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Retail Equity Research

Exide Industries Ltd Automobile – Auto Ancillaries

BSE CODE : 500086 NSE CODE: EXIDEIND

BLOOMBERG CODE: EXID:IN SENSEX : 40,470

Accumulate

12M Investment Period Rating as per Mid cap

CMP Rs. 187 TARGET Rs. 209 RETURN 12% (Closing: 06-11-19)

07th November,2019

Q2FY20 RESULT UPDATE

Outperform the industry growth. Exide Industries Limited (EIL) is a leader in storage battery business with a market share of 60% in India. Its segment includes automotive and industrial lead - acid batteries.

Q2FY20 revenue de-grew by -4%YoY owing to negative 2W industry growth of -17%. However strong sales from the aftermarket batteries & home invertor offset further decline.

EBITDA margin improved by 160bps due to softening of lead price by -3.3YoY. Adj. PAT grew by 46%YoY.

EIL is focusing on cost control initiatives and technological up-gradation to improve the bottom line. However, weak outlook in the auto industry is expected to remain for the near term.

Newer cost-effective brands at competitive price is expected to support market share gain from the unorganized players. Exide currently holds 86% market share in the 2W space.

On a SOTP basis, we value EIL at 15x on FY21EPS and Insurance business at 1xEV (Embedded value) at Rs28 and upgrade our rating to Accumulate from Hold with a revised target price of Rs209.

Company Data

Market Cap (cr) Rs.15,895

Enterprise Value (cr) Rs.15,895

Outstanding Shares (cr) 85

Free Float 54%

Dividend Yield 0.7%

52 week high Rs.274

52 week low Rs.166

6m average volume (cr) 0.22

Beta 0.8

Face value Rs1

Shareholding (%) Q4FY19 Q1FY20 Q2FY20

Promoters 46.0 46.0 46.0

FII’s 9.9 8.9 9.1

MFs/Insti 23.8 24.7 24.2

Public 20.3 20.4 20.7

Total 100.0 100.0 100.0

Price Performance 6month 1 Year 1 Year

Absolute Return 6.3% -10.0% -24.7%

Absolute Sensex 9.7% 7.2% 15.2%

Relative Return -3.4% -17.2% -39.9%

over or under performance to benchmark index

Standalone (cr) FY19A FY20E FY21E

Sales 10,588 10,750 11,878

Growth (%) 15.3 1.5 10.5

EBITDA 1,411 1,521 1749

EBITDA Margin(%) 13.3 14.2 14.7

PAT Adj. 736 927 1,027

Growth (%) 3.6 26.0 10.8

Adj.EPS 9.9 10.9 12.1

Growth (%) 3.6 26.0 10.8

P/E 21.6 17.1 15.5

P/B 2.7 2.4 2.1

EV/EBITDA 11.3 10.4 9.1

ROE (%) 12.9 14.6 14.5

D/E 0 0 0

Saji John

Research Analyst

KEY CHANGES: TARGET RATING EARNINGS

Softening lead price supported the margin Q2FY20 revenue de-grew by –4YoY marginally below our estimate. The increase in automobile replacement and industrial segments, had offset weak OEM sales. EBITDA margin expanded by 160bps due to falling lead price and cost control initiative, However adj. PAT grew by 46%YoY. We expect the margin to show some resilience going forward due to softening lead price. While considering the weak outlook expected in the 2W volume growth for the near term, we lower our revenue estimates for FY20/F21 by 2.1/2.0 & similarly adjusting the tax levy we upgrade our PAT estimate by 9.6%/5.7% respectively. We expect revenue and PAT to grow by 5%/18% CAGR over FY19-21E .

Demand to remain muted for 2/3 wheeler vehicles Automotive industry (PV, 2/3W) continue to witness de-growth of -22%YoY in Q2FY20 due to lower demand, liquidity crunch and higher insurance cost. We expect the demand scenario for 2W to remain muted for the near term and an early pick up in the sector will only be seen at H1FY21. Increased rural income due to excess monsoon and new product launches by OEMs is also likely to add flavours to the expectation. EIL will be the direct beneficiary from any structural change in the auto demand owing to its leadership position (~60% market share) in the automotive battery and having 86% market share in two -wheelers.

Strengthening aftermarket through Innovation We expect margins to show some resilience at 14%-15% over FY19-21E. Expansion is justifiable once 1) a market share gain from unorganised players 2) rebound in 2W/PV OEM sales 3) an uptick in the e-rickshaws and solar battery segment 4) strengthening distribution network by introducing sub-distributor led model (cluster of small retailers) and 5) stable lead price & cost-saving initiatives. EIL’s joint venture (JV ) with Switzerland’s Leclanche to manufacture lithium-ion batteries in Gujarat for electric vehicles is expected to commence production by mid-2020.

