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MOSL: EXIDE (Buy)-Below est.; Weaker revenues offset RM cost benefits

Exide: Below est.; Weaker revenues offset RM cost benefits

(EXID IN, Mkt Cap USD2.2b, CMP INR188, TP INR222, 18% Upside, Buy)

 

Weak auto OEM/telecom sector hurts performance

• EXID’s 3QFY20 operating performance was weak as benefit of lead prices was more than offset by the operating deleverage. As expected, the aftermarket continued to witness strong growth, ratifying our view of value migration from the unorganized to the organized sector.
• We downgrade our EPS estimates by ~4% for FY21, but maintain our Buy rating with TP of ~INR222 (~18x Dec’22E S/A EPS). 

Op. deleverage dilutes RM benefits; Other income/lower tax drive in-line PAT

• 3QFY20 revenues/EBITDA/PAT grew -3%/2%/38% YoY to INR24.1b/ INR3.2b/INR2.1b. 9MFY20 revenues/EBITDA/PAT grew ~2%/6%/22%.
• Revenue growth was driven by strong volume growth in the auto aftermarket business, UPS batteries and export market. However, weakness in OEM business, telecom and infrastructure batteries along with impact of lower lead prices resulted in ~3% revenue decline.
• Gross margins were above estimates and expanded 110bp YoY (flat QoQ) to 36.2% due to inventory changes and better mix.
• EBITDA margins expanded 80bp YoY (-80bp QoQ) to 13.3% (v/s est. 13.7%) as benefit of lower RM costs were offset by operating deleverage.
• EBITDA grew ~2% YoY (-13% QoQ) to ~INR3.2b (v/s est. ~INR3.5b). Higher other income and lower tax boosted YoY PAT growth by ~38% to ~INR2.1b (v/s est. ~INR2b).