Motilal Oswal is bullish on Exide Industries and has recommended buy rating on the stock with a target of Rs 197 in its October 21, 2014 research report.
"Exide Industries, net sales grew 23.3% YoY to INR17.6b (our estimate: INR16.9b). While sales to OEMs were flat YoY, four-wheeler batteries grew 21% YoY, led by 17% growth in replacement segment. Motorcycle batteries grew 12% YoY and industrial batteries grew 37% YoY. Margins shrank 340bp QoQ to 11.8% (our estimate: 14.2%). High margin inverter sales declined 30% QoQ (seasonality). Raw material expenditure grew 80bp QoQ to 67.1% (our estimate: 65.8%) and other expenditure grew 170bp QoQ to 15% (our estimate: 14%). Higher spends on technology and quality improvement also impacted margins."
"EXID has regained lost share in the four-wheeler replacement segment and will now focus on margins. The management expects EBITDA margins of 16-17% over the next 18-24 months. Benefits of cost reduction measures would be seen from 4QFY15. Major source of savings would be raw material cost (250-300bp savings on value engineering and technology upgradation). The company will be taking a 5% price hike on inverters effective from November. It invested INR1.5b in Exide Life during the quarter to fund its growth. The management does not expect any further material investment in FY15 and guided capex of INR5.5b over FY14-16."
"We cut our EPS estimates for FY15/FY16 by 6.9%/3.4% to INR7.1/INR9.5 to reflect weaker 2QFY15 performance. The stock trades at 21.4x/16x FY15E/16E EPS of INR7.1/9.5 (18.6x/13.9x adjusted for insurance valuation of INR20/share). Maintain Buy with a target price of INR197," says Motilal Oswal research report.
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