Exide share price falls 8% after Q4 results; outlook by brokerages mixed

Shares of Exide Industries cracked 8.27 percent to close at Rs 158.70 on BSE on June 8 after the company reported a 20 percent year-on-year (YoY) decline in its net profit for the March quarter of FY20.

The company's profit after tax for Q4Fy20 was 20 percent lower at Rs 168 crore against Rs 210.68 crore for the corresponding quarter of the previous financial year.

Exide Industries, on Friday, June 5, reported net turnover for the quarter ended March 31, 2020, of Rs 2,055.09 crore as compared to Rs 2,598.66 crore during the quarter ended March 31, 2019.

For the year FY20, the net turnover was Rs 9,856.66 crore as compared to Rs 10,588.31 crore. Profit after tax was Rs 826 crore as compared to Rs 844 crore in FY19.

Brokerages have mixed views on the company's growth prospects.

Brokerage firm Motilal Oswal Financial Services maintained a 'buy' recommendation on the stock with a target price of Rs 205 and said the company's Q4FY20 operating performance was in-line as the impact of weaker revenues was offset by a favorable mix.

The brokerage expects continued strength in the aftermarket with a shift from the unorganized to organized sector.

"FY21 would see the continued benefit of the mix (lower OEMs) and lead prices. We upgrade our EPS by 8 percent and 10 percent for FY21 and FY22E, respectively, to factor lower revenues, a better mix, and lower lead prices," Motilal Oswal said.

"We prefer Exide as it offers superior risk-reward considering its market leadership, technology alliances, backward integration, and better mix. The stock trades at valuations of 17.4 times/15.1 times FY21/22E S/A EPS," said the brokerage.

Emkay Global Financial Services, too, has maintained 'buy' recommendation on the stock with a target price of Rs 198.

"Our FY21E EPS forecast has been reduced by 11 percent to Rs 8.6, due to reduction in revenue estimate, while FY22E EPS has been increased by 6 percent to Rs 11.3. We introduce FY23E EPS of Rs13.2, factoring in revenue growth of 11 percent and EBITDA margin of 14.4 percent. We maintain 'buy' with a target price of Rs 198, up from Rs189 earlier, based on 15 times FY22E EPS," Emkay said.

The brokerage expects replacement revenue CAGR of 11 percent for Exide and 12 percent for Amara Raja Batteries over FY20-22E.

The shift toward EVs remains a structural risk for the company.

However, EV penetration could be gradual. Other risks are lower-than-expected revenue in OEM/replacement demand in the Auto segment, the continuation of weak demand for inverter batteries, higher competitive intensity, and adverse currency/commodity prices, Emkay said.

On the other hand, Kotak Institutional Equities downgraded Exide to 'sell' from 'buy' recommendation on Exide with a target price of Rs 150, 9 percent lower from Rs 165 earlier.

Kotak highlighted Amara Raja Batteries posted a 1 percent revenue growth in Q4FY20 versus Exide’s nearly 21 percent revenue decline in Q4FY20.

"Underperformance of Exide Industries can be mainly attributed to market share loss in the automotive OEM segment (Amara Raja Batteries added two new accounts in the two-wheeler OEM segment), the automotive replacement segment (Amara Raja Batteries reported double-digit volume growth in this segment versus single-digit volume decline reported by Exide Industries) and the telecom segment in FY2020," Kotak said.

Kotak believes the inverter/UPS segment (about 20-22 percent of revenues) growth will moderate as the power availability situation improves across India.

"With limited expertise in lithium-ion technology and muted R&D investments, we believe (over the long term) terminal growth potential of both the companies will get negatively impacted resulting in further multiple de-rating," Kotak said.

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