1. business and industrial

2QFY2015 Result Update | Auto Ancillary
October 22, 2014
Exide Industries
ACCUMULATE
Performance Highlights
CMP
Target Price
Y/E March (` cr)
Net Sales
2QFY15
2QFY14
% chg (yoy)
1QFY15
% chg (qoq)
1,763
1,432
23.1
1,912
(7.8)
EBITDA
208
201
3.2
291
(28.7)
EBITDA Margin (%)
11.8
14.1
(230)bp
15.2
(340)bp
Adj. PAT
126
119
6.0
185
(32.1)
Source: Company, Angel Research
2QFY2015 results disappoint; operating margin below estimates: Exide Industries
Ltd (EIL)’s 2QFY2015 results have come in below our estimates, as the company
disappointed on the margin front despite double digit revenue growth.
EIL’s top-line grew strongly by 23% yoy to `1,763cr (slightly ahead of our estimate
of `1,697cr). The top-line growth was driven by strong volume growth on back of
strong double digit growth in both the automotive and the industrial segment and
improved product mix with a higher proportion of automotive replacement
batteries. EIL did not affect any price increases during the quarter. On the
operating front, the EBIDTA margin declined by 230bp yoy to 11.8% (lower than
our estimate of 13.5%). Increased lead prices and higher freight and power
expenses impacted the profitability. Also, EIL could not hike prices given the
intense competition which impacted the operating performance. Given the poor
operating performance, the net profit grew 6% yoy to `125.8cr and the same was
lower than our estimate of `138.8 cr.
Outlook and Valuation: EIL is likely to register a double digit top-line growth over
FY2014-16, driven by robust automotive replacement demand, strong industrial
segment due to improved economic outlook and recovery in the automotive OEM
demand. Further, EIL is focusing on margin improvement by undertaking price
hikes in the inverter segment, reducing dealer incentives and raw material cost
control by improving the product quality. We have broadly retained our earnings
assumptions for FY2015/16. We maintain our Accumulate rating on the stock
with a price target of `170 (based on 18x FY2016 core business EPS of `8.5 and
`17/share stake in the life insurance business).
`156
`170
Investment Period
12 Months
Stock Info
Auto Ancillary
Sector
Market Cap (` cr)
13,243
Net Debt (` cr)
(1,715)
Beta
0.9
52 Week High / Low
183/99
Avg. Daily Volume
3,30,750
Face Value (`)
1
BSE Sensex
26,787
Nifty
7,996
Reuters Code
EXID.BO
Bloomberg Code
EXID@IN
Shareholding Pattern (%)
Promoters
46.0
MF / Banks / Indian Fls
26.8
FII / NRIs / OCBs
17.0
Indian Public / Others
10.2
Abs. (%)
3m
1yr
3yr
Sensex
2.9
28.4
59.6
Exide Industries
(5.5)
20.9
31.1
Key financials (Standalone)
Y/E March (` cr)
FY2013
FY2014
FY2015E
FY2016E
6,071
5,964
7,289
8,383
% chg
18.8
(1.8)
22.2
15.0
Net Profit
523
487
607
725
% chg
13.4
(6.8)
24.6
19.4
EBITDA (%)
12.9
13.7
13.5
14.0
Net Sales
EPS (`)
6.2
5.7
7.1
8.5
P/E (x)
25.4
27.2
21.8
18.3
P/BV (x)
3.9
3.6
3.2
2.9
RoE (%)
15.3
13.1
14.7
15.8
RoCE (%)
21.0
18.8
20.7
22.3
2.1
2.1
1.7
1.5
16.6
15.6
12.8
10.6
EV/Sales (x)
EV/EBITDA (x)
Source: Company, Angel Research; Note: CMP as of October 22, 2014
Please refer to important disclosures at the end of this report
Bharat Gianani
022-3935 7800 Ext: 6817
bharat.gianani@angelbroking.com
1
Exide Industries | 2QFY2015 Result Update
Exhibit 1: Quarterly financial performance (Standalone)
Y/E March (` cr)
2QFY15
2QFY14
% chg (yoy)
1QFY15
% chg (qoq)
1HFY15
1HFY14
% chg (yoy)
Net Sales
1,763
1,432
23.1
1,912
(7.8)
3,676
3,060
20.1
Consumption of RM
26.2
1,267
(6.6)
2,450
1,989
23.2
66.7
65.0
8.3
208
179
5.7
5.9
3.9
518
427
1,183
937
(% of Sales)
67.1
65.5
Staff Costs
108
85
(% of Sales)
Other Expenses
(% of Sales)
6.1
6.0
264
208
66.3
26.7
100
27.0
254
5.2
21.3
15.0
14.5
14.1
14.0
1,556
