Exide Industries - Recharged - Ambit

Our positive stance on the stock is underpinned by the following reasons:

a) After the market share recovery in the 4W replacement segment over the past few quarters, Exide is now more confident of its pricing power, which is evident from the four consecutive price increases (aggregating to around 18%) undertaken in the past 12 months. Furthermore, the second-largest player, Amara Raja, is likely to face capacity constraints for another 4-6 months, providing Exide with enough room for pricing as well as an opportunity to gain further market share in the 4W replacement market.

b) We expect the replacement business to continue to perform well (volume growth of 15%) in FY14, benefitting from the strong OEM sales in FY10 and FY11.

c) Whilst the recent depreciation in INR vs USD (around 12% in the last three months) is likely to increase the cost of lead in 2QFY14, the company has recently increased the price of batteries in the replacement auto and industrial segment by 5% (on 5 July 2013). This is likely to offset a significant portion of the margin impact from INR depreciation.

Overall, our estimates factor in revenue CAGR of 14.5% over FY13-15 and EBITDA margin of 14.0% for FY14 and FY15 and net earnings CAGR of 20% over FY13-15E. The stock currently trades at 16.0x FY14 consensus net earnings which is at a discount of 5% to the historical average.

Source : Equity Bulls

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