Exide industries share price: Sharekhan maintains buy rating with price target of Rs 229

Exide Industries reported results in line with our expectations, driven by strong traction in the aftermarket recovery in OEM growth and margin expansion. Net revenue of the standalone business grew by 16.2% yoy at Rs 2801 cr, led by a strong demand in the replacement market and recovery in demand from OEMs after Covid-19 pandemic. As per the management, the demand sentiments are strong for both Automotive and UPS batteries.

Exide Industries saw the demand rising from the OEMs and infrastructure segment. The operating profit margin for the Q3 FY21 stood at 14.4% showing an improvement of 112 bps yoy and 14 bps qoq aided by cost reductions and operating leverage benefits. The other expenditure as a percentage of sales improved 190 bps yoy at 14.1% in Q3, leading to margin expansion despite lower gross margins and high employee costs.

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Exide Industries employee costs went up 23.2% yoy to 206 cr. The gross profit margin declined 30 bps yoy to 35.9% in Q3, on back of product mix (higher offtake from OEMs) and rise in raw material prices. Standalone PAT grew by 10.9% yoy to Rs 241 cr. Consolidated revenue grew by 18.1% yoy in Q3 FY21, while PAT grew by 103% yoy due to loss of Rs 70 cr in Life Insurance business last year.

Further, Sharekhan expects Exide Industries to benefit from rising replacement demand and strong recovery in OEM sales. Overall improving replacement to OEM mix will drive revenue and margin improvements for the company. Exide is the largest battery manufacturer in the lead acid battery markets, commanding market share close to 55% in the organised market. Having a strong brand equity and extensive distribution network, we expect Exide to grow strongly in the battery industry.

Exide Industries 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 cash flows of around Rs 400 cr per year.

Sharekhan expects Exide Industries earnings to grow by 17% in FY2022E and 11.3% in FY2023E, driven by 11.7% CAGR (FY2021-23) in revenue and 40 bps expansion in EBITDA margin.