IGI Logo

RM inflation overshadow acute cost control

Valuation and View – Near-term margins headwinds to continue

EXID’s 4QFY22 results were mixed where revenue outperformance continued with ~7% QoQ growth (v/s flat growth expected). However, margins contracted steeply QoQ by ~140bp to 10.2% (est 10.6%, cons 11.6%), led by RM inflation (gross margin contracted ~300bp QoQ to lowest at 28%). Sharp RM inflation in the recent pat has overshadowed the tight cost control with aggregate other operating expense has declined ~170bp/~80bp in 4Q/3Q. We believe RM cost inflation to continue impact gross margins as Lead prices continues to rise ~3.5% so-far in 1QFY23 (v/s ~22% spike in FY22).

Over the midterm, EXID’s successful execution on EV battery manufacturing foray (such as 1) lithium-ion battery cell manufacturing through collaboration with SVOLT and 2) Nexcharge -fully automated lithium-ion battery packs and modules manufacturing plant) would act as key growth drivers for future technologies. While EXID’s LAB business is expected to grow 7‐8% CAGR over 3‐5 years, significant EV battery foray is key trigger for the stock. EXID is trading at 13.6/10.5x of FY23/24 EPS (v/s 10‐year LPA of 21.6x). We estimate Revenue/EBITDA/PAT CAGR of 10%/18.7%/19.3% over FY22‐24E and tweak FY22/23 estimates to factor in for higher RM. Our current estimates do not factor in any significant capex on foray in to EV battery manufacturing. Maintain BUY with TP of Rs189 (11x Mar-24 EPS + 50% holdco discount to HDFC Life stake).

Result Highlights – Gross margins all time low at ~28% (-300bp QoQ)

Revenues grew 6.6% QoQ/ (+16% YoY) at Rs34.1b (our/cons est at Rs31.1b/Rs32.4b). This was led by, i) double-digit growth in auto segment, ii) continued strong demand for industrial UPS and iii) healthy exports in both auto/industrial.

Led by RM inflation, gross margins contracted 300bp QoQ at 28% (all time low, est at 30.3%). This was offset by op leverage resulting in EBITDA beat at Rs3.5b (-6% QoQ, our/cons est at Rs3.3b/Rs3.8b). However, margins were below est at 10.2% (-140bp QoQ, our/cons est at 10.6%/11.6%).

EXID reported exceptional gains of Rs46.9b related to HDFC Life stake sale.

Adj PAT at Rs2b (-1.5% QoQ, est at Rs1.7b) came better led by higher other income at Rs392m (est at Rs155m).

Exide though its subsidiary, Exide Energy Solutions will be setting up green field multi GW lithium-ion battery cell manufacturing facility with capability to manufacture multiple advance chemistry formats.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer