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MOSL: EXIDE (Neutral) - Low utilization and high marketing spends impacts performance - cut EPS by 12-17%




Motilal Oswal Securities Ltd.


16 Jan 2014





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Exide Industries (EXID IN, Mkt Cap USD1.4b, CMP INR105, Neutral) Jinesh K Gandhi (Jinesh@MotilalOswal.com) / Chirag Jain (Chirag.Jain@MotilalOswal.com) Low utilization and high marketing spends impact performance Exide’s (EXID) 3QFY14 performance was sharply below our expectation, led by weak demand across segments and consequent low capacity utilization. This coupled with higher marketing spends impacted operating performance significantly. Result highlights: Net sales de-grew 11% to INR13b (v/s est. INR14.6b) driven by weak demand across product categories. Auto OEMs declined 8%, Industrial by 17%, Inverters by 37%, while replacement segment was largely flat. EBITDA margin stood at 10.9% (v/s est. 14%). Sequentially, margin declined by 310bp, led by a sharp increase in other expenditure to 17.1% (260bp QoQ), on higher marketing spends and low capacity utilization. PAT declined 26% YoY to INR775m (on a low base) on weak operational performance. Earnings call highlights: 1) inverters (22-25% of FY13 revenue) declined sharply on unfavorable weather and improvement in power availability. Structurally, the inverter segment is unlikely to grow over the long term, 2) replacement demand expected to remain muted over the near term, reflecting weak OEM demand during FY12-14, 3) average price cut of 8-10% effective Nov-13 post the 5-6% hike in Sept-13, 4) capex guidance of INR2-2.8b for FY14 and 5) continues to focus on cost control and technology upgradation initiatives. Downgrade earnings, maintain Neutral: We cut FY14E/15E/16E EPS by 12.7%/17%/16.4% to factor the dismal 3Q performance, weak demand outlook (for inverters, replacement) and limited visibility on margin improvement. The stock trades at 18.4x/16.3x/14.3x our current FY14E/15E/16E EPS of INR5.7/6.4/7.3 respectively. Maintain Neutral with a target price of INR110 (13x FY16E EPS and INR15 for the insurance valuation).

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