Nomura Upgrades Exide Industries to Buy

Nomura has come out with a research report on Exide Industries with an upgrade to Buy and Target Price increased to Rs.170. Nomura has cited the reason for the upgrade as margin improvement and replacement demand likely to drive the stock.

Nomura estimates Exide (EXID) to report an 18% revenue CAGR over the next two years. It feels auto segment should be driven by the replacement of batteries for cars sold during FY09-11, when volumes increased at a 27% CAGR. It also expects the industrial segment to pick up as the power shortage situation has worsened vs that of last year, due to policy inaction.

Exide stock has corrected by 18% over the last year due to: 1) lower replacement demand in the auto sector from the 2008 crisis period and some market share losses, and 2) weak power inverter demand as the power supply situation had improved in FY12. With both segments likely to improve, we expect an earnings CAGR of 31% over FY12-FY14F.

Exide stock trades at 13x FY14F EPS of INR9.2 (ex investments in insurance of INR8.8/share), below its past-three-year average of 16x.

Nomura values Exide Industries at 16x avg EPS of FY14-15F (Rs.10.1). Nomur also values Exide's investments in the insurance business at a book value of INR8.8/share.

Source : Equity Bulls

Keywords