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Subdued revenue growth: Exide Industries’ Q4FY23 performance was below our estimates as it revenue from operations came in at Rs 3,543 Cr increased by 3.7% YoY and 4% QoQ, however it ended the financial year on strong note as its revenue grew by 17.6% to Rs 14,592 Cr. It witnessed decent volumes as the demand scenario in the Auto industry was quite robust. Besides, its Industrial services segment benefitted from continued capex activities from Solar, Telecom and Industrial UPS sectors.

Higher operating expenses impact margins: The Gross Profit during the quarter came in at Rs 1,057 Cr up by 10.2% while it declined by 3.7% sequentially. The Gross margin reported at 29.8% improving by 176bps YoY whereas it declined by 238bps QoQ. There was a mixed trend in margins as the prices of key raw materials declined as compared to the same period a year ago however it increased sequentially. EBITDA came in at Rs 367 Cr, up by 4.9% while it declined by 8.3% QoQ. EBITDA margin saw a flattish growth of 12bps to 10.4% whereas it declined by 140bps. The high raw material prices coupled with increase in employee cost and operations related expenses which were up by 13% each as compared to the same period last year suppressed the overall margins growth.

Lithium Ion Battery Plant: The Company indicated that it has received the necessary approvals to setup the Lithium Ion Battery manufacturing plant which will be rolled out in 2 phase of which the 1st phase will be operational by FY25 with an investment of ~Rs 4,000 Cr while the 2nd phase will be operational by FY27 with an investment of ~Rs 2,000 Cr. Management expects to gain the first mover advantage towards in Li-Ion Batteries which will be completely manufactured in its new plant, besides we expect the new plant to reach 70-80% of utilization in 3 years post commercialization which will further boost the revenue

Valuations: Auto Industry is expected to be on the growth path in FY24 which will aid in volumes and revenue growth for the company as its major revenue is generated from the sale of automotive batteries and services. Besides, the Auto industry is gradually moving towards electrification of vehicles for which the company is under the process of setting up a new lithium Ion battery manufacturing plant to place itself as one of the leading suppliers to EV OEMs. Hence, our outlook on the company is positive and we expect its Revenue/EBIDTA/PAT to grow at a CAGR of 9.2%/16.2%/18% over FY23-25E. We maintain Buy on the stock with a target price of Rs. 229 valuing the company at 13x FY25E EPS and its HDFC Life stake at Rs 37/share.

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