1,231
26.4
1,621
(4.0)
3,177
2,596
22.4
Operating Profit
208
201
3.2
291
(28.7)
499
464
7.6
OPM (%)
11.8
14.1
13.6
15.2
0
0
1
1
Depreciation
33
Other Income
7
Total Expenditure
Interest
13.3
16.2
15.2
(12.8)
0
31
5.0
32
1.8
65
61
6.3
4
86.9
9
(21.5)
16
10
57.9
181
173
4.6
267
(32.2)
449
411
9.0
PBT (incl. Extr. Items)
181
173
4.6
267
(32.2)
449
411
9.0
(% of Sales)
10.3
12.1
12.2
13.4
56
55
138
134
(% of PBT)
30.6
31.5
30.7
32.6
Reported PAT
126
119
6.0
185
(32.1)
311
277
12.1
Adj PAT
126
119
6.0
185
(32.1)
311
277
12.1
Adj. PATM
PBT (excl. Extr. Items)
70.8
-21.7
Extr. Income/(Expense)
Provision for Taxation
14.0
1.6
82
(32.3)
30.7
7.1
8.3
9.7
8.5
9.1
Equity capital (cr)
85
85
85
85
85
Reported EPS (`)
1.5
1.4
2.2
3.7
3.3
2.6
Source: Company, Angel Research
Exhibit 2: 2QFY2015 – Actual vs Angel estimates
Y/E March (` cr)
Actual
Estimates
Net Sales
Variation (%)
1,763
1,697
3.9
EBITDA
208
229
(9.1)
EBITDA margin (%)
11.8
13.5
(170)bp
Adj. PAT
126
139
(9.4)
Source: Company, Angel Research
Top-line marginally ahead of estimates: During 2QFY2015, revenues grew by a
robust 23% yoy to `1,763 cr, slightly better than our estimate of `1,697 cr. The
top-line growth was led by both the automotive and the industrial segments. On
the automotive front, the four wheeler segment revenues grew 21% yoy while the
two wheeler segment grew 12% yoy, led by healthy replacement sales. The
industrial segment also performed well, reporting a revenue growth of 37% yoy.
During the quarter, the OEM : Replacement volume ratio in the four-wheeler
segment stood at 1.7:1 while the revenue ratio stood at 3.3:1. In the two wheeler
segment OEM: Replacement volume ratio stood at 0.5 while the revenue ratio
stood at 0.6:1.
October 22, 2014
2
Exide Industries | 2QFY2015 Result Update
Exhibit 3: Top-line marginally ahead of estimates
35
30
25
20
15
10
5
0
(5)
(10)
(15)
2,500
2,000
1,500
1,000
500
Net Sales ( `cr)
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
0
% yoy Growth
Source: Company, Angel Research
Higher material and other expenses impact operating performance: On the
operating front, EBIDTA declined 230 bp yoy to 11.8% (lower than our estimate of
13.5%). Higher lead prices coupled with the inability to hike prices due to stiff
competition impacted the margins. Further, EIL witnessed surge in freight costs
(due to diesel price increase), increase in power and charging costs and surge in
the technological expenses (some of the R&D expenses were of revenue nature)
which impacted the margins. Other expenditure/sales increased 50 bp yoy to 15%
However price increases of 5% from November 2014 coupled with technological
improvement should lead to margin improvement going ahead.
Exhibit 5: Significant deterioration in EBITDA margins
2,300
350
18
2,250
300
16
2,200
250
2,150
200
10
2,100
150
8
2,050
100
2,000
50
1,950
0
12
6
4
2
EBIDTA ( `cr)
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
0
2QFY13
Sep-14
Jul-14
Aug-14
Jun-14
Apr-14
May-14
Mar-14
Jan-14
Feb-14
Dec-13
Oct-13
Source: Company, Angel Research
Nov-13
Sep-13
Jul-13
Aug-13
Jun-13
Apr-13
May-13
1,900
14
1QFY13
(USD/Tonne)
Exhibit 4: Average lead price trend
Margin (%)
Source: Company, Angel Research
Net profit dips on subdued operating performance: The net profit grew 6% yoy to
`126cr as against double digit topline growth, and was below our estimates of
`139cr led by a weak operating performance.
October 22, 2014
3
Exide Industries | 2QFY2015 Result Update
Exhibit 6: Bottom-line below our estimates
200
180
160
140
120
100
80
60
40
20
0
12
10
8
6
4
2
Net Profit (` cr)
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
0
Margin (%)
Source: Company, Angel Research
Conference call – Key highlights
October 22, 2014

