Buy Exide Industries target of Rs 235: YES Securities

YES Securities' research report on Exide Industries

EXID’s 4QFY23 results was a weak as EBITDA/Adj.PAT missed our/street estimates by 12-18%. This was led by weak gross margins at 29.8% (-240bp QoQ, est 31.3%) impacting EBITDA margins, which came in at 10.4% (-140bp QoQ, est 11.9%). The management indicated ~2% margins impact as RM basket increased ~4% QoQ. However, going ahead led by digital, cost control initiatives and RM decline, margins are expected to expand. Moderate growth in revenues at 4% YoY and QoQ was explained by higher growth in auto OEM/ industrial while relatively weak volumes in replacement and exports segment. We believe with recent stability in lead price and price hikes to drive margins in 1QFY24E. Over the mid-long term, EXID’s speedy ramp-up of as lithium-ion battery cell manufacturing, would be closely watched as it has received all the approvals while senior management hiring is complete and have spent Rs7.15b in the project so-far. While EXID’s LAB business is expected to grow 7-8% CAGR over 3-5 years, significant ramp-up in EV battery manufacturing and order wins to act as key re-rating trigger for the stock. EXID is trading at 13.2x/11x FY24/25 S/A EPS (v/s 10-year LPA of ~20.4x).

Outlook

We estimate Revenue/EBITDA/PAT CAGR of 9%/22%/27% over FY23-25E as we raise our FY24/25 EPS by ~6% to factor in anticipated gains on cost control initiatives. Maintain BUY with TP of Rs235 (12x Mar-25 EPS + 50% holdco discount to HDFC Life stake at Rs29).

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