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Above est.; strong revenue growth drives beat

Captive smelters dilute higher lead prices

* Exide (EXID)’s 4QFY21 performance was driven by all-round strong growth. We expect strength in the aftermarket to continue with the shift from the unorganized to the organized segment, whereas FY22 would see cyclical recovery in demand from the OEM segment.

* We largely maintain our earnings estimate. Maintain Buy, with TP of ~INR220/share (~15x FY23 EPS + INR25/share for the Insurance business).

Beat in EBITDA led by operating leverage, partially offset by high RM costs

* 4QFY21 revenues/EBITDA/PAT grew 43%/53%/45% YoY to INR29.4b/INR4.1b/INR2.4b. FY21 revenues grew 1.9% to INR100.4b, while EBITDA / adj. PAT declined -0.7%/10% to INR13.5b/INR7.6b.

* Strong revenue growth was driven by good growth in auto OEMs and the Replacement segment as well as the Industrial segment (led by UPS).

* The gross margin contracted 160bp QoQ (-390bp YoY) to 34.3% (v/s est. 35.3%) due to the lag impact of RM cost inflation in plastics and an adverse mix (OEM-led).

* EBITDA margins grew 90bp YoY (-40bp QoQ) to 14% (v/s est. 13.7%), benefitting from operating leverage. EBITDA grew 52.6% YoY (+2.4% QoQ) to INR4.1b (v/s est. INR3.7b).

* Adj. PAT grew 45% YoY (flat QoQ) to ~INR2.4b (v/s est. ~INR2.1b).

* It announced dividend of INR2/share.

Highlights from the press release

* Revenue growth was attributable to volume improvement in both the Automotive and Industrial divisions. Aftermarket demand for automotive and UPS batteries was strong.

* In 4Q, demand from OEMs and other institutional customers improved.

* The company is focusing on sales transformation and various cost control measures as core strategies to boost the bottom line.

* Mr Subir Chakraborty would assume the MD & CEO position from May’21 for three years. He has been Deputy MD of the company since May’19. Mr Gautam Chatterjee (outgoing MD & CEO) has been appointed Whole-time Advisor to the board for three years starting May’21.

Valuation and view

* We largely maintain our earnings estimates. EXID would see lower impact from lead price inflation on account of its captive smelter. It should also have a better mix owing to a higher aftermarket share.

* We prefer EXID as it offers superior risk-reward considering its market leadership, technological alliances, backward integration, and better mix.

* There is a risk from lithium batteries in the 2W and 3W segments (~15% of revenues) as well as Industrial segment (~26% of revenues).

* The stock trades at 17.5x/13.6x FY22/FY23E S/A EPS. Maintain Buy, with TP of ~INR220 (~15x S/A Mar’23E EPS + INR25/share for the Life Insurance business).

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