EIL saw a double-digit revenue growth in 2QFY2015. The growth was broad
based with the automotive four-wheeler segment growing 21% yoy and the
two-wheeler segment growing by 12% yoy. The automotive segment growth
was led by the replacement segment even as OEM sales were lackluster.
Further, the industrial segment also showed strong growth of 37% yoy.

Capacity utilization in the automotive segment improved sequentially. Fourwheeler utilization levels improved from 76% in 1QFY2015 to 79% in
2QFY2015. Also, the utilization in the two wheeler segment improved from
78% in 1QFY2015 to 83% in 2QFY2015.

The telecom segment has been performing well, with the company improving
its market share from 8% in 2QFY2014 to 18% in 2QFY2015.

EIL did not take any pricing action during the quarter.

EIL is hiking inverter prices by 5% from November 2014 which would aid in
margin improvement going forward.

EIL indicated it would lower the dealer incentives in 2HFY2015, as it has been
successful in regaining market share in the automotive replacement space.

In 2QFY2015, the Replacement to OEM volume ratio for the four-wheeler and
two-wheeler battery segments was 1.7 and 0.49 respectively.

EIL expects automotive replacement sales to remain strong and estimates high
double-digit growth over the next two years. The impact of slowdown in OEM
sales during FY2008-2010 period is unlikely to have any major impact on
replacement sales.

EIL is targeting EBIDTA margins of 16% over the next two years from the
current levels of ~14%. It is focusing on improving productivity, reduction in
dealer incentives and reductions in raw material costs due to technological
improvements to help enhance margins.
4
Exide Industries | 2QFY2015 Result Update

EIL has guided for capital expenditure of `550cr over the next two years, out
of which `250cr would be incurred in FY2015. The capex would also focus on
technological improvements in the products.
Investment arguments

Demand scenario for automotive and industrial batteries to remain positive in
the long run: We expect growth traction in the automotive battery segment to
continue over the next two years. The Automotive OEM segment is witnessing
volume recovery over the last three-four months post improvement in
consumer sentiments. Further, robust automotive replacement demand is likely
to maintain growth momentum. Also given the economic recovery, the
industrial segment (railways, UPS and telecom) is also poised to register
double-digit growth over the next two years.

