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Mixed quarter; EV battery demand to drive growth

Decent revenue growth:

Exide Industries reported its Q3 revenue at Rs 3,405 Cr registering a growth of 6.5% YoY. The growth in the automotive segment was led by decent demand from replacement markets while there was stable demand across industrial verticals which include Railways, Telecom and Solar projects.

Mixed trend is expenditure:

The overall expense during the quarter stood at 88.2% of the net sales of which 67.8% accounted for raw material cost, improved by 118bps while employee cost accounts for 6.2% saw flattish improvement of 17bps YoY. Consequently, the cost benefit of raw materials was off-set by higher overhead expenses as it increased by 125bp YoY and came in at 14.2% of the net sales.

Improved gross margin but EBITDA margin remains flat:

Exide reported its gross profit of Rs 1,097 Cr, up by 10.6% YoY while gross margin came in at 32.2% which saw an improvement of 118bps YoY supported by decline in raw material cost. Its EBITDA came in at Rs 401 Cr while EBITDA margin remained flat at 11.8% YoY. The PAT stood at Rs 223 Cr up by 9.3% and PAT margin was also flat at 6.6%.

Future outlook:

1) Exide is expected to witness a steady growth in the coming years driven by stable demand from OEM and Industrial market while replacement demand is also expected to be robust. 2) The company plans to improve its margins through cost optimization efforts. 3) Calibrated price hikes and diversified portfolio of products to drive revenue growth. 4) Aims to increase market share with pan-India network distribution channel.

Other Highlights:

The company will look to explore the possibility of merger of its 2 wholly owned subsidiaries; ‘Exide Energy Pvt Ltd’ with ‘Exide Energy Solution Ltd’ as both the companies have similar line of businesses. Furthermore, its plan to cater the rising demand of EV batteries through its Multi-gigawatt Li-ion cell manufacturing facility and expansion remains well on track.

Valuations:

Auto sector has major contribution to Exide’s overall revenue, given the positive trend in the overall auto industry as well as government’s encouragement towards EV adoption and green energy through solar plant would drive growth for the company. Hence, our outlook on the company is positive and we expect its Revenue/EBIDTA/PAT to grow at a CAGR of 12.4%/12.9%/10.2% over FY22-25E. We maintain Buy on the stock with a target price of Rs. 229 valuing the company at 14.5x FY25E EPS and value its HDFC Life stake at Rs 37/share

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