Valuations Although the margin for the Quarter was better than expected, we remain concerned over the slowdown in key markets (Automobile) which will result in lower product mix. Volatility in the lead price has brought some respite to the Industry which will benefit EIL in subsequent quarters. We remain positive on the long term outlook of EIL owing to higher acceptance of battery engineering and Exide’s foray into 3W manufacturing. On a SOTP basis, We value EIL at 15x FY21EPS and Insurance business at 1x FY19 EV (Embedded value) Rs28/share and upgrade our rating from Hold to Accumulate with a revised target of Rs209.

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Quarterly Financials (Standalone)

Profit & Loss

Change in Estimates

Old estimates New estimates Change %

Year / Rs cr FY20E FY21E FY20E FY21E FY20E FY21E

Revenue 10,984 12,140 10,750 11,878 -2.1 -2.2

EBITDA 1,586 1,803 1,521 1,749 -4.1 -3.0

Margins (%) 14.4 14.8 14.2 14.7 -20bps -10bps

Adj. PAT 846 972 927 1027 9.6 5.7

EPS 9.9 11.4 10.9 12.1 9.6 5.7

Rs cr Q2FY20 Q2FY19 YoY Growth % H2FY19 YoY Growth % H2FY20

Sales 2,611 2,720 -4.0 5,493 -1.9 5,390

EBITDA 367 313 10.4 726 6.8 775

EBITDA margins 14.1 12.2 +160bps 13.2 +120bps 14.4

Depreciation 90 77 16.9 149 18.5 176

EBIT 277 256 8.4 577 3.8 599

Interest 1.8 1.4 - 2.5 42.8 3.6

Other Income 5.6 11.6 - 14 57.9 22

Exceptional Items - 108 - 108 - -

PBT 281 374 -24.2 697 -11.4 617

Tax 44 106 -58.4 218 -28.7 156

Share of profit from Associate 0 0 - 0 -

Minority Interest 0 0 - 0 -

Reported PAT 237 268 -11.6 478 -3.5 462

Adjustments 0 108 - 108 - -

Adj PAT 237 160 48.2 370 24.7 462

No. of Shares (cr) 85 85 - 85 - 85

EPS (Rs) 2.8 1.9 48.2 4.4 24.7 5.4

Particulars Segments Embedded Value

(Rs Cr) Stake Value/Share

(Rs) Rationale

Exide Core business Core Business - 181 PE 15x FY21E EPS

Exide Life Insurance Ltd Life insurance Rs2405 100%

28 1x EV (Embedded Val-

ue)/share

Total Value per share 209

SOTP - Valuation

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27th December 2018

Standalone Financials

PROFIT & LOSS BALANCE SHEET

RATIOS CASH FLOW

Y.E March (Rs

Cr) FY17A FY18A FY19A FY20E FY21E

Sales 7,583 9,186 10,588 10,750 11,878

% change 10.6 21.1 15.3 1.5 10.5

EBITDA 1,082 1,241 1,411 1,521 1,749

% change 6.5 14.6 13.7 7.8 14.9

Depreciation 206 246 313 365 431

EBIT 876 995 1,098 1,156 1,317

Interest 4 5 6 6 6

Other Income 104 58 39 43 48

PBT 976 1,006 1,239 1,193 1,358

% change 7.4 3.1 23.1 -3.7 13.9

Tax 282 338 395 266 331

Tax Rate (%) 0.29 0.34 0.32 0.22 0.24

Reported PAT 694 668 844 927 1,027

Adj. 0 -418 1,083 0 0

Adj. PAT 694 710 736 927 1,027

% change 11.1 2.4 3.6 26.0 10.8

No. of shares (cr) 85 85 85 85 85

Adj EPS (Rs) 8.2 8.4 8.7 10.9 12.1

% change 11.1 2.4 3.6 26.0 10.8

DPS (Rs) 3 3 3 3 3

Y.E March (Rs Cr) FY17A FY18A FY19A FY20E FY21E

Net inc. + Depn. 1,182 1,252 1,552 1,558 1,790

Non-cash adj. -86 -29 -30 -21 -26

Changes in W.C -666 -707 -580 -239 -614

C.F. Operation 430 517 942 1,297 1,150

Capital exp. -416 -771 -675 -655 -655

Change in inv. 113 744 -46 -250 -150

Other invest.CF 0 0 0 0 0

C.F - Investment -307 -28 -708 -905 -805

Issue of equity 0 0 0 0 0

Issue/repay debt 68 -170 0 0 0

