectation of 14.3%.

Demand sluggish; outlook positive

We have raised our FY13 and FY14 EPS by 8% and 7% to INR8.00 and INR/9.60, respectively, to factor in the strong Q4 performance. While demand stays lethargic in near term, business outlook is improving due to: (1) softening lead prices; (2) lowering interest rate, which could improve automotive demand in FY14; and (3) replacement demand from vehicles sold in FY10 due next year.

Outlook and valuations: Near-term weakness; maintain 'HOLD'

We believe that the sharp run-up in stock price in recent months has capped the upside. At 15x FY13 core EPS of INR7.9 (last 5-year average), the current market price captures the improving demand scenario. We raise our target price to INR133 (INR125) and maintain our 'Hold/Sector Outperformer' recommendation/rating on the stock.

Source : Equity Bulls

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