Exide Industries (BUY): Finally a margin surprise - Ambit

Exide's 1QFY14 results were in line with our expectations. Revenues were lower than our expectations by 4%. However, the EBITDA margin at 16.1% was higher than our expectations of 15.2%, making it the best margin performance in the last two years. The margin performance was driven by lower raw material costs (nearly 80bps lower than our expectations and down 277bps QoQ). Absolute EBITDA was ahead of our expectations by 2%.

The return of pricing power, as evident by the several price increases taken by the company in the last 12 months, should help negate the impact of cost pressures such as the recent INR depreciation (vs USD). Also, Amara Raja facing capacity constraints for another 4-6 months, provides Exide with enough room for pricing and opportunity to gain further market share in the 4W replacement market. Further, we believe vehicle sales would modestly recover in 2HFY14 (up 4-6% YoY in FY14) which should perk up the growth in the OEM segment.

Source : Equity Bulls

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