Dividends paid -242 -245 -245 -245 -245

Other finance.CF -4 -6 -6 -6 -6

C.F - Finance -178 -421 -251 -251 -251

Chg. in cash -55 67 -17 141 94

Closing cash 11 79 61 202 296

Y.E March FY17A FY18A FY19A FY20E FY21E

Profitab & Return

EBITDA margin (%) 14.3 13.5 13.3 14.2 14.7

EBIT margin (%) 11.6 10.8 10.4 10.8 11.1

Net profit mgn.(%) 9.1 7.7 6.9 8.6 8.6

ROE (%) 14.6 13.7 12.9 14.6 14.5

ROCE (%) 14.3 13.6 13.0 14.7 14.6

W.C & Liquidity

Receivables (days) 29.5 31.2 34.8 36.7 35.2

Inventory (days) 103.0 99.8 98.6 105.1 100.0

Payables (days) 33.6 29.0 27.6 29.4 28.6

Current ratio (x) 3.4 4.1 4.0 4.0 4.2

Quick ratio (x) 1.4 2.0 2.1 2.3 2.4

Turnover &Leverage

Gross asset T.O (x) 4.7 4.2 3.7 3.1 2.9

Total asset T.O (x) 1.2 1.3 1.4 1.3 1.3

Int. covge. ratio (x) 203.3 189.9 181.5 183.8 208.3

Adj. debt/equity (x) 0.0 0.0 0.0 0.0 0.0

Valuation

EV/Sales (x) 2.1 1.7 1.5 1.5 1.3

EV/EBITDA (x) 14.8 12.8 11.3 10.4 9.1

P/E (x) 22.9 22.4 21.6 17.1 15.5

P/BV (x) 3.2 3.0 2.7 2.4 2.1

EY.E March (Rs Cr) FY17A FY18A FY19A FY20E FY21E

Cash 11 79 61 202 296

Accounts Receivable 623 945 1,073 1,090 1,204

Inventories 1,527 1,760 2,005 2,002 2,213

Other Cur. Assets 252 453 479 427 602

Investments 2,674 1,969 2,015 2,265 2,415

Gross Fixed Assets 1,868 2,511 3,161 3,811 4,461

Net Fixed Assets 1,525 1,935 2,280 2,575 2,803

CWIP 141 234 220 220 220

Intangible Assets 22 23 40 36 30

Def. Tax (Net) -155 -141 -104 -77 -44

Other Assets 0 0 0 0 0

Total Assets 6,620 7,256 8,069 8,740 9,740

Current Liabilities 450 505 549 572 632

Provisions 265 279 348 353 391

Debt Funds 170 0 0 0 0

Other Liabilities 772 1,083 1,184 1,144 1,265

Equity Capital 85 85 85 85 85

Reserves & Surplus 4,879 5,304 5,903 6,585 7,367

Shareholder’s Fund 4,964 5,389 5,988 6,670 7,452

Total Liabilities 6,620 7,256 8,069 8,740 9,740

BVPS 58 63 70 78 88

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Source: Bloomberg, Geojit Research.

27th December 2018

Dates Rating Target 20 July 2016 Buy 204

28-October-2016 Buy 220 06-.May 2017 Hold 256 28-July-2017 Hold 234

13 October 2017 Accumulate 234 9 March 2018 Accumulate 228

8.May 2018 Hold 276 12th December 2018 Accumulate 276

6th February 2019 Hold 230 6th May 2019 Hold 224

6th August 2019 Hold 188

7th November 2019 Accumulate 209

Large Cap Stocks; Buy - Upside is above 10%. Hold - Upside is between 0% - 10%. Reduce - Downside is more than 0%. Neutral - Not Applicable

Mid Cap and Small Cap; Buy - Upside is above 15%. Accumulate - Upside is between 10% - 15%. Hold - Upside is between 0% - 10%. Reduce/Sell - Downside is more than 0%. Neutral - Not Applicable

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being up-graded to BUY or downgraded to a HOLD, REDUCE or SELL. Neutral- The analyst has no investment opinion on the stock under review

General Disclosures and Disclaimers

Recommendation summary (Last 3 Years)

Investment Criteria

CERTIFICATION

I, Saji John, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the subject issuer

or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.

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27th December 2018

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