COMPANY UPDATE RETAIL EQUITY RESEARCH Exide Industries Ltd Automobile Auto Ancillaries BSE CODE:500086 NSE CODE: EXIDEIND Bloomberg CODE: EXID:IN SENSEX: 35,150 Rating as per Midcap 12months investment period CMP Rs. 250 TARGET Rs. 276 RETURN 10% 12 th December, 2018 Higher revenue visibility Exide Industries Limited (EIL) is a leader in storage battery business with a market share of 60% in India. Its segment includes automotive and industrial lead acid batteries. EIL is focussing on cost control initiatives and technological upgradation as strategies to improve bottom line. Newer cost effective brands like Boss/Dynex at competitive price are expected to support market share gain from the unorganized players. We expect the margin to show some resilience from Q3FY19 onwards due to softening lead price. Revenue for the Q2FY19 grew by 15.3%YoY led by healthy volume growth across segments in automobile, Inverter and Industrial batteries. At CMP we value EIL at 20x (3yr historical average) on FY20EPS and Insurance business at 2xEV (Embedded value) at Rs51 and revised our target price to Rs276 and upgrade our rating to form Hold. Revenue growth stable...lead price shows resilience Q2FY19 revenue grew by 15%YoY driven by growth in automobile, Home UPS and industrial batteries. EBITDA margin contracted by 30bps owing to currency depreciation and higher fuel cost. Reported PAT increased 98.1%YoY to Rs268cr due to an exceptional income from sale of property. However, adjusted PAT was at Rs191cr, de-grew by 9.7%. We expect the margin to show some resilience from Q3FY19 onwards due to softening lead price. On account of higher auto sales and early ramp up of E- rickshaws we expect the revenue & PAT to grow by 15%/16% CAGR over FY18-20E Demand to remain robust for 2/3 wheeler vehicles Automotive industry (PV, 2/3W) witnessed a growth of 10%YoY in Q2FY19. We expect the demand scenario for 2W to remain robust for H2FY19 led by normal monsoon, higher MSP and new product launches by OEMs. EIL will be the direct beneficiary from any structural change in the auto demand owing to its leadership position (~60% market share) in the automotive battery. Notably demand for premium vehicle (>150cc) is grown by 16%YoY. Technology up-gradation & strengthen aftermarket We expect margins to improve from current 13.5% to 15.3% over FY18-20E. Margin expansion is justifiable once 1) new technology up-gradation becomes fully operational 2) rebound in OEM & CV segments 3) concentration on more profitable segments 4) Strengthening distribution network by introducing sub-distributor led model (cluster of small retailers) and 5) stable lead price & cost saving initiatives. Newer cost effective brands like Boss/Dynex at competitive price are expected to support market share gain from the unorganized players. Valuation SOTP Higher lead price and rupee depreciation remains a concern for EIL in the near term. Over the last 2months the price started to soften by >11% (from Rs165/Kg in June 2018 to Rs.140kg) which will benefit EIL in subsequent quarters. We remain positive on the long term outlook of EIL owing to higher acceptance of battery engineering. At CMP we value EIL at 20x (3yr historical average) FY20EPS and insurance business at 2x FY18 EV (Embedded value) Rs51/share and revised our target price to Rs276 with rating. Company Data Market Cap (cr) Enterprise Value (cr) Rs.21,250 Rs.21,250 Outstanding Shares (cr) 85 Free Float 54% Dividend Yield 1.0% 52 week high Rs.305 52 week low Rs.193 6m average volume (cr) 0.22 Beta 0.8 Face value Rs. 1 Shareholding % Q4FY18 Q1FY19 Q2FY19 Promoters 45.9 