3QFY2010 Result Update I Automobile

January 11, 2010

Exide Industries ACCUMULATE

CMP Rs122
Performance Highlights Target Price Rs130

Net Sales grow marginally; Net Profit up by 132.3%: Exide Industries, India’s Investment Period 15 Months
largest Auto Battery manufacturer, clocked a 15.9% yoy growth for 3QFY2010
in its Net Sales to Rs912.9cr (Rs787.7cr), which was marginally lower than our Stock Info
estimate of Rs961cr, on the back of a 13% yoy growth in Total Volumes. The Sector Auto Ancillary
company’s OE and Replacement Sales, which had started improving in
1HFY2010, continued the same during 3QFY2010. The improving growth in Market Cap (Rs cr) 9,732
Replacement sales aided the company’s Auto Battery Segment in clocking
Beta 0.6
better growth during the quarter. This was also supported by the robust
growth registered by the Industrial Battery Segment during the quarter. The 52 WK High / Low 125 / 35
company’s Bottom-line growth at 132.3% yoy to Rs130.5cr (Rs56.2cr) also
Avg Daily Valume 379,986
came in marginally above our estimate of Rs121.8cr.
Face Value (Rs) 1
Substantial improvement in Raw Material Costs pumps up Margins: During
BSE Sensex 17,527
3QFY2010, Exide witnessed a 949bp yoy increase in its EBITDA Margins,
owing to a 942bp yoy fall in Raw Material costs, which accounted for around Nifty 5,249
56.6% of Sales (66.1% in 3QFY2009). During the quarter, average lead
prices have grown by 19.1% qoq to $2,313/tonne, while yoy average lead Reuters Code EXID.BO
prices have substantially spurted by 82.8% (from $1,265/tonne levels in Bloomberg Code EXID@IN
3QFY2009). This was also aided by a favourable Rupee-Dollar movement
during the quarter. Exide registered a Net Exchange gain of Rs11.6cr (as Shareholding Pattern (%)
against a Net Exchange loss of Rs18.4cr in 3QFY2009) during the quarter.
Promoters 48.9
However, the 45bp jump in Other expenditure and Staff costs (combined)
marginally restricted OPM growth, while Operating Profit during the quarter MF/Banks/Indian FLs 31.2
increased by a robust 92% yoy to Rs218.7cr (Rs113.9cr).
FII/NRIs/OCBs 8.9
Bottom-line grows by 132.3%: The company reported a 132.3% yoy increase Indian Public 11.0
in its Net Profit to Rs130.5cr (Rs56.2cr) during the quarter. Interest costs fell by
76.5% yoy to Rs2.9cr (Rs12.4cr); however, Depreciation increased by 11.7% Abs. 3m 1yr 3yr
yoy to Rs18.9cr (Rs16.9cr). Overall, Exide’s Net Profit Margins improved by a Sensex (%) 5.3 86.3 28.6
healthy 716bp yoy, on the back of a healthy growth in the Top-line, a
reduction in raw material costs, a reduction in leveraging costs and a Exide (%) 21.1 170.0 210.6
marginally lower Tax provisioning for the quarter.

Key Financials
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 3,393 3,703 4,469 5,049
% chg 19.3 9.1 20.7 13.0
Net Profits 284 518 563 627
% chg 13.6 82.3 8.6 11.4
OPM (%) 16.1 23.6 21.1 20.7
EPS (Rs) 3.6 6.5 7.0 7.8
P/E (x) 34.3 18.8 17.3 15.6 Vaishali Jajoo
P/BV (x) 8.0 5.9 4.7 3.8 Tel: 022 – 4040 3800 Ext: 344
E-mail: [email protected]
RoE (%) 23.4 31.6 26.9 24.1
RoCE (%) 30.5 40.0 35.7 32.7
Shreya Gaunekar
EV/Sales (x) 3.0 2.7 2.2 1.9
Tel: 022 – 4040 3800 Ext: 331
EV/EBITDA (x) 18.3 11.3 10.4 9.4 E-mail: [email protected]
Source: Company, Angel Research

1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
 Exide Industries I 3QFY2010 Result Update

Key Business Highlights

Industry Outlook: Battery demand is expected to remain robust, on the back of a

strong growth in the Auto Battery Replacement market. A better performance by the
Industrial Segment, especially in the Railway and Power Sectors, also works in favour
of the company. For 3QFY2010, the demand growth in the Industrial segment was
around 10-11% and the Automotive segment recorded around a 14-15% growth,
while Telecom de-grew by around 47%. Going ahead, we expect the demand for
Auto Batteries (contributes almost 65% of Exide’s Profit) to grow at 9-10% per
annum, while the Industrial Battery Segment is expected to register a higher, 12-13%
growth per annum over the next couple of years.

Lead smelter acquisitions: During FY2009, Exide acquired a 51% shareholding in

Leadage Alloys India, a lead smelter, at a total investment of Rs33.4cr, to augment
the availability of indigenous raw materials. We believe that this will facilitate the
company in recycling scrap batteries collected under the Batteries (Management and
Handling) Rules, 2001. The acquisition came on the heels of its buy-out of another
unlisted lead-smelting company, Tandon Metals, in October 2007 for Rs25cr.

