MOSL: EXIDE INDUSTRIES (Buy)-Higher RM cost pushes EBITDA margin to nine-quarter low
​Exide Industries: Higher RM cost pushes EBITDA margin to nine-quarter low
(EXID IN, Mkt Cap USD3.1b, CMP INR236, TP INR274, 16% Upside, Buy)
- Volume growth across segments and price hikes drive revenues: Net sales grew ~11.3% YoY to INR19.6b (in line with est. of INR19.9), driven by growth in auto OEM and replacement market (both 2W and 4W), and UPS. Our channel check suggests that EXID has taken cumulative price hikes of ~10% since November 2016 in the replacement segment to offset the impact of lead price increase. In FY17, net sales grew 11.3%, driven by consistent growth in the replacement segment and a recovery in the OEM segment.
- EBITDA margin shrunk 180bp YoY (~10bp QoQ) to 13.3% (est. of 15.1%), largely due to higher RM cost (+180bp YoY). Lead prices increased ~30% YoY (~15% QoQ), which were largely passed through. We believe RM cost inflation is due to an adverse mix (OEM v/s replacement) and faster growth in the low-priced ‘Mileage’ brand. Higher other income and lower tax restricted PAT decline to ~6% (to ~INR1.65b v/s est. of ~INR1.85b). In FY17, EBITDA margin contracted 60bp to 14.3% and PAT grew ~11% to ~INR6.9b.
- EXID declared a final dividend of ~INR0.8/share, implying total dividend of ~INR2.4/share (v/s ~INR2.4/share in FY16) and payout of ~29.4% in FY17.
- Management indicated its continued focus on technology upgradation and cost control to improve margins.
Exide Industries is engaged in the design, manufacture and sale of automotive batteries, industrial batteries and submarine batteries. Co. supplies batteries to almost all the car and two-wheeler manufacturers in the country. Co. designs and manufactures its industrial batteries in a range from 2.5 Ah to 20,600 Ah in conventional flooded and Valve Regulated Lead Acid (VRLA) design. Industrial batteries are of three types, Conventional lead acid batteries, Valve regulated lead acid batteries and Nickel-Cadmium batteries. Co. manufactures high-end submarine batteries (Type 1, 2 & 3). Two to three submarine batteries are manufactured a year to meet the country's defence requirements.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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