Shares of Exide Industries rose 3 percent intraday on November 7 after Japanese brokerage firm Nomura turned bullish on the stock, upgrading its rating after Q2 earnings.
The brokerage expects steady growth by the company to continue and said attractive valuations in the stock made risk-reward favourable.
It expects the company to deliver 8 percent volume CAGR over FY20-22 and sees EPS increasing by 8 percent/5 percent/8 percent to factor in a lower corporate tax rate of 25 percent.
Hence, Nomura upgraded the stock to buy from neutral and raised target price to Rs 222 from Rs 203 per share, implying a 19 percent potential upside from current levels.
For auto original equipment manufacturer (OEM), the brokerage expects a 15 percent decline in FY20 followed by 8 percent CAGR over FY20-22 and for industrial segment, it expects Exide to deliver 7.5 percent volume CAGR over FY20-22.
Nomura lowered its margin estimates over FY20-22 to 13.7 percent/13.3 percent/13.7 percent from 13.8 percent/14 percent/14.1 percent.
Despite the steep fall in revenues of the OEM segment, Exide's Q2FY20 revenues declined only marginally by 4 percent YoY to Rs 2,610 crore, owing to healthy growth in the replacement and industrial segments.
The weak volumes in the auto OEM and telecom segment was offset by continued growth in replacement, UPS, Solar and other industrial segments.
EBITDA margin expanded 180bps YoY to 14.1 percent, which beat analysts estimates due to benign lead prices and better mix.
Better operating performance and lower tax rate at 15.6 percent drive adjusted PAT growth by 30.8 percent YoY at Rs 240 crore.
Emkay expects margins to improve by 110bps over FY19-22E, driven by better scale and cost-reduction efforts.
"The stock currently trades at a core P/E of 13x/12x on FY21/22E EPS. We maintain buy rating with a revised target price of Rs 260 (Rs 266 earlier), implying 39 percent potential upside from current levels," said the brokerage.
Prabhudas Lilladher maintained its accumulate rating on the stock with a price target of Rs 218, implying 17 percent potential upside from current levels (earlier Rs 208) based on 17x Sep'21E standalone EPS plus value of insurance business vertical).
The research house increased FY20/21 EPS estimates by 14.3 percent/6 percent to factor in for lower raw material and tax rate.
The stock was quoting at Rs 189.15, up Rs 2.60, or 1.39 percent on the BSE at 1025 hours IST.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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