MOSL: EXIDE INDUSTRIES (Buy)-Below est.-Benefit of mix more than offset by operating deleverage
EXIDE INDUSTRIES: Below est.; Benefit of mix more than offset by operating deleverage
(EXID IN, Mkt Cap USD2.2b, CMP INR187, TP INR232, 24% Upside, Buy)
- Weak Auto OEM and telecom segment hurts performance: 2QFY20 net sales declined ~4% YoY to ~INR26b (v/s est. ~INR28b) due to decline in demand from Auto OEMs and telecom segment. However, demand from auto replacement, UPS, solar and Infrastructure segment (except telecom) witnessed growth. 1HFY20 revenue/EBITDA/PAT grew -2%/7%/15%.
- Healthy operating performance drives margins: EBITDA increased ~10% YoY to ~INR3.7b (v/s est. ~INR4b). EBITDA margins improved ~180bp YoY (-60bp QoQ) to 14.1% (v/s est. 14.5%) with ~300bp YoY (-70bp QoQ) decline in RM cost. On QoQ basis, benefits of an improved mix (lower OEM sales) and lower lead prices (lag impact) were more than diluted by the negative operating leverage. PBT declined ~25% YoY to INR2.8b (v/s est. INR3.3b). Lower tax boosted adj. PAT to INR2.4b (v/s est. INR2.7b), a growth of ~24% YoY. FCF for the company improved to ~INR5.4b in 1HFY20 (v/s INR2.6b in 1HFY19).
Average lead prices in 2QFY20 strengthened ~9% QoQ (current spot is lower by ~5% v/s 2Q avg.), impact of which should be felt with a lag in 3QFY20. Company is focused on cost control and is upgrading technology to improve profitability.
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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