Since global lead prices have been extremely volatile, the two acquisitions are
expected to help Exide increase its use of recycled lead and lead alloys for making
storage batteries. This would, in turn, reduce the company's dependence on
imported lead, which is the principal raw material for storage batteries. Exide may
expand its lead smelting capacity during the year to meet its increased lead
requirement from captive sources. A proposal in this regard may be placed before
the Board. The company’s two smelters contributed 28% of its lead and lead alloy
requirements during FY2009.

The strong earnings growth during 3QFY2009 can largely be attributed to the
substantial increase in EBITDA margins to almost 24%, which were driven by an
increase in the contribution of the in-house lead smelter to the total consumption of
lead (almost 40%). Overall, the Lead Smelter acquisition has reduced the company’s
dependence upon imports and on purchase of pure lead from the market, due to
which the management expects the EBITDA margins to be in the range of 20-25%,
going ahead.

Capex to meet long-term demand and to improve the company’s market reach:
Exide plans to double its Industrial Battery capacity and increase its Automobile
Battery capacity by 50%, at an investment of Rs450cr over FY2008-10E. It has been
operating at over 90% capacity utilisation since the last five years and has steadily
improved its Fixed Asset Turnover ratio from 1.2x in FY2002 to 2.8x in FY2009.

Outlook and Valuation

We estimate the company to clock around a 12% CAGR in volumes over

FY2009-11E. However, the Top-line and Bottom-line are estimated to post a CAGR
of 14.8% and 40.7% respectively, in the mentioned period. The revenue growth
appears muted due to a pass-through of lower lead prices. We envisage prices of its
main raw materials to decline by around 13-15% in FY2010E, and to increase by
around 15% in FY2011E, which will gradually be passed on to customers. We
believe that Revenue growth will largely be driven by an increasing contribution from
the high-Margin Industrial Segment and the Replacement market in the Automobile
Sector. Exide’s Operating Cost to Sales ratio is expected to decline, with the
company targeting to achieve higher operational efficiencies through its R&D efforts
and the increasing usage of recycled lead in batteries. Moreover, Exide's strong
brand image has been creating value while continuously improving its RoCE, due to
better Asset Turnover on incremental capacities.

January 11, 2010 2

 Exide Industries I 3QFY2010 Result Update

We believe that on the back of its superior pricing power and declining input costs,
Exide will continue to achieve higher Return Ratios and Margins. We believe that a
strong Balance Sheet and lower Debt-Equity ratio will aid the company in sustaining
strong cash flows and to meet the challenges of the industry, going forward.

We upgrade our EPS estimates for the company to Rs7 (Rs6.8 earlier) and to Rs7.8
(Rs7.4 earlier) for FY2011E and FY2012E, respectively. At the CMP, the stock is
quoting at 17.3x FY2011E and 15.6x FY2012E Earnings. We have valued its stake
in ING Vysya Life Insurance at Rs12/share on the FY2012E New Business Arrived
Profit (NBAP). At the adjusted valuations of 14x FY2012E Earnings for its core
business, the stock is available at reasonable valuations. Hence, we maintain an
Accumulate on the stock, with a revised Target Price of Rs130 (Rs124).

Exhibit 1: 3QFY2010 Financials

Y/E March (Rs cr) 3QFY10 3QFY09 % Chg 9MFY10 9MFY09 % Chg
Net Sales 912.9 787.7 15.9 2,767.1 2,594.7 6.6
Consumption of RM 516.9 520.4 (0.7) 1,560.0 1,729.9 (9.8)
(% of Sales) 56.6 66.1 56.4 66.7
Staff Costs 55.2 45.6 21.2 168.0 127.3 32.0
(% of Sales) 6.0 5.8 6.1 4.9
Purchase of Finished goods 0.6 4.4 (85.5) 4.6 10.3 (55.0)
(% of Sales) 0.1 0.6 0.2 0.4
Other Expenses 121.4 103.4 17.4 359.1 315.4 13.9
(% of Sales) 13.3 13.1 13.0 12.2
Total Expenditure 694.2 673.8 3.0 2,091.8 2,182.9 (4.2)
Operating Profit 218.7 113.9 92.0 675.3 411.8 64.0
OPM 24.0 14.5 24.4 15.9
Interest 2.9 12.4 (76.5) 7.7 36.5 (78.9)
Depreciation 18.9 16.9 11.7 160.0 160.0 -
Other Income 1.0 0.9 8.5 3.1 3.7 (17.1)
PBT (excl. Extr. Items) 198.0 85.7 131.2 610.8 328.9 85.7
Extr. Income/(Expense) - - - -
PBT (incl. Extr. Items) 198.0 85.7 131.2 610.8 328.9 85.7
(% of Sales) 21.7 10.9 22.1 12.7
Provision for Taxation 67.5 29.5 129.0 208.3 112.7 84.7
(% of PBT) 34.1 34.4 34.1 34.3
Reported PAT 130.5 56.2 132.3 402.6 216.2 86.2
PATM 14.3 7.1 14.5 8.3
Equity shares (cr) 80.0 80.0 80.0 80.0
EPS (Rs) 1.6 0.7 132.3 5.0 2.7 86.2
Source: Company, Angel Research

January 11, 2010 3

 Exide Industries I 3QFY2010 Result Update

Research Team Tel: 4040 3800 E-mail: [email protected] Website: www.angeltrade.com

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Disclosure of Interest Statement Exide Industries

1. Analyst ownership of the stock No
2. Angel Group ownership of the stock No
3. Broking relationship with company covered No

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January 11, 2010 4