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Onboarding EV OEMs to expand margin
Exide Industries Limited (EIL) is the market leader in storage batteries in India, with a 60% market share. Its segment includes automotive & industrial batteries and it controls 86 percent of the 2W market

* Q4FY24 revenue grew by 13.2% YoY, driven by volume growth from most verticals. The automotive aftermarket, UPS, & solar segments continue to witness growth

*  The order book for lithium ion battery packs is in an incipient stage, with a ramp-up in sales expected during FY25 period. The first phase is expected to commence production by H2FY25.

*  EBITDA margin expanded by 251bps due to lower input costs and a price hike in the replacement market. We expect margins to improve due to the operating leverage benefits accrued from the new plant

*  Recently, EIL through its subsidiary signed a strategic MOU with Hyundai Motor Co, and Kia Corp. for development, Production and Supply of battery cells (LFP chemistry) for electric vehicle in India

*  EIL, is focusing on its new energy business to drive future growth. We value EIL on a SOTP basis where core business at 20x on FY26E EPS and Investment in subsidiaries at Rs143/share. Hence, we recommend Accumulate rating at CMP with a target price of Rs 520

Margin to remain resilient and to improve..

During Q4FY24, EIL achieved 13% revenue growth due to superior product mix and strong volume growth in the replacement market. Overall demand scenario is showing signs of pick up due to stability in the 2W volume pick up. We expect the margin to remain resilient at current level and improve to its historical level owing to cost optimization, operating leverage and better realisation from the lithium ion business. We expect the lead-acid business to coexist with EVs and other battery technologies in the future. The company's cost optimization initiatives through automation are ongoing, and future margins will depend on commodity price volatility. We expect the revenue to grow by 10% YoY in over FY24-26E factoring in raw material stabilization and diversified mix

Green field capex for lithium ion battery cell.

The plant is being conceptualized in two phases, Phase I and Phase II. So, in Phase I, it will have a 6-gigawatt hour of capacity and in Phase II, another 6-gigawatt hour of capacity. We expect the Phase I, SOP, (Start Of Production) sometime in 2024. The overall capex for this plant is Rs.6,000 crores, of which around Rs.4,000 crores will be spent on Phase I and the balance for Phase II. The plant would be used to set up multi-gigawatt Li-ion battery cell manufacturing facility for the new age electric mobility and stationary application business in India. The company reiterated that the first phase of Li-ion cell manufacturing to get fully functional by H2FY25.

Lithium ion expansion in the right direction.

The demand scenario for e-2/3Ws is likely to fair well both in the domestic and export markets with respect to significant growth in the sector. Currently the cells are imported from China and India is the process of localisation. EIL will benefit directly from the recent capex expansion and will have first mover advantage in cell manufacturing. Meanwhile, EIL is also in the process of meeting several potential customers for strategic corporation in the Indian EV market. Recently, EIL through its subsidiary signed a strategic MOU with Hyundai Motor Co, and Kia Corp. for development, Production and Supply of lithium ion phosphate cells (LFP chemistry) for their future electric vehicles in India. Exide has a long term technical partnership with SVOLT energy technology, a Chinese firm, for the lithium-ion cells project.

Valuations

The company will be able to maintain its cash position and fund the capex through internal accruals. We remain positive outlook on a medium to long term basis, owing to its concentration on the development of EV batteries, where larger pie of the companies depend on importing. We expect the Kia & Hyundai, collaboration is to ramp up the production of battery cells. We value EIL on a SOTP basis with core business at 20x on FY26E EPS and Investment in subsidiaries at Rs143/share. We recommend Accumulate rating at CMP with a target price of Rs 520.

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