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EXID’s 4QFY23 results was a weak as EBITDA/Adj.PAT missed our/street estimates by 12-18%. This was led by weak gross margins at 29.8% (-240bp QoQ, est 31.3%) impacting EBITDA margins, which came in at 10.4% (-140bp QoQ, est 11.9%). The management indicated ~2% margins impact as RM basket increased ~4% QoQ. However, going ahead led by digital, cost control initiatives and RM decline, margins are expected to expand. Moderate growth in revenues at 4% YoY and QoQ was explained by higher growth in auto OEM/ industrial while relatively weak volumes in replacement and exports segment. We believe with recent stability in lead price and price hikes to drive margins in 1QFY24E.

Over the mid-long term, EXID’s speedy ramp-up of as lithium-ion battery cell manufacturing, would be closely watched as it has received all the approvals while senior management hiring is complete and have spent Rs7.15b in the project so-far. While EXID’s LAB business is expected to grow 7-8% CAGR over 3-5 years, significant ramp-up in EV battery manufacturing and order wins to act as key re-rating trigger for the stock. EXID is trading at 13.2x/11x FY24/25 S/A EPS (v/s 10-year LPA of ~20.4x). We estimate Revenue/EBITDA/PAT CAGR of 9%/22%/27% over FY23-25E as we raise our FY24/25 EPS by ~6% to factor in anticipated gains on cost control initiatives. Maintain BUY with TP of Rs235 (12x Mar-25 EPS + 50% holdco discount to HDFC Life stake at Rs29).

Result Highlight – Performance continues to be sub-par

* Revenues grew 3.9% YoY (+4% QoQ) at Rs35.4b (est Rs36.4b, cons Rs36.1b). Auto vertical growth was led by OEM segment as replacement volumes were still muted. Industrial segment too witnessed growth in UPS, Solar, Traction, Telecom and Power led by increase in capex and economic activity.

* Gross margins contracted 240bp QoQ (+190bp YoY, est 31.3%), impacted by weak product mix and RM (~2% impact as RM increased ~4% QoQ). Consequently, EBITDA declined 8.3% QoQ (+5.2% YoY) at Rs3.8b (est Rs4.3b, cons Rs4.2b) with margins contracted 140bp QoQ (+10bp YoY) at 10.4% (est 11.9%, cons 11.6%).

* Led by weak op. performance, Adj. PAT declined 7% QoQ (+3.4% YoY) at Rs2.1b (est Rs2.5b, cons Rs2.4b). ? FY23 dividend at Rs4/share (incl Rs/shr interim div) v/s Rs2/share in FY22.

* FY23 performance – Revenues/EBITDA/Adj. PAT grew 17.6%/12.1%/7.5% to Rs145.9b/Rs15.7b/Rs9b.

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