MOSL: EXIDE INDUSTRIES (Buy)-Below est.-Adverse currency, higher other expense dents EBITDA

Exide Industries: Below est.; Adverse currency, higher other expense dents EBITDA  

(EXID IN, Mkt Cap USD2.9b, CMP INR251, TP INR304, 21% Upside, Buy)

• Volume growth in automotive, inverter and industrial segment drives revenues: Net sales grew by 15.3% YoY (-1.9% QoQ) at INR27.2b driven by growth in automotive, inverter and industrial batteries. Further cumulative price increase of ~3-3.5% in the automotive segment has also aided revenues. Average spot lead price for 2QFY19 declined 8% QoQ (-2% YoY) to INR147 per kg. In Oct’18, lead prices declined further by 0.5% (v/s 2QFY19).
• Adverse currency, higher other expense dents margins: Gross margins shrunk 50bp QoQ (+50bp YoY) to 33.1% led by adverse currency depreciation impact on imported lead and likely lag in lead inflation pass through. Management indicated higher fuel costs coupled with adverse currency movement impacted margins in 2QFY19. On a YoY basis, the benefit of lower RM (-50bp YoY) and staff cost (-20bp) was offset by higher other expense (+100bp YoY/ +120bp QoQ) to 14.8%. Consequently EBITDA margins came below estimate at 12.2% (est. 14.2%). EBITDA grew 12.4% YoY (-15% QoQ) to INR3.3b (est. INR3.9b). Other income declined by 16% YoY (+177% QoQ) to INR116m (est INR150m). EXID reported exceptional gain of INR1.08b related to sale of property. Tax rate came in lower at 28.3% (est. 33%) helping adjusted PAT growth at 17% YoY (-9% QoQ) to INR1.9b (est. INR2.2b). For 1HFY19, revenue/EBITDA/PAT grew 23.1%/16.7%/13.8% resulting in expected residual growth of 17%/20.4%/16.6% in 2HFY19.