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Exide Industries Q2FY12 Result Update_LKP

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Exide Industries Q2FY12 Result Update_LKP Powered By Docstoc
					November 1, 2011


Underperformer
                                                                                                                        LKP
                                                                                                                         Since 1948



Exide Industries Ltd
Industry: Auto and Auto Components                         Industry View: Neutral                                                       Result Update

“Losing pricing power, downgrading estimates”
Weak replacement demand, high cost lead inventory jolts margin                                     Stock Data
performance in Q2                                                                                  Current Market Price (`)                                                  122
                                                                                                   Target Price (`)                                                          128
Weak automotive demand in the latter half of 2008 resulted in weak replacement                     Potential upside (%)                                                          5
demand for Exide in Q2. Late realization and over estimation of the same by the                    Reuters                                                            EXID.BO
management took a heavy toll on its margins as management had bought                               Bloomberg                                                           EXID IN

significant amount of lead at higher price at the start of Q1. Due to slowdown in                  What’s Changed
both replacement and OEM demand, this high price lead clogged the inventory                        12 month PriceTarget                                          `176 to `128
                                                                                                   F2012 EPS                                                        `8.7 to ` 5
pipeline and led the company to incur higher total RM costs in Q2 (72.3% of sales
                                                                                                   F2013 EPS                                                    `10.3 to `7.7
v/s 62.7% qoq). This stunted EBITDA margins to 7.7%, the lowest ever. Going
forward, the demand is expected to remain muted over Q3 as well, while some                        Key Data
                                                                                                   Market Cap (`bn )                                                         103
recovery is expected in Q4 especially on the replacement side as the industry had
                                                                                                   52-Week Range (`)                                                 176 / 108
improved quickly after the downturn in 2008-09. Margins are unlikely to improve
                                                                                                   Avg. Daily Trading Value (`mn)                                            308
strongly in Q3 as till the 10th of December the company will be forced to use the                  Promoters (%)                                                               46
high cost lead inventory thus further pressurizing profitability in Q3.                            FII Holding (%)                                                             17
                                                                                                   DII Holding (%)                                                             15
                                                                                                   Public & Others Holding (%)                                                 22
Further price cuts possible as company thrives for regaining market
share                                                                                              Y/E March                FY 09       FY 10      FY 11E       FY 12E    FY 13E
                                                                                                   Rev.(`mn)              33995        37974       46574        47843 56109
Post taking a 10% price cut on 4W batteries in August, Exide still enjoys an 8%                    EBITDA (%)               16.1         23.4        19.3         11.8      15.7
premium to Amara Raja’s similar products. This is happening despite Amara                          PAT (%)                    8.4        14.1        14.3          8.8       11.6
Raja’s products being at par on quality with Exide’s, when in fact Amara Raja is                   EPS (`)                    3.6          6.3         7.8         5.0        7.7
providing higher warranty periods. Capacity expansion is undertaken by Amara                       EPS growth (%)             8.5        76.5        24.1        -36.5      54.4
                                                                                                   P/E (x)                  33.8         19.1        15.4         24.3      15.7
Raja as well. Hence, this may further lead to a market share decline after Exide
                                                                                                   P/B (x)                    7.7          4.6         3.8         3.3        2.7
has already lost a sizeable chunk of market share to its rivals. Losing pricing                    EV/EBITDA (x)            18.3         11.7         11.7        19.0      12.1
power has become a serious threat to brand ‘Exide’. Management has indicated                       ROCE (%)                 38.1         36.4        29.0         14.4      20.4
that further price cuts are possible if competitors enter into a price war. This may               ROE (%)                  22.9         24.2        24.3         13.5      17.4
pressurize margins going forward. Falling lead prices (declined by 24% from Q2                     Dividend yield (%) 0.2                  0.4         0.5         0.3        0.4

levels) will provide some cushion to margins. The high price lead inventory has                    Relative Price Performance
restricted Exide to increase their dependence on their in-house smelters (constant                   170
at 50-55% since last 2-3 quarters) thus putting brakes on any further margin                         150
improvement till the end of Q3.                                                                      130

                                                                                                     110
Inverter demand to reduce in long term, to see a spurt in short term                                   90
With improving power conditions in the offing, we see the demand for inverters                         70
going down from current levels in the long term. However, with the progress on                         50
that front going slower than expected, and with harsh October heat across the                          May -10 Jul-10 Sep-10 Nov-10 Feb-11 A pr-11
country, we expect Q3 inverter sales to be better than Q2. We expect the contribution                                Exide Indus tries                  BSE Sens ex
of inverter sales to reduce in the total topline from FY 13.
                                                                                                   One Year Indexed
                                                                                                   (%)                  1 Month             3 Months              12 Months
                                                                                                   Absolute                      (8)                 (20)                    (24)
                                                                                                   BSE Relative                (16)                  (18)                    (11)
                                                                   Disclaimer:
                                                                   The information in this document has been printed on the basis of publicly available information, internal data
Ashwin Patil
                                                                   and other reliable sources believed to be true and is for general guidance only. While every effort is made to
ashwin_patil@lkpsec.com                                            ensure the accuracy and completeness of information contained, the company makes no guarantee and
                                                                   assumes no liability for any errors or omissions of the information. No one can use the information as the basis
+91 22 6635 1271                                                   for any claim, demand or cause of action. LKP Securities Ltd., and affiliates, including the analyst who have
                                                                   issued this report, may, on the date of this report, and from time to time, have long or short positions in, and
                                                                   buy or sell the securities of the companies mentioned herein or engage in any other transaction involving such
                                                                   securities and earn brokerage or compensation or act as advisor or have other potential conflict of interest
                                                                   with respect to company/ies mentioned herein or inconsistent with any recommendation and related informa-
                                                                   tion and opinions. LKP Securities Ltd., and affiliates may seek to provide or have engaged in providing
                                                                   corporate finance, investment banking or other advisory services in a merger or specific transaction to the
                                                                   companies referred to in this report, as on the date of this report or in the past.
                                                                                                         Exide Industries Ltd.

                                  Outlook and valuation
                                  Subdued auto demand coupled with delay in pickup of replacement demand make us
                                  believe that Exide is on a rough wicket in FY 12. With competition intensifying and a
                                  possible further price cut, we believe Exide has lost its pricing power. In view of this, we
                                  are reducing our estimates for FY 12E as well as FY 13E, though we expect some
                                  recovery in demand in FY 13. At CMP of Rs 121, the stock trades at 16x FY13E earnings,
                                  which we believe is expensive looking at the difficult business conditions. We value
                                  Exide standalone business at Rs 115(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 BUY
                                  to Underperformer.

                                  Operational performance

                                                                            Q1 FY12                                  Q2 FY12
                                  Volumes(mn)
                                  4W                                        2030000                                  1929000
                                        OEM                                   938000                                  964000
                                        Replacement                         1092000                                   965000
                                  2W                                        3080000                                  3421000
                                        OEM                                 2220000                                  2580000
                                        Replacement                           860000                                  841000
                                  Industrial(MAh)                                413                                      391
                                  Utilization rates
                                  2W                                            79%                                      75%
                                  4W                                            92%                                      70%
                                  Industrial                                    82%                                      62%
                                  Realizations
                                  2W                                            3318                                    3157
                                  4W                                             391                                      391
                                  Industrial                                         11                                    11
                                  Margins
                                  Auto                                         16.6%                                    9.2%
                                  Industrial                                   18.9%                                    9.2%
                                  Sales(tonnage)
                                  Auto                                         28996                                   28182
                                  Industrial                                   16274                                   15145


Quarterly results

(`mn)               Q2 FY12   Q1 FY12          %qoq       Q2 FY11           % yoy         H1 FY12      H1 FY11         % yoy

Total income          11761    12444            -5.5        11272              4.3         24205         22793            6.2

RM costs               8499     7806             8.9         6686             27.1         16305         13549           20.3

Employee costs          644       720          -10.5          660             -2.4          1364          1338            1.9

Other expenses        1715      1698             1.0         1471             16.6          3413          2819           21.1

EBITDA                  895     2213           -59.6         2455            -63.6          3108          5087          -38.9

EBITDA margins %      7.6%     17.8%     (1020 bps)         21.8%       (500 bps)          12.8%        22.3%       (950 bps)

Other income             79       308          -74.4          191            -58.7           387           253           53.1

Depreciation            247       237            4.1          201             22.5           484           396           22.3

Interest                 16        11           42.5           17             -4.7            27            30           -9.6

PBT                     719     2280           -68.5         2432            -70.4          2999          4922          -39.1

Tax                     208       650          -68.1          768            -73.0           858          1600          -46.4

PAT                     511     1630           -68.6         1665            -69.3          2142          3322          -35.5



LKP Research                                                                                                               2
                                                                                                                                   Exide Industries Ltd.


Financial Summary (Standalone)
Income statement                                                        Balance sheet
YE Mar (`mn)                FY09     FY10    FY11E    FY12E    FY 13E   YE Mar (`mn)                  FY09      FY10     FY11E         FY12E     FY 13E

Net sales                  33,930   37,940   45,536   46,843   55,109   SOURCESOFFUNDS

Raw Material Cost          22,484   21,807   28,075   31,770   35,218   Equity Share Capital            800       850       850          850        850

Employee Cost               1,709    2,252    2,829    2,871    3,367   Reserves & Surplus           11,704    21,348    26,575       30,501     36,591

Other Exp                   4,290    4,986    5,845    6,698    7,855   Total Networth               12,504    22,198    27,425       31,351     37,441

EBITDA                      5,447    8,894    8,788    5,505    8,669   Total debt                    3,172       900        22            20         20

EBITDA Margin(%)             16.1     23.4     19.3     11.8     15.7   Net Deferred Tax Liability      412       590       675          700        700

Other income                 85.5   121.1    1507.8   1500.0   1600.0   Total Liabilities            16,087    23,688    28,121       32,071     38,161

Depreciation                 679      807      835      996     1,031   APPLICATION OF FUNDS

EBIT                        4,853    8,209    9,461    6,009    9,239   Net block                     6,680     6,767     8,358        9,862     11,331

EBIT Margin(%)               14.3     21.6     20.8     12.8     16.8   Capital WIP                     173       378       660        1,500      2,200

Interest                     479      103       57       50       40    Investments                   6,685    13,354    13,780       14,780     15,780

PBT                         4,375    8,106    9,404    5,959    9,199   Current Assets

PBT Margin(%)                12.9     21.4     20.7     12.7     16.7   Cash and Bank                   337        29       148        -1,803    -2,218

Tax                         1,510    2,735    2,740    1,728    2,668   Inventories                   4,385     6,068     8,590       10,224     12,605

Adj PAT                     2,865    5,371    6,664    4,231    6,531   Sundry Debtors                2,310     2,546     3,665        4,719      6,456

PAT Margins (%)               8.4     14.2     14.6      9.0     11.9   Loan, Advances & others         384       476       885         1,311     2,152
                                                                        Current Liab & Prov
Key Ratios                                                              Current liabilities           3,807     4,943     6,603        7,078      8,455
YE Mar                      FY09     FY10    FY11E    FY12E    FY 13E   Provisions                    1,059       985     1,361        1,442      1,691
Per Share Data (`)                                                      Net Current Assets            2,549     3,190     5,324        5,930      8,850
Adj. EPS                      3.6      6.3      7.8      5.0      7.7   Total Assets                 16,087    23,688    28,121       32,071     38,161
CEPS                          4.4      7.3      8.8      6.1      8.9
BVPS                        15.6     26.1      32.3    36.9      44.0   Cash Flow
DPS                           0.2      0.5      0.6      0.4      0.5
                                                                        YE Mar (`mn)                  FY09      FY10      FY11E        FY12E     FY13E
Growth Ratios(%)
                                                                        PBT                           4,354     8,106     9,404         5,959      9,199
Total revenues              19.2      11.7     22.6      2.7     17.3
                                                                        Depreciation                    679       807       835          996       1,031
EBITDA                      16.0     63.3      -1.2    -37.4     57.5
                                                                        Interest                        351       103        57            50         40
PAT                         14.4     87.5     24.1     -36.5     54.4
                                                                        Chng in working capital         922     (760)    (2,028)      (2,558)    (3,334)
EPS Growth                    8.5    76.5     24.1     -36.5     54.4
                                                                        Tax paid                     (1,384)   (2,932)   (2,816)      (1,728)    (2,668)
Valuation Ratios (X)
                                                                        Other operating activities      126      (84)    (1,473)           25            0
PE                          33.8     19.1      15.4    24.3      15.7
                                                                        CFfrom operations (a) 5,047             5,238     3,978         2,744      4,267
P/CEPS                      27.3     16.6      13.7    19.7      13.6
                                                                        Capital expenditure          (1,696)   (1,073)   (2,160)      (3,340)    (3,200)
P/BV                          7.7      4.6      3.8      3.3      2.7
                                                                        Chng in investments           (550)    (5,450)    1,000       (1,000)    (1,000)
EV/Sales                      2.9      2.7      2.3      2.2      1.9
                                                                        Acqn of shares                (959)    (1,193)   (1,423)            0            0
EV/EBITDA                   18.3      11.7     11.7    19.0      12.1
Operating Ratios (Days)                                                 Other investing activities       16        24       739             0            0

Inventory days              47.1     58.3      67.3    78.0      82.0   CF from investing (b) (3,189)          (7,692)   (1,845)      (4,340)    (4,200)

Recievable Days             24.8     24.5      28.7    36.0      42.0   Free cash flow (a+b)          1,859    (2,453)    2,133       (1,596)         67

Payables day                40.9     47.5      51.7    54.0      55.0   Equity raised/(repaid)            0     5,395         0             0            0

Net Debt/Equity (x)         0.25     0.04      0.00    0.00      0.00   Inc/dec in borrowings         (399)    (1,477)    (671)            (2)           0
Profitability Ratios (%)                                                Dividend paid (incl. tax)     (749)     (748)    (1,282)        (304)      (442)
ROCE                        38.1     36.4      29.0    14.4      20.4   Other financing activities    (391)     4,370      (62)          (49)       (40)
ROE                         22.9     24.2      24.3    13.5      17.4   CFfrom financing (c)         (1,538)    2,145    (2,015)        (354)      (482)
Dividend payout              11.2      8.9     11.5    10.0       0.0   Net chng in cash (a+b+c)        320     (308)       119       (1,951)      (415)
Dividend yield                0.2      0.4      0.5      0.3      0.4   Closing cash & cash equiv. 337             29       147        (1,803)    (2,218)
Source: Company , LKP Research

LKP Research                                                                                                                                         3
LKP


Research Team
S. Ranganathan         Head of Research           Pharmaceuticals , Agriculture           6635 1270               s_ranganathan@lkpsec.com

Ashwin Patil           Research Analyst           Automobiles & Telecom                   6635 1271               ashwin_patil@lkpsec.com

Chaitra Bhat           Research Analyst           Banking & Financial Services            6635 1211               chaitra_bhat@lkpsec.com

Deepak Darisi          Research Analyst           Energy                                  6635 1220               deepak_darisi@lkpsec.com




Institutional Equities
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Hardik Mehta           Sales                      98190 66569                             6635 1246               hardik_mehta@lkpsec.com

Varsha Jhaveri         Sales                      93241 47566                             6635 1296               varsha_jhaveri@lkpsec.com

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Gurdarshan Singh       Dealing                    93228 61461                             6635 1246               gurdarshan_singh@lkpsec.com

Bharat Shah            Dealing                    98337 97256                             6635 1210               bharat_shah@lkpsec.com




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