Exide Industries an underperformer: LKP

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Exide Industries an underperformer: LKP

LKP has recommended an underperformer rating on Exide Industries with a target of Rs 128 in its January 25, 2012 research report.

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LKP has recommended an underperformer rating on Exide Industries with a target of Rs 128 in its January 25, 2012 research report.

"On the back of strength shown from 2 wheeler segment, Exide was in a position to put up a sequential improvement in numbers. Total income increased by 6% qoq, while 19% yoy. At the EBITDA levels, there was an increase of 84% qoq and a 3% yoy. RM to sales came down significantly to 67.4% v/s 72.3% qoq while it was still up from 62.7% yoy. The reason for sequential dip was the exhaustion of high cost lead which impacted Q2 margins. EBITDA margins came in at 13.2% v/s 7.6% qoq and 15.2% yoy.PAT almost doubled to Rs1.04 mn on strong operational performance."

"The volume improvement in the quarter was on the back of strong 2W battery sales. The auto battery volumes grew 19% yoy and 3% qoq to 3.55mn while 4W volumes declined by 21% yoy, while grew by 6% qoq. On the industrial side, volume growth was 13% yoy and 3% qoq on harsh October summer and demand from telecom industry increasing. On the capacity side, the company is through with 4W capacity expansion at 12mn units, while is still in the process of increasing 2W capacity which is slated to move up to 21mn. The management is confident about 2W demand getting back on track quickly, while has pessimistic outlook on 4W demand. In Q3 FY12, the company functioned at 82% utilization rate on the auto side while 81% on the industrial side, which was a sequential improvement of 72% and 62% respectively. The replacement: OEM ratio on the auto side was 1.24:1 which was an improvement qoq. Going forward, we believe that 2W demand on the OEM side will be slightly soft as the sector has seen some slowdown off late, while on the 4W side OEM demand, we believe softness will continue over a couple of quarters. On the replacement side, we believe that Q1 FY13 will see some turnaround emanating from the demand for automobiles 3 years ago, both on 2W as well as 4W."

"With results coming inline and the stock having rallied to reach our target price of Rs128, we believe the stock is fairly priced at current levels. With all the positives factored in our numbers and replacement demand yet to pick up, we believe the stock will hover in the range of Rs125 and Rs135. At CMP of Rs 128, the stock trades at 16.8x FY13E earnings. We maintain Exide's standalone business value at Rs 116(15x times FY 13E EPS of Rs 7.7) and insurance business at Rs 12 taking the total TP to Rs128, thus downgrading the stock from a Neutral to Underperformer," says LKP research report.

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To read the full report click on the attachment