EUR 120.00 For Business Accounts Only

MOSL: EXIDE: All-round beat powered by strong revenue growth

• Exide (EXID)’s robust 1QFY23 performance was driven by strong revenue growth in both automotive and industrial segments. We expect a sustained recovery led by OEM revival and aftermarket growth, with a continuous shift from the unorganized to the organized segments.
• We maintain our EPS estimates and BUY rating on the stock.

Operating leverage partially offsets RM cost pressure

• EXID’s 1QFY23 revenue/EBITDA/Adj. PAT grew 57%/48%/81% YoY to INR39b/INR3.9b/INR2.3b, respectively.
• Of the 57% YoY revenue growth in 1QFY23, price hikes contributed 8-10%.
• Gross margin contracted 360bp YoY (-10bp QoQ) to 27.9% (est. 31%) due to RM cost inflation in lead and other inputs.
• EBITDA margin too declined 60bp YoY (-30bp QoQ) to 9.9% (est. 10.4%) led by lower gross margin partly offset by operating leverage. EBITDA rose 48% YoY (11% QoQ) to INR3.9b (est. INR3.5b).
• Higher-than-estimated other income and lower interest led to adj. PAT growth of 80.5% YoY (flat QoQ) to ~INR2.3b (est. INR1.9b).

Highlights from the management interaction

• EXID posted strong volume growth across all segments in 1QFY23.
• Replacement market for automotive vertical was strong considering the low base of last year.
• Demand across industrial verticals was strong especially in the I-UPS, solar & power and projects segments. Strong demand was mainly supported by opening up of the economy post-Covid.
• FY23 capex would be similar to the depreciation for FY22.
• EXID has acquired an 80-acre land in Karnataka to manufacture Li-ion cell and the project is progressing as per desired timelines. The first phase will have a capacity of 3GWH, with a capex of INR20-30b, and will be completed over the next 27-30 months.

Valuation and view

• EXID would witness a lower impact of the lead price inflation because of its captive smelter. It should have a better mix, led by a higher aftermarket share.
• We prefer EXID as it offers superior risk-reward proposition considering its market leadership, technological alliances, backward integration, better mix, and strong balance sheet post the sale of the Insurance business to support its new Li-ion cell plant.
• Lithium batteries, however, pose a risk to the 2W/3W segments (~15% of revenue) and the Industrial segment (~26% of revenue).
• The stock trades at 14.2x/12.0x FY23E/FY24E standalone EPS. Valuing it at ~12x standalone Jun’24E EPS + INR34/share for a stake in HDFC Life Insurance (@ 40% Holdco discount), we arrive at our TP of ~INR200. We maintain our BUY rating on the stock.