Buy This Largest Battery Manufacturer Stock, Reported Mixed Q2 Results, Target Price Rs 215

Sharekhan has placed a buy call on Exide Industries Limited. The brokerage sees a potential upside of up to 19% with a target price of Rs 215 per share. Exide Industries is a small-cap Auto Ancillary Sector company. The company is primarily engaged in the manufacturing of storage batteries and allied products in India. It has a market cap of Rs 15,512.50 crore.

Exide is expected to benefit from a robust automotive and industrial demand and expects its market share to grow in both OEMs and replacement markets. The company plans its 12-gigawatt lithium-ion cell manufacturing plant to start production by FY24 and fully operative by FY26, with a total investment of Rs6,000 crore from internal accruals.

Stock Outlook & Returns

The share price of Exide Industries on the NSE is Rs 182 per share, trading 0.27% down as compared to its previous close at the time of writing. Today, it opened at Rs 182.40 per share. The stock's 52 week high is Rs 188 and the 52-week low is Rs 130.25 per share, respectively. 

The stock in 1 month has given 14.31% positive returns, whereas, in the past 3 months, it has given 17.79% positive returns. In the past 1 year, the stock has given 7.16% positive returns on investments. On long-term investments, the stock has not performed well. It has fallen 5.88% in 3 years and 10.29% in 5 years, respectively. 

Key positives & Key negatives

Key positives

• Exide saw strong growth in automotive replacement markets and in the industrial batteries segment, driven by makeshift home office data centres.
• The company has strengthened its relationship with large OEMs, becoming their preferred partner for fuel-efficient and new-age vehicles.
• Exide to start work on the 12-Gigawatt lithium cell manufacturing plant and production in FY24. The company is to invest Rs4,000 crore in phase 1 of the plant construction and another Rs2,000 crore in phase 2. The plant is to be fully operative and running by FY26.

Key negatives - Revenues were below expectations by 9.2% from our expectations during Q2FY23.

Management Commentary

• Exide witnessed strong replacement demand for automotive batteries in 2W and 4W segments. 
• Management expects to maintain its leadership position with auto OEMs and gain market share in the aftermarket segment, especially from the unorganised sector. 
• The company continues to focus on increasing its global footprint while targeting to double its exports in the medium term. 
• The management guided 30-35% in revenues in FY23E and EBITDA margins to stabilise around 14%. 
• Besides the lithium cell manufacturing plans, the company does a capex of Rs400-500 crore yearly.

Revision in estimates

We have fine-tuned our estimates for FY23E and FY24E and included FY25E estimates. We expect Exide's earnings to post a 17.8% CAGR during FY2022-FY2024E, driven by an 11.4% revenue CAGR and a 340-bps expansion in EBITDA margin to 12.4% in FY2024E from 9% in FY2022."

Valuation - Maintain Buy with a revised PT of Rs.215

Exide is the largest battery manufacturer in the lead acid battery markets, commanding a market share of close to 55% in the organised market. Having a strong brand equity and extensive distribution network, we expect Exide to grow strongly. The company is working on several cost-control measures to improve profitability, such as increasing backward integration, diversifying supplier base, enhancing automation, increasing share of renewable power, and enhancing digital initiatives. Exide is also upgrading technology and working on import substitution of raw materials to enable cost reduction. The company is debt-free and generates strong free cash flow of ~Rs. 400 crores annually. "The stock is attractively valued at P/E multiple of 11.4x and EV/EBITDA multiple of 6.8x its FY2024E estimates. We retain our Buy rating on the stock with a revised PT of Rs.215," the brokerage has said.

Key Risks - Pricing pressures from automotive OEM customers can affect profitability. The fear of geopolitical tension could potentially affect international business and margins.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.