MOSL: EXIDE INDUSTRIES (Buy)-Operating performance better than expected; PAT in-line

Exide Industries: Operating performance better than expected; PAT in-line

(EXID IN, Mkt Cap USD3.4b, CMP INR270, TP INR316, 17% Upside, Buy)

• Volume growth in Automotive, UPS, Inverter, Telecom, Solar and Infra segments drives revenue: Net sales grew 31.8% YoY (and 12.7% QoQ) to INR27.7b, driven by growth in Automotive, UPS, Inverter, Telecom, Solar and Infrastructure batteries. Our channel check suggests that the company has taken cumulative price increase of 1-1.5% during the quarter, which also aided revenue growth. Average spot lead price for 1QFY19 declined 1.4% QoQ (but increased 15% YoY) to INR160 per kg. In July 2018, lead prices declined 4.5% v/s 1QFY19 average (+4% YoY).
• Healthy operating performance drives PAT: Gross margin contracted 350bp YoY (and 120bp QoQ) to 33.6%, led by higher lead prices and likely lag in lead inflation pass-through. The management indicated that lead inflation coupled with adverse currency movement impacted margins in 1QFY19. Higher RM cost was offset by operating leverage benefits, as staff cost declined 100bp YoY (and 50bp QoQ) to 5.8%. Other expense too declined by 120bp YoY and QoQ to 13.6%. Consequently, EBITDA margin came in-line at 14.1% (our estimate: 14.3%) while EBITDA grew 20.6% YoY (and 15.6% QoQ) to INR3.9b (our estimate: INR3.7b). Other income declined 68% YoY (and 80% QoQ) to INR42m (our estimate: INR200m). This coupled with higher tax rate at 34.8% (our estimate: 32.5%) restricted adjusted PAT growth at 11.1% YoY (and 10.7% QoQ) to INR2.1b (in-line).