We recommend ?BUY? on EXIDE INDUSTRIES LTD for a target of INR 294 – valuing the company at P/E 24x of FY19E Earning.
Investment Rationale:
- Assailing sales promotion and extensive distribution network.
- Enjoy well entrenched relationships with industry leaders across automotive and industrial segments.
- The largest lead acid storage battery manufacturer in India.
- Technological collaborations to result in innovative launches.
- Strong relationship with customers and partners.
- Focus on innovation and consistent product launches.
- Extensive sales and distribution network and quality customer service.
- State-of-the-art manufacturing facilities at diversified locations.
- Only company with multi-locational manufacturing units spread across the country and equipped with advanced technology.
Valuations And View:
Exide Industries Limited (Exide) is India?s largest manufacturer of lead acid storage batteries and power storage solutions provider. Its unwavering emphasis on innovation, extensive geographic reach, strong relationship with distinguished customers and consistent technology upgradations has enabled to stay ahead of the curve. We value the business at 24x FY19E EPS and recommend a BUY rating on the stock with a target price of INR 294 per share.
Risk & Concerns
- Foreign currency risk: Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates.
- Commodity price risks: The Company is affected by the price volatility of certain commodities. Its operating activity is manufacturing of batteries and therefore requires supply of lead.
- Equity price risks: The Company?s listed and non-listed equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Company manages the equity price risk through diversification and by placing limits on individual and total equity instruments / mutual funds.
- Credit risk: Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities.
Company Background
Exide Industries Limited (Exide) is India?s largest manufacturer of lead acid storage batteries and power storage solutions provider. From small emergency light batteries to huge submarine batteries, this brand enjoys a nationwide respect and recall. Its unwavering emphasis on innovation, extensive geographic reach, strong relationship with distinguished customers and consistent technology upgradations has enabled to stay ahead of the curve. It consistently remain at the forefront of international battery technology with the help of its collaborators ? Shin Kobe and Furukawa of Japan, Zhejiang Chaowei Chuangyuan Shiya of China, East Penn of the US and its subsidiary company Ecoult of Australia. Exide Industries has nine factories strategically located all over India, of which seven factories are dedicated to batteries and the other two factories manufacture Home UPS systems. It manufacture a wide range of batteries for the automotive, power, telecom, infrastructure projects, computer industries, railways, mining, renewable energy and defence sectors, among others. It offer a comprehensive solution in areas of equipment selection, battery sizing, optimum room layout, installation, operation and maintenance. Its distribution network and service spectrum are continuously monitored and kept contemporary in line with changing market dynamics.
Products:
- Automotive Batteries
- Industrial Batteries
- Inverter Batteries
- Solar Batteries
- Genset Batteries
- Submarine Batteries
- Home UPS Systems
Industry Overview
The Indian auto-components industry has experienced healthy growth over the last few years. Some of the factors attributable to this include: a buoyant end-user market, improved consumer sentiment and return of adequate liquidity in the financial system. The auto-component industry of India has expanded by 14.3 per cent because of strong growth in the after-market sales to reach at a level of Rs 2.92 lakh crore (US$ 44.90 billion) in FY 2016-17. The auto-components industry accounts for almost seven per cent of India?s GDP and employs as many as 25 million people. A stable government framework, increased purchasing power, large domestic market, and an ever increasing development in infrastructure have made India a favourable destination for investment. The Indian automotive aftermarket is expected to grow at a CAGR of 10.5 per cent and reach Rs 75,705 crore (US$ 13 billion) by the year 2019-20, according to the Automotive Component Manufacturers Association of India (ACMA). These estimates are in sync with the targets of the Automotive Mission Plan (AMP) 2016-26.