Captive sourcing reduces impact of lead price volatility: EIL acquired Tandon
Metals (FY2008) and Leadage Alloys (51% stake in FY2009 and the rest 49%
in 2QFY2011) to recycle lead and lessen the vulnerability of rising lead prices.
This reduced the company's dependence on imported lead to ~25% in
FY2013 from ~32% in FY2010. Total lead supplied by the captive smelters
increased to 40-45% of total consumption in FY2013. EIL has benefitted from
its captive sourcing strategy, as lead sourcing from captive smelters is 10-12%
cheaper compared to market rates. Going forward, EIL plans to increase
sourcing from its smelters to ~70% by FY2016. Our sensitivity analysis
suggests that for every 10% increase in sourcing from captive smelters, the
company’s EBITDA margin expands by ~50bp (assuming stable lead prices).
Outlook and valuation
EIL is likely to register a double digit top-line growth over FY2014-16, driven by
robust automotive replacement demand, strong industrial segment due to
improved economic outlook and recovery in the automotive OEM demand.
Further, EIL is focusing on margin improvement by undertaking price hikes in
inverter segment, reducing dealer incentives and raw material cost control by
improving the product quality. We have broadly retained our earnings assumptions
for FY2015/16. We maintain our Accumulate rating on the stock with a price
target of `170 (based on 18x FY2016 core business EPS of `8.5 and `17/share
stake in the life insurance business).
Company background
Exide Industries (EXID) is a leading automobile and industrial battery manufacturer
in India. The company commands an ~65% and ~60% market share in the OEM
and organized replacement battery segments respectively and a 40-45% share in
the industrial battery segment. EXID has technological tie-ups with majors such as
Shin Kobe and Furukawa Battery. The automotive and industrial battery segments
accounted for ~60% and ~40% of the company's total revenue in FY2014,
respectively.
October 22, 2014
5
Exide Industries | 2QFY2015 Result Update
Profit and loss statement (Standalone)
Y/E March (` cr)
Total operating income
% chg
FY2012
FY2013
FY2014
FY2015E
FY2016E
4,547
5,110
6,072
5,964
7,289
8,383
19.9
12.4
18.8
(1.8)
22.2
15.0
Total expenditure
3,666
4,424
5,287
5,147
6,305
7,213
Net raw material costs
2,823
3,436
4,039
3,910
4,862
5,575
Other mfg costs
283
325
412
400
505
610
Employee expenses
278
286
349
356
409
471
Other
282
376
487
481
529
558
EBITDA
881
686
786
817
984
1,170
% chg
(1.2)
(22.1)
14.5
4.2
20.5
18.8
(% of total op. income)
19.4
13.4
12.9
13.7
13.5
14.0
Depreciation & amort.
83
101
113
126
141
159
EBIT
798
585
672
724
882
1054
% chg
(1.7)
(26.6)
14.8
(3.0)
21.8
19.5
(% of total op. income)
17.5
11.5
11.1
12.1
12.1
12.6
Interest and other charges
9
8
6
1
2
3
Other income
151
67
76
33
38
43
(% of PBT)
16.7
10.4
10.2
0.6
0.5
0.5
Recurring PBT
940
645
742
723
880
1,051
% chg
16.0
(31.4)
15.1
(2.6)
21.7
19.4
Extraordinary items
PBT (reported)
33
(0)
(0)
-
-
-
907
645
743
723
880
1,051
Tax
274
184
220
236
273
326
(% of PBT)
30.2
28.5
29.6
32.6
31.0
31.0
PAT (reported)
666
461
523
487
607
725
ADJ. PAT
633
461
523
487
607
725
% chg
17.8
(27.1)
13.4
(6.8)
24.6
19.4
(% of total op. income)
13.9
9.0
8.6
8.2
8.3
8.6
Basic EPS (`)
7.8
5.4
6.2
5.7
7.1
8.5
Adj. EPS (`)
7.4
5.4
6.2
5.7
7.1
8.5
17.8
(27.1)
13.4
(6.8)
24.6
19.4
% chg
October 22, 2014
FY2011
6
Exide Industries | 2QFY2015 Result Update
Balance sheet statement (Standalone)
Y/E March (` cr)
FY2011
FY2012
FY2013
FY2014
FY2015E
FY2016E
SOURCES OF FUNDS
Equity share capital
85
85
85
85
85
85
Reserves & surplus
2,657
2,972
3,339
3,646
4,041
4,512
Shareholders’ Funds
2,742
3,057
3,424
3,731
4,126
4,597
Total loans
Deferred tax liability
Other long term liabilities
-
-
-
-
-
-
68
83
98
105
105
105
3
4
7
6
6
6
46
16
21
20
20
20
2,860
3,160
3,549
3,863
4,257
4,728
1,561
1,777
1,900
2,014
2,264
2,564
Less: Acc. depreciation
725
810
906
1,016
1,157
1,316
Net Block
836
967
994
998
1,107
1,248
47
27
59
51
51
51
1,378
1,555
1,640
1,967
2,167
2,367
31
62
52
64
76
89
-
1
1
1
1
1
1,314
1,481
1,802
1,875
2,192
2,503
15
58
75
120
43
31
Long term provisions
Total Liabilities
APPLICATION OF FUNDS
Gross block
Capital work-in-progress
Investments
Long term loans and adv.
Other noncurrent assets
Current assets
Cash
Loans & advances
Other
Current liabilities
Net current assets
Total Assets
October 22, 2014
63
51
48
53
73
84
1,236
1,372
1,679
1702
2077
2388
747
931
999
1,094
1,337
1,532
567
550
803
781
855
972
2,860
3,160
3,549
3,863
4,257
4,728
7
Exide Industries | 2QFY2015 Result Update
Cash flow statement (Standalone)
Y/E March (` cr)
Profit before tax
Depreciation
Change in working capital
Others
940
645
FY2014 FY2015E FY2016E
742
723
880
1,051
83
101
113
111
141
159
(238)
7
(237)
66
(151)
(128)
37
9
37
(6)
(12)
(13)
(236)
(273)
(326)
Other income
(151)
(67)
(76)
Direct taxes paid
(274)
(184)
(220)
Cash Flow from Operations
398
510
360
658
585
743
(Inc.)/Dec. in fixed assets
(234)
(195)
(156)
(106)
(250)
(300)
(Inc.)/Dec. in investments
(43)
(177)
(86)
(327)
(200)
(200)
(433)
(450)
(500)
Other income
Cash Flow from Investing
Issue of equity
Inc./(Dec.) in loans
Dividend paid (Incl. Tax)
151
67
76
(126)
(304)
(165)
-
-
-
-
-
-
(90)
-
-
-
-
-
95
140
145
(180)
(212)
(254)
Others
(265)
(281)
(290)
1.0
0.0
0.0
Cash Flow from Financing
(260)
(140)
(145)
(179)
(212)
(254)
Inc./(Dec.) in cash
October 22, 2014
FY2011 FY2012 FY2013
12
43
17
45
(77)
(11)
Opening Cash balances
3
15
58
75
120
43
Closing Cash balances
15
58
75
120
43
31
8
Exide Industries | 2QFY2015 Result Update
Key ratios
Y/E March
FY2011 FY2012 FY2013 FY2014
FY2015E
FY2016E
Valuation Ratio (x)
P/E (on FDEPS)
12.9
18.6
25.4
27.2
21.8
18.3
P/CEPS
12.0
15.3
20.8
21.6
17.7
15.0
3.2
2.8
3.9
3.6
3.2
2.9
P/BV
Dividend yield (%)
1.5
1.5
1.0
1.2
1.3
1.9
EV/Sales
1.6
1.4
2.1
2.1
1.7
1.5
EV/EBITDA
8.2
10.2
16.6
15.6
12.8
10.6
EV / Total Assets
2.5
2.2
3.7
3.3
3.0
2.6
EPS (Basic)
7.8
5.4
6.2
5.7
7.1
8.5
EPS (fully diluted)
7.4
5.4
6.2
5.7
7.1
8.5
Per Share Data (`)
Cash EPS
8.4
6.6
7.5
7.2
8.8
10.4
DPS
1.5
1.5
1.6
1.8
2.1
3.0
31.9
35.7
40.0
43.9
48.5
54.1
17.5
11.5
11.1
12.1
12.1
12.6
Book Value
Dupont Analysis
EBIT margin
Tax retention ratio
0.7
0.7
0.7
0.7
0.7
0.7
Asset turnover (x)
3.7
3.5
3.6
1.6
1.7
1.8
ROIC (Post-tax)
45.6
28.3
28.4
13.0
14.4
15.5
Cost of Debt (Post Tax)
13.5
17,967
-
-
-
-
-
-
-
-
-
-
45.6
28.3
-
-
-
-
30.5
19.4
20.0
18.8
20.7
22.3
Leverage (x)
Operating ROE
Returns (%)
ROCE (Pre-tax)
Angel ROIC (Pre-tax)
55.4
38.5
37.1
19.4
20.9
22.4
ROE
25.5
15.9
16.1
13.1
14.7
15.8
3.1
3.1
3.3
3.0
3.2
3.3
Inventory / Sales (days)
59
65
64
72.6
72.6
72.6
Receivables (days)
25
27
27
31.6
31.6
31.6
Payables (days)
46
51
48
55.2
55.3
55.0
WC cycle (ex-cash) (days)
35
37
37
49.0
48.9
49.2
(0.5)
(0.5)
(0.5)
(0.5)
(0.4)
(0.4)
Net debt to EBITDA
(1.6)
(2.3)
(2.2)
(2.1)
(1.7)
(1.4)
Interest Coverage (EBIT / Int.)
91.8
78
117
608.6
440.9
351.2
Turnover ratios (x)
Asset Turnover (Gross Block)
Solvency ratios (x)
Net debt to equity
October 22, 2014
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Exide Industries | 2QFY2015 Result Update
Research Team Tel: 022 - 39357800
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
1. Analyst ownership of the stock
Exide Industries
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
October 22, 2014
Buy (> 15%)
Reduce (-5% to -15%)
Accumulate (5% to 15%)
Sell (< -15%)
Neutral (-5 to 5%)
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