Exide Industries - Lower base beckons; Buy - Anand Rathi

Weak demand. During the quarter, following a weak demand trend, Exide Industries' had been forced to reduce prices. Competitors followed this move after a two month lag. This move came about after a disappointing performance in 2QFY14, where revenues declined 5.9% yoy, with subdued demand from both auto OEMs and industrial segments (telecoms, infrastructure, inverters).

Subdued sales growth. While OEM sales continue to be subdued in 3QFY14, auto-replacement demand is expected to be the major growth driver. We expect sales growth to come at just 4.9% yoy, to Rs. 15.3bn. In FY13, the company had regained some of its lost market share and hopes to further recover lost share.

Margin to improve yoy. We expect a 300bps yoy EBITDA margin growth (80bps higher yoy), to 14.7%. On the lower base of the previous year, we expect 26.1% yoy profit growth, to Rs. 1.4bn.

Our take. While FY13 performance was average, 4QFY13 and 1QFY14 had registered a markedly better trajectory. 2QFY14 saw a subdued trend again due to weak demand, which price increases could not counter. Consistency in operating performance and pricing discipline ahead would be crucial. We have a Buy rating, 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 the ruling price, the stock trades 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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