45.9 45.9 FII s 10.6 11.2 11.2 MFs/Insti 23.2 23.3 23.4 Public 20.3 19.6 19.5 Total 100.0 100.0 100.0 Price Performance 3month 6month 1 Year Absolute Return 15.4% 22.4% 70.6% Absolute Sensex 5.8% 8.5% 18.2% Relative Return 9.6% 13.9% 52.4% *over or under performance to benchmark index 350.0 250.0 150.0 Exide Sensex Rebased 50.0 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Standalone (Rs.cr) FY18A FY19E FY20E Sales 9,186 10,736 12,085 Growth (%) 21.1 16.9 12.6 EBITDA 1,241 1,457 1,752 Margin (%) 13.5 13.6 14.5 PAT Adj 710 767 958 Growth (%) 2.4 8.1 24.8 Adj.EPS 8.4 9.0 11.3 Growth (%) 2.4 8.1 24.8 P/E 29.9 27.7 22.2 P/B 4.0 3.5 3.1 EV/EBITDA 17.1 14.6 12.1 ROE (%) 13.7 13.4 14.7 D/E 0 0 0 Saji John Analyst
Quarterly Financials Profit & Loss Account (Rscr) Q2FY19 Q2FY18 YoY Growth % H1FY19 H1FY18 YoY Growth % Sales 2,720 2,358 15.3 5,493 4,461 23.1 EBITDA 333 296 12.5 726 620 17.0 EBITDA margins 12.2 12.5-30bps 13.2 13.9-70bps Depreciation 77 60 28.7 149 116 28.2 EBIT 256 236 8.3 577 504 14.4 Interest 1.4 2.1-34.9 2.5 3.7-32.1 Other Income 12 14-16.1 14 27-48.6 0 Exceptional Items 108-42 - -41 - PBT 374 206 81.7 697 486 43.4 Tax 106 71 50.2 218 161 35.4 Share of profit from Associate 0 0-0 0 - Reported PAT 268 136 98.1 478 325 47.4 Adjustments -108 0-41 0 - Adj PAT 160 216-9.7 370 366 1.0 No. of shares (cr) 46.6 46.6-46.6 46.6 - EPS (Rs) 1.9 2.1-9.7 4.4 4.3 1.0 Change in estimates Old estimates New estimates Change % Year / Rscr FY19E FY20E FY19E FY20E FY19E FY20E Revenue 10,444 11,695 10,736 12,085 2.8 3.3 EBITDA 1,465 1,698 1,457 1,752-0.5 2.0 Margins (%) 14.0 14.5 13.6 14.5-40bps - Adj. PAT 832 967 767 958-7.8-0.9 Adj. EPS 9.8 11.4 9.0 11.3-7.8-0.9 Valuation - SOTP Particulars Segments Embedded Value (Rs Cr) Stake Value/Share (Rs) Rationale Exide Core business Core Business - 225 PE 20x FY20E EPS Exide Insurance Life insurance Rs2041 100% 51 2x EV (Embedded Value)/share Total Value per share 276
Standalone Financials Profit & Loss Account Y.E March (Rscr) FY16A FY17A FY18 FY19E FY20E Sales 6,854 7,583 9,186 10,736 12,085 % change -0.3 10.6 21.1 16.9 12.6 EBITDA 1,016 1,082 1,241 1,457 1,752 % change 11.9 6.5 14.6 17.4 20.3 Depreciation 158 206 246 312 382 EBIT 858 876 995 1,145 1,370 Interest 2 4 5 5 6 Other Income 52 104 58 21 24 PBT 908 976 1,006 1,269 1,388 % change 13.7 7.4 3.1 26.1 9.4 Tax 284 282 338 393 430 Tax Rate (%) 0.31 0.29 0.34 0.31 0.31 Reported PAT 624 694 668 876 958 Adj* 0 0-418 1,083 0 Adj PAT 624 694 710 767 958 % change 14.4 11.1 2.4 8.1 24.8 No. of shares (mn) 85 85 85 85 85 Adj EPS (Rs) 7.3 8.2 8.4 9.0 11.3 % change 14.4 11.1 2.4 8.1 24.8 DPS (Rs) 1 3 3 2 2 CEPS (Rs) 9 11 11 13 16 Balance Sheet Y.E March (Rscr) FY16 FY17 FY18 FY19E FY20E Cash 74 11 79 69 137 Accounts Receivable 604 623 945 1,088 1,225 Inventories 1,134 1,527 1,760 2,039 2,256 Other Cur. Assets 178 252 453 544 613 Investments 2,698 2,674 1,969 2,015 2,265 Gross Fixed Assets 1,392 1,868 2,511 3,161 3,811 Net Fixed Assets 1,242 1,525 1,935 2,282 2,559 CWIP 186 141 234 220 220 Intangible Assets 23 22 23 40 36 Def. Tax (Net) -127-155 -141-160 -180 Other Assets 0 0 0 0 0 Total Assets 6,011 6,620 7,256 8,138 9,130 Current Liabilities 417 450 505 583 645 Provisions 234 265 279 353 397 Debt Funds 104 170 0 0 0 Other Liabilities 745 772 1,083 1,204 1,289 Equity Capital 85 85 85 85 85 Reserves & Surplus 4,426 4,879 5,304 6,022 6,821 Shareholder s Fund 4,511 4,964 5,389 6,107 6,906 Total Liabilities 6,011 6,620 7,256 8,247 9,238 BVPS (Rs) 53 58 63 72 81 Cash flow Y.E March (Rscr) FY16A FY17A FY18 FY19E FY20E Net inc. + Depn. 1,066 1,182 1,252 1,581 1,770 Non-cash adj. -36-86 -29-84 27 Changes in W.C 310-666 -707-635 -661 C.F.O 1,340 430 517 862 1,136 Capital exp. -395-416 -771-675 -655 Change in inv. -745 113 744-46 -250 Other invest.cf 0 0 0 0 0 C.F - investing -1,146-307 -28-708 -905 Issue of equity 0 0 0 0 0 Issue/repay debt 85 68-170 0 0 Dividends paid -233-242 -245-158 -158 Other finance.cf -1-4 -6-5 -6 C.F - Financing -150-178 -421-163 -164 Chg. in cash 44-55 67-9 67 Closing cash 74 11 79 69 137 Ratios Y.E March FY16 FY17 FY18 FY19E FY20E Profitab. & Return EBITDA margin (%) 14.8 14.3 13.5 13.6 14.5 EBIT margin (%) 12.5 11.6 10.8 10.7 11.3 Net profit mgn.(%) 9.1 9.1 7.7 7.1 7.9 ROE (%) 14.6 14.6 13.7 13.4 14.7 ROCE (%) 14.4 14.3 13.6 13.4 14.8 W.C & Liquidity Receivables (days) 30.9 29.5 31.2 34.6 34.9 Inventory (days) 114.3 103.0 99.8 97.8 99.9 Payables (days) 29.9 33.6 29.0 28.0 28.6 Current ratio (x) 3.1 3.4 4.1 4.0 4.1 Quick ratio (x) 1.6 1.4 2.0 2.0 2.1 Turnover &Levg. Gross asset T.O (x) 3.8 4.7 4.2 3.8 3.5 Total asset T.O (x) 1.2 1.2 1.3 1.4 1.4 Int. covge. ratio (x) 513.9 203.3 189.9 218.3 236.0 Adj. debt/equity (x) 0.0 0.0 0.0 0.0 0.0 Valuation ratios EV/Sales (x) 3.1 2.8 2.3 2.0 1.8 EV/EBITDA (x) 21.0 19.8 17.1 14.6 12.1 P/E (x) 34.0 30.6 29.9 27.7 22.2 P/BV (x) 4.7 4.3 4.0 3.5 3.1
Recommendation Summary (last 3 years) Dates Rating Target 350 300 250 200 150 May 2015 180 3December 2015 160 10 February 2016 144 02 May2016 162 20 July 2016 Buy 204 28-October-2016 Buy 220 06-.May 2017 Hold 256 28-July-2017 Hold 234 13-October 2017 09-March 2018 8-May 2018 Hold 234 228 276 12 th December 2018 276 100 50 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Source: Bloomberg, Geojit Research Investment Rating Criteria Large Cap Stocks; Buy - Upside is above. Hold - Upside is between 0% - 10%. Reduce - Downside is more than 0%. Neutral - Not Applicable Mid Cap and Small Cap; Buy - Upside is above 15% - Upside is between 10% - 15%. Hold - Upside is between 0% - 10%. Reduce/Sell - Downside is more than 0%. Neutral - Not Applicable To satisfy regulatory requirements, we attribute as Buy and Reduce as Sell The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.NEUTRAL-The analyst has no investment opinion on the stock, under review. General Disclosures and Disclaimers CERTIFICATION I, Saji John, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit. COMPANY OVERVIEW Geojit Financial Services Limited (hereinafter Geojit), a publically listed company, is engaged in services of retail broking, depository services, portfolio management and marketing investment products including mutual funds, insurance and properties. Geojit is a SEBI registered Research Entity and as such prepares and shares research data and reports periodically with clients, investors, stake holders and general public in compliance with Securities and Exchange Board of India Act, 1992, Securities And Exchange Board Of India (Research Analysts) Regulations, 2014 and/or any other applicable directives, instructions or guidelines issued by the Regulators from time to time. DISTRIBUTION OF REPORTS This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Geojit will not treat the recipients of this report as clients by virtue of their receiving this report. 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RISK DISCLOSURE Geojit and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not be in any way be responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Investors may lose his/her entire investment under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. This report does not take into account the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of any use made of this information. 