Hold Exide Industries, target price Rs 170: ICICI Direct

ICICI Direct has given a hold rating to Exide Industries with a 12-month target price of Rs 170. The share price moved down by -0.38 per cent from its previous close of Rs 158.70. The last traded stock price is Rs 158.10.

According to the brokerage, Exide Industries reported a soft Q4FY20 performance. Net standalone revenues were at Rs 2,055 crore (down 20.9 per cent year on year). The company attributed revenue decline to continued challenges being faced by the OEM channel. Reported standalone EBITDA margins were at 13.1 per cent (down 11 bps quarter on quarter), with gains from 201 bps gross margin expansion being eaten away by negative operating leverage. Consequent PAT was at Rs 168 crore (down 20.3 per cent year on year), supported to an extent by lower tax outgo (tax rate at 11.4 per cent).

Investment Rationale

EIL’s industrial battery sales are expected to be largely steady over FY20P-22E. Apart from relative stability imparted on the topline front by healthy replacement demand, resulting improvement in product mix is also seen supporting margins on account of higher pricing power for manufacturers (B2C).

The brokerage has built in -1.2 per cent sales CAGR in FY20P-22E with margins seen rising to 15.3 per cent by FY22E. Technological edge is a differentiator. Exide has been proactive on the lithium ion front, with its 2018 75:25 JV with Switzerland’s Lechanche SA -- Nexcharge -- giving it a first mover advantage in India. The JV’s plant in Gujarat has envisaged assembly of modules and packs initially followed by lithium ion cell production by mid-2020 (3 million cells per annum, i.e. ~1.5 GWh capacity by FY21E). Exide has also announced entry into production of electric rickshaws (forward integration move targeting about 10 per cent market share and Rs 120 crore in revenues). According to the brokerage, these moves place Exide at the forefront of competition and act as a key differentiator.

The brokerage maintains a constructive view on EIL for its technological edge, debt free balance sheet and strong cash generation track record but feels the stock is fairly valued at the CMP. Hence, it has downgraded the stock to hold, valuing it at Rs 170 on a SOTP basis (battery business at Rs 125 at 12.9 times P/E on FY22E EPS of Rs 9.7; Rs 45 for insurance business & smelting operations).

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 3474.68 crore, down -2.22 per cent from last quarter sales of Rs 3553.64 crore and down -18.46 per cent from last year same quarter sales of Rs 4261.53 crore. The company reported net profit after tax of Rs 235.76 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 45.99 per cent stake in the company as of March 31, 2020, while FIIs held 9.41 per cent, DIIs 23.48 per cent and public and other 21.12 per cent.