Analyst Research Report Snapshot

Title:

Spark Capital: Exide Industries - 1QFY15 Outlook Review (Rating: Sell; TP: 145)

Price:

$35.00

Provider:

Spark Capital Advisors(India) Private Limited

Date:

24 Jul 2014

Pages:

5

Type:

AcrobatPDF

Companies referenced:

EXID.NS

Available for Immediate Download
Summary:

1QFY15 Outlook Review of Exide Industries (Rating: Sell; TP: 145) How does our one year outlook change? We retain our negative stance on Exide and believe that the strong top-line growth in 1QFY15 is on the back of seasonally strong demand for inverter batteries. Downgrade the stock to Sell with a target price of Rs. 145 based on 15x FY16 EPS and Rs. 12/share for Insurance business As seen historically, the first quarter witnesses the highest margin and top-line driven by high contribution from inverter batteries. However, over the last four years, Exide has witnessed a steady trend of declining yoy margins in the first quarter, this we believe is a result of increasing competition across all segments. Expect margin and top-line to taper off in 2Q & 3Q, before improving in 4Q driven by inverter segment (seasonal) Auto OEM to see revival in 2HFY15 driven by PVs and CVs. While higher OEM’s share would be negative for margin profile, we expect yoy improvement in margins on the back of significantly low base in FY14 Expect the year ahead to witness weakness in auto replacement segment (3% volume growth in 1QFY15) driven by the weak OEM sales in the last two to three years. We do not expect a marked improvement in auto replacement segment in the event of recovery in CVs, as our channel checks indicate that CV fleet operators prefer the unorganized segment Our industry interactions peg telecom battery industry size at ~Rs. 16bn, however based on Exide’s telecom segment revenue and 21% market share, market size would translate to only ~Rs. 3bn. Don’t expect telecom segment to materially improve the revenue/margin profile for Exide How does our 3 year Outlook change? Expect higher competition from Amara Raja to impact Exide across all segments. Moreover, we expect the power deficit across India to shrink substantially and result in a gradual decline in inverter battery market We remain wary of Exide’s efforts on improving quality and reducing costs by way of technological tie-ups as the company has had these tie-ups over the last few years with limited visible improvement Expect the unorganised auto replacement market to structurally shrink over the next three years benefitting organised players. Given Exide’s renewed efforts to improve its aftermarket network, this segment could potentially see strong growth resulting in better margin profile for Exide

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