Exide Industries - Weak demand hits again; Buy - Anand Rathi

Revenue growth disappointed. Exide Industries' (Exide) revenues declined 5.9% yoy in 2QFY14, to Rs. 14.3bn, ~10% lower than expected. Its performance was hit by subdued demand from both auto OEMs and industrial segments (telecom, infrastructure, inverter), according to the company. We believe that auto replacement demand was also unimpressive during 2Q, which further hampered performance during the quarter.

Margin up yoy. EBITDA margin at 14.1% was up 170bps yoy on a low base, but it declined 230bps qoq. Price increases in 2Q as well as a higher proportion of replacement sales both failed to arrest the qoq margin dip. While EBITDA growth was 7% yoy, it declined 24.4% qoq to Rs. 2bn. There was an element of forex gain in other operating income; if we adjust for the same, then EBITDA margin would be 20bps lower.

Other income below estimate. Other income, at Rs. 37m, was lower than expected. Coupled with a higher tax rate yoy, profit declined 1.3% yoy and 25.3% qoq, to Rs. 1.2bn, lower than expected.

Our take. While the company's FY13 performance was average, 4QFY13 and 1QFY14 had witnessed a markedly better trajectory. 2QFY14 saw a subdued trend again due to weak demand, which price increases could not compensate. Consistency in operating performance and pricing discipline are crucial, hereon. We lower our estimates by 9.1% and 13.4% in FY14 and FY15, respectively, to factor in lower revenue growth. We have a Buy rating on Exide with a price target of Rs. 144, based upon a one-year-forward standalone PE of 16x (amounting to Rs. 130), and value the company's investments in ING Vysya Life Insurance and Hathway Cable at Rs. 14. At CMP, Exide is trading at 15.3x FY15e standalone earnings.

Risks. Market-share loss, sustained low demand, price wars, commodity risk and currency depreciation.

Source : Equity Bulls

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