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Valuation and View – Valuations factors in decent LIB utilization

EXID’s 1QFY25 results were weak with EBITDA/Adj.PAT miss of ~8%-16% to our and consensus estimates. This was led by lower-than-expected gross margins at 30.7% (est 31.7%, +240bp/-230bp YoY/QoQ), primarily led by unfavorable product mix. However, lead prices have increased by ~5%/4% YoY/QoQ in 1QFY25, the co has taken price increase in few segments which should fully reflect from 2QFY25E. The demand outlook is positive for the base business for auto/industrial vertical, as current volume growth is expected to sustain over near-mid term. EXID did indicated, 1) market share gains in the domestic market, 2) increased distribution to +115k in FY24 (vs +95k in FY23), 3) double digit growth in industrial vertical and positive response to new product launches in exports were the factors which led growth in FY24.

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, with sharp recent valuations expansion and limited upside, we maintain ADD as it trades at 34x/27.9x FY25/26 S/A EPS (v/s 10-year LPA of ~20x). We cut FY25/26 EPS by 4%/0.5% to factor in for recent lead inflation and build Revenue/EBITDA/PAT CAGR of 9.4%/16.3%/24% over FY24-26E. We value EXID at Rs602/share as we value LAB at Rs496 (24x Mar-26 EPS + 50% holdco discount to HDFC Life stake at Rs30) and value of LIB business at Rs106/share.

Result Highlight – Unfavorable product mix dent gross margins

*S/A revenues grew 5.9% YoY (+7.6% QoQ) at ~Rs43.1b (est ~Rs43b, cons ~Rs44.3b). This was largely led by equal volume growth in auto/industrial. Within auto, growth is similar for OE/replacement while exports grew faster. Within industrial sector, verticals such as UPS, Solar, railways saw healthy volume uptick.

* Gross margins expanded 240bp YoY (-230bp QoQ) at 30.7% (est 31.7%). This should be largely led by unfavorable product mix as price hike in few segments to fully reflect from 2QFY25E. Lead prices grew QoQ by average 4.9% (+3.9% YoY) to Rs180.8/k in 1QFY25. Consequently, EBITDA grew 14.4% YoY (-4.2% QoQ) at ~Rs4.9b (est ~Rs5.4b, cons ~Rs5.9) with margins expanded 90bp YoY (-140bp QoQ) at 11.5% (est 12.5%, cons 13.3%). Led by steady EBITDA growth, Adj.PAT grew 15.6% YoY (-1.5% QoQ) at Rs2.8b (est Rs3.1b, cons ~Rs3.3b).

* Key highlights from PR - Li-ion project – Co invested further Rs2b in EESL with overall investments now stands at ~Rs25.8b. Customer onboarding across auto and non-auto segment underway..

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