Hold Exide Industries Ltd For Target Rs.200 - Emkay Global
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Uncertain times ahead; Maintain Hold
* Q4FY21 revenues were in line at Rs29bn. EBITDA margin came in at 14% (est.: 12.8%), above estimates, due to lower-than-expected RM and employee expenses. Despite better scale, we expect margins to remain in range of 13-14% ahead, owing to cost pressures and adverse mix.
* Replacement segment growth should normalize to single-digits from H2FY22. Driven by tapering growth in the replacement segment and upsurge in the OEM segment, product mix is likely to be adverse over FY22-23E.
* EV penetration in the medium term remains a structural risk, as companies such as EXID could incur large investments on R&D and setting up of lithium battery manufacturing capacities, resulting in ROE dilution. In addition, the entry of new players would increase competition and negatively impact margins.
* Despite expectations of an improvement in economic activity ahead, we retain Hold due to imminent technological disruptions in the battery space. Our TP stands at Rs200 (Rs204 earlier), based on 15x FY23E EPS and the value of the Insurance business at Rs24/share.
EBITDA margin above estimates: Considering the low base in Q4FY20, results have been compared with Q4FY19 (2-year CAGR). Revenues saw 6% CAGR to Rs29.4bn (est.: Rs29.7bn), in line with our estimates. On revenue performance, the company has indicated that there was strong growth in both Automotive and Industrials segments. Aftermarket demand for both Automotive and UPS batteries has remained strong. EBITDA margin contracted to 14% (est.: 12.8%) from 14.4% in Q4FY19, above estimates due to better-than-expected gross margin and lower employee cost. Overall, PAT saw 8% CAGR to Rs2.4bn (est.: Rs2.2bn), above estimates due to higher operating margin. Life insurance business’ profit stood at Rs897mn vs. Rs1.15bn in Q4FY20.
Management change: With the retirement of Mr. Gautam Chatterjee, the existing deputy MD Mr. Subir Chakraborty has been elevated as new MD & CEO. The outgoing MD had focused on sustaining/ improving market share and made an entry into assembly of lithium batteries through a tie-up with Leclanche SA. Expectations are that new MD will continue to focus on these objectives. Mr. Chakraborty has been with Exide since 1996, and has served as Director of Auto and Industrial segments.
Maintain Hold: We reduce FY22/23 EPS forecast by 2% each to Rs10.1/Rs11.7 on a marginal reduction in revenue assumptions. We introduce FY24E EPS of Rs13.4, factoring in revenue growth of 10% and EBITDA margin of 13.8%. Margin pressures remain due to cost increases and adverse mix. Lead prices have increased steeply by around 20% in the last three quarters. In addition, the product mix is likely to turn adverse with the normalization of replacement segment growth to single-digits from H2FY22. Retain Hold with a TP of Rs200 (Rs204 earlier), based on 15x FY23E EPS and the value of the Insurance business at Rs24/share. Key risks include higher-than-expected demand in Automotive and Industrial segments and benign currency/commodity prices.
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