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Maintain ADD; LIB ramp-up a key ahead

Valuation and View – Valuations expansion limited upside

EXID’s 2QFY25 results were weak with EBITDA/Adj.PAT miss of ~13%/8% to our and consensus. This was led by lower-than-expected revenues which grew ~4% YoY (-1.1% QoQ) while gross margins at 31.5% were in-line (+40bp/+90bp YoY/QoQ), primarily led favorable product mix, selective price hikes. Further, lead prices have declined by ~5.6%/5% YoY/QoQ in 2QFY25, which should fully reflect from 3QFY25E. Co indicated double digit revenue growth in 2W/PV replacement while excess channel inventory impacted Auto OEM vertical. Within industrial, UPS/Solar saw strong demand while home-UPS segment were soft due to early onset of monsoon. Exports remained healthy.

Over the mid-long term, EXID’s speedy ramp-up of lithium-ion battery (LIB) cell manufacturing and new order wins (in addition to MOU signed with Hyundai group), would be closely watched as the plant is expected to see production ramp-up over FY26E. While EXID’s LAB business is expected to grow 7-8% CAGR over 3-5 years, the recent valuation expansion do factor in decent capacity utilization of LIB vertical. Consequently, despite sharp recent valuations correction, we maintain the stock to ADD as it trades at 24.3x/21.7x FY26/27 S/A EPS (v/s 10-year LPA of ~20x). We cut FY25/26 EPS by ~7%/5.8% to factor in for weak revenues and higher other expenses. We build revenue/EBITDA/Adj.PAT CAGR of 8%/12.1%/18.2% over FY24-27E. We value EXID at Rs521/share as we value LAB at Rs425 (19x Mar-27 EPS + 50% holdco discount to HDFC Life stake at Rs36) and value of LIB business at Rs96/share.

Result Highlight – Weak revenues dented EBITDA

* S/A revenues grew 3.9% YoY (-1.1% QoQ) at ~Rs42.7b (est ~Rs45.2b). Co indicated double digit revenue growth in 2W/PV replacement while excess channel inventory impacted Auto OEM volumes. Within industrial, UPS/Solar saw strong demand while home-UPS segment were soft due to early onset of monsoon. Exports remained healthy.

* Gross margins expanded 40bp YoY (+90bp QoQ) at 31.5% (est 31.5%). This should be largely led by favorable product mix as well as benign lead prices which declined QoQ by average 5.6% (-5% YoY) to Rs170.6/kg in 2QFY25. This was partially offset by +10.5% YoY (+5.5% QoQ) in other exp at Rs5.98b. Consequently, EBITDA were flat YoY (-2.2% QoQ) at ~Rs4.8b (est ~Rs5.6b) with margins contracted 50bp YoY (-20bp QoQ) at 11.3% (est 12.4%). Weak operating performance was partially offset by higher other income at Rs528m (est Rs230m, +35% YoY) led to Adj.PAT grew 4% YoY (+6.5% QoQ) at Rs2.97b (est ~Rs3.2b).

* Key highlights from PR - Li-ion project – Co invested further ~Rs2.5b in 2Q and ~Rs1b in Oct’24, as equity in EESL with overall investments now stands at ~Rs28.5b. Customer onboarding across auto and non-auto segment underway.

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