Buy This Midcap Stock For 26% Return, Rs. 20-30b Capex Guided, PAT Up 80% YoY: Motilal Oswal

Top brokerage firm Motilal Oswal suggests investors to buy the stocks of Exide. The company has recorded a PAT growth of 80.5% YoY (but flat QoQ) to ~Rs. 2.3b. Exide's robust 1QFY23 performance was driven by strong revenue growth in both automotive and industrial segments. Exide 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 Rs. 20-30b, and will be completed over the next 27-30 months.

Stock To Buy: Target Price & Financial Result

The Current Market Price (CMP) of Exide is Rs. 158. Motilal Oswal has estimated a Target Price for the stock at Rs. 200. This stock has the potential to give a 26% return, in the upcoming 1 year. This is a mid-cap stock with a market capitalization of around Rs. 13,451 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 158
Target Price	Rs. 200
Potential 1 year return	26.00%
52 week high share price	Rs. 204.90
52 week low share price	Rs. 130.25

Exide's 1QFY23 revenue and EBITDA grew 57%/48% YoY to Rs. 39b/Rs. 3.9b, respectively. Of the 57% YoY revenue growth in 1QFY23, price hikes contributed 8-10%. The company's Gross margin contracted 360bp YoY (-10bp QoQ) to 27.9% due to RM cost inflation in lead and other inputs. EBITDA margin too declined 60bp YoY (-30bp QoQ) to 9.9% led by lower gross margin partly offset by operating leverage. EBITDA rose 48% YoY (11% QoQ) to Rs. 3.9b.

 

Why Should You Buy The Stocks Of Exide: Motilal Oswal

Maintaining a buy rating, the brokerage firm said, "We expect a sustained recovery led by OEM revival and aftermarket growth, with a continuous shift from the unorganized to the organized segments. Exide 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 Exide 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 + Rs. 34/share for a stake in HDFC Life Insurance, we arrive at our target price of ~Rs. 200."

Company portfolio: Exide

For more than six decades, Exide has been one of India's most reliable brands, enjoying unrivaled reputation and recall. Their constant emphasis on innovation made them a distinct frontrunner in the lead-acid storage batteries space for both automotive and industrial applications. 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.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.