Buy Exide Industries; target Rs 137: BP Equities

20464 Investors following Exide Industrie. Share this News with them.

0

Like this story, share it with millions of investors on M3

Buy Exide Industries; target Rs 137: BP Equities

BP Equities is bullish on Exide Industries and has recommended buy rating on the stock with a target price of Rs 137 in its November 23, 2011 research report.

Post your opinion here

 

0

Tweet

Share on Tumblr

RELATED NEWS Short Ranbaxy Laboratories; target Rs 355: ICICIdirect.com Buy Nestle India; target Rs 5083: Firstcall Research Buy Reliance Industries; target Rs 1020: KRChoksey ALSO READ See previous views by BP Equities See what other Experts & Brokerages are saying about Exide Industrie See messages about Exide Industrie Exide Industrie BSE | NSE 01/06/12 Are Mutual Funds betting on Exide Industrie?

BP Equities is bullish on Exide Industries and has recommended buy rating on the stock with a target price of Rs 137 in its November 23, 2011 research report.

"Exide Industries is undisputed leader in Automotive battery segment in India with market share ranging between 55-75% in various Auto OEM categories and more than 55% market share in Organized replacement market in India. Exide also has a strong presence in Industrial battery space. We believe long term growth potential is firmly in place on the back of strong replacement demand coupled with wide distribution network. Exide is operating as a leader in Oligopoly market structure of lead storage batteries and has its presence as a 'Preferred Supplier' in a very competitive OEM space in India. We believe investment in Exide would be a safe bet in Auto space considering expected demand from Auto replacement market after phenomenal growth in auto sales volume in FY10 and FY11, both in 2-wheeler (2w) and 4-wheelers (4w), as vehicle sold during that period require replacement demand. Since Life of 4w batteries ranging between 1.5 to 3 years and 2w battery (with Push-Start Facility) has ~3 years life, we expect replacement demand from 4w and 2w battery segments to grow at a CAGR of 14% and 17% respectively between FY11 and FY13."

"Every 1% increase in captive consumption would expand EBITDA margin by ~5bps in our view and we believe an increase in sourcing from lead smelters to 65% by FY13 from current level of ~55% in Q2FY12 would support margin going forward. Auto replacement segment commands higher margin (~2.5x higher than Auto OEM) than Auto OEM segment and we believe replacement demand to boost significantly from Q4FY12 mainly on the back of strong OEM sales in FY10 and FY11. Therefore, we believe EBITDA margin to expand by 300 bps YoY to 17.3% in FY13. Exide has strong brand and its established relationship with OEMs make it possible to maintain such a high market share in Auto OEM segment and when pre-fitted batteries in vehicles come for replacement, a tendency of replacing battery with same brand works well for the company. It would take several years for new player to set up the strong network across country. Exide has a strong dealership network of more than 38,000 outlets to serve replacement demand. We believe wide geographical network of dealers would be a differentiating factor to compete and maintain its leadership position."

"We believe Exide's stock should be compared to two wheeler auto OEM companies such as Hero Motocorp and BAL (FY13 Avg PE Multiple of ~15x) rather than Four Wheeler OEM companies. This is due to their similar dominant market positions, return ratios and strong balance sheet. We have used SOTP based valuation methodology. The stock is currently trading at FY13 P/E multiple of 13.4x and we have given a target PE multiple of 15x to value its core battery business and arrived at a target price of Rs 125 per share. We have given a target price of Rs 7 and Rs 5 to its insurance business and smelters respectively and arrived at SOTP based target price of Rs 137 per share," says BP Equities research report.

FIIs holding more than 30% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment