Exide Industries - Good results, OEM and Industrial still weak - LKP Research

Revenues as well as margins impress

Exide's net sales grew by 4.9% yoy and 5.7% qoq to Rs 16.2 bn in Q1 FY14, on the back of pick up in the replacement auto sales. However, the company mentioned that the auto OEM as well as industrial business remained very weak. In line with the weak automobile segment performance in the quarter, the OEM business performed as per our expectations. The company has taken a price hike of about 5-7% in the auto replacement segment, which aided an impressive growth at the topline. Also at EBITDA margin level, favorable product mix (in favor of replacement business) helped the cause. Margins expanded to 16.1%, a yoy growth of 130 bps and 300 bps qoq. EBITDA grew by 13.6% yoy and 29.8% qoq to Rs2.61 bn. Below EBITDA levels, other income came unusually below its normal trend at Rs73 mn. Otherwise, depreciation and interest came in line with our expectations. Tax rate came in at 33.3% which was higher than the recent past trend.

Outlook and valuation

Exide's underperformance in the OEM auto and industrial segments is expected to continue going forward as the company is stuck in a difficult situation of maintaining its relationship with the OEMs by conceding their pricing power. Unless and until the auto industry shows a pullback, things are not going to improve in a hurry for Exide on the OEM side. Although the replacement cycle is improving albeit with a delay, Exide will not be in a position to take full advantage of it as lower lead prices will be offset by rupee depreciation and OEM margin squeeze will negate the positives of replacement business as seen in Q1. Furthermore, fall in smelter utilization rate is a matter of concern, which is expected to get sorted out only after some time. This will add pressures to margins till then. In line with impressive Q1 results, we have slightly increased our estimates by 3%/5% for FY 14E/15E maintaining our Neutral view on the stock thus arriving at our new target price of Rs 134 (including Rs 18 of insurance business).

Source : Equity Bulls

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