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REGULATORY DISCLOSURES: Geojit s Associates consists of privately held companies such as Geojit Technologies Private Limited (GTPL- Software Solutions provider), Geojit Credits Private Limited (GCPL- NBFC Services provider), Geojit Investment Services Limited (GISL- Corporate Agent for Insurance products), Geojit Financial Management Services Private Limited (GFMSL) & Geojit Financial Distribution Private Limited (GFDPL), (Distributors of Insurance and MF Units).In the context of the SEBI Regulations on Research Analysts (2014), Geojit affirms that we are a SEBI registered Research Entity and in the course of our business as a stock market intermediary, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no disciplinary action has been taken against us or our Analysts in connection with our business activities. In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader before making an investment decision: 1. Disclosures regarding Ownership*: Geojit confirms that: (i) It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein. (ii) It/its associates have no actual beneficial ownership greater than 1% in relation to the subject company (ies) covered herein. Further, the Analyst confirms that: (i) he, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the subject company. (ii) he, his associates and his relatives have no actual/beneficial ownership greater than 1% in the subject company covered 2. Disclosures regarding Compensation: During the past 12 months, Geojit or its Associates: (a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject company (c) Have not * received any compensation for investment banking or merchant banking or brokerage services from the subject company. (d) Have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company (e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The subject company is / was not a client during twelve months preceding the date of distribution of the research report. 3. Disclosure by Geojit regarding the compensation paid to its Research Analyst: Geojit hereby confirms that no part of the compensation paid to the persons employed by it as Research Analysts is based on any specific brokerage services or transactions pertaining to trading in securities of companies contained in the Research Reports. 4. Disclosure regarding the Research Analyst s connection with the subject company: It is affirmed that the I Saji John Research Analyst(s) of Geojit have not served as an officer, director or employee of the subject company 5. Disclosure regarding Market Making activity: Neither Geojit/its Analysts have engaged in market making activities for the subject company.please ensure that you have read the Risk Disclosure Documents for Capital Market and Derivatives Segments as prescribed by the Securities and Exchange Board of India before investing Geojit Financial Services Ltd. (formerly known as Geojit BNP Paribas Financial Services Ltd.), Registered Office: 34/659-P, Civil Line Road, Padivattom, Kochi-682024, Kerala, India. Phone: +91 484-2901000, Website: www.geojit.com. For investor queries: customercare@geojit.com, For grievances: grievances@geojit.com, For compliance officer: compliance@geojit.com. Corporate Identity Number: L67120KL1994PLC008403, SEBI Stock Broker Registration No INZ000104737, Research Entity SEBI Reg No: INH200000345, Investment Adviser SEBI Reg No: INA200002817, Portfolio Manager: INP000003203, Depository Participant: IN-DP-325-2017, ARN Regn.Nos:0098, IRDA Corporate Agent (Composite) No.: CA0226