ExideIndustries

Toplinedisappointshintingatpossiblelossofmarketshare
October23,2013 Surjit Arora surjitarora@plindia.com +91-22-66322235

Rating Price Target Price Implied Upside Sensex Nifty (PricesasonOctober23,2013)

Accumulate Rs126 Rs136 7.9% 20,768 6,178

Exide stemmed a negative surprise on the topline front, with degrowth of 5.9% YoY for Q2FY14 at Rs14.3bn (against expectation of 78% growth). Management attributes the same to sluggish demand in Auto OEM segment and Industrial batteries (mainly infrastructure and home inverter segments). On account of disappointing topline, EBITDA growth was restricted to only 7% YoY to Rs2.0bn way below our estimate of Rs2.4bn. We are downgrading our earnings estimates by78%totakeintoaccountthedismalperformanceduringthequarter.Giventhe price stability in the battery replacement segment, slew of price hikes and richer productmixinfavourofreplacement,wecontinueourpositivestanceonthestock At the CMP, the stock is trading at 16.1x FY14E earnings and 12.9x FY15E earnings, which in our view is attractive, given the 17.0% CAGR in earnings over FY13FY15E period. We reiterate our Accumulate call on the stock with a revised TP of Rs136/share(Rs147earlier).

Tradingdata Market Cap. (Rs bn) Shares o/s (m) 3M Avg. Daily value (Rs m) Majorshareholders Promoters Foreign Domestic Inst. Public & Other StockPerformance (%) 1M 6M Absolute (0.6) (5.2) Relative (5.0) (13.4) HowwedifferfromConsensus EPS(Rs) PL Cons. 2014 6.7 7.8 2015 8.4 9.2

107.1 850.0 130.4 45.99% 17.48% 15.76% 20.77% 12M (9.7) (20.7) %Diff. 13.9 9.1

Sluggishness in Auto OEM and Industrial segment drags growth: Led by a decline of more than ~10% in Auto OEM and Industrial segment, the top-line for the quarter de-grew by 5.9% YoY to Rs14.3bn below our estimate of Rs16.2bn. We are cautious about the fact that despite slew of price hikes in replacement segment, the top-line was disappointing. This prima facie hints to some market share loss in the Auto segment, in our view. Gross margins declined by 120bps QoQ, mainly led by higher lead prices (Q2FY14 average Rs131/kg vs Rs108/kg in Q1FY14). On account of lower top-line, other expenditure increased by 70bps QoQ. As a result, EBITDA margins declined by 200bps QoQ to 14.1% as against the expectation of 14.8%. However, EBITDA margins improved by 170bps YoY, mainly led by 70bps improvement in gross margins and 100bps improvement in other expenses (on account of favourable product mix within Auto segment). As a result, EBITDA grew by 7.0% YoY to Rs2.0bn (Rs2.4bn). On account of lower other income, PAT for the quarter was flat at Rs1.19bn (PLe: Rs1.52bn). Contd2
2012 51,111 11.8 6,880 4,613 5.4 (25.5) 1.5 2012 13.5 15.9 16.0 2.1 15.5 19.9 3.5 1.2 2013 60,767 18.9 7,896 5,228 6.2 13.3 1.0 2013 13.0 16.1 16.2 1.8 13.5 17.6 3.1 0.8 2014E 64,352 5.9 9,481 5,699 6.7 9.0 1.2 2014E 14.7 15.6 15.7 1.6 11.1 16.1 2.8 1.0 2015E 74,384 15.6 11,683 7,138 8.4 25.2 1.7 2015E 15.7 17.2 17.3 1.4 8.8 12.9 2.4 1.3

PricePerformance(RIC:EXID.BO,BB:EXIDIN)
(Rs) 160 140 120 100 80 60 40 20 0
Dec-12 Oct-12 Jun-13 Feb-13 Apr-13 Aug-13 Oct-13

Keyfinancials(Y/eMarch) Revenues (Rs m) Growth(%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth(%) Net DPS (Rs) Profitability&Valuation EBITDAmargin(%) RoE(%) RoCE(%) EV / sales (x) EV / EBITDA (x) PE (x)* P / BV (x) Netdividendyield(%) Source:CompanyData;PLResearch

Source:Bloomberg

*Adj.forRs18/shareofinsurancevalue

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report

Q2FY14ResultUpdate

Exide Industries

Revising earnings downwards by 7.5% in FY15E: Led by dismal top-line during Q2FY14, we have revised our revenue estimates downwards by 8% each for FY14E as well as FY15E. We expect the company to focus on profitability more than market share gains from here on. Hence, we are building in a margin expansion of 270bps to 15.7% over FY13-FY15E period. This will be partially led by replacement share which would increase to 65% of Auto segment as against 58% in FY13E. As a result, our FY14E earning is revised downwards by 10% and FY15E earning by ~7.5%. Lead prices trending upwards; stable rupee a positive: Lead prices had increased from Rs109/kg in Q1FY14 to Rs132/kg in Q2FY14. Majority of this increase can be attributed to rupee which depreciated by 11% during the quarter. Going forward, though lead has increased by ~6%, rupee has stabilised at Rs61.5/$. Exide has taken a price hike to the tune of 7-7.5% in Sep13 in the auto replacement market which, in our view, would compensate majorly for the raw material cost increase. Hence, we expect margins to trend upwards from 14.1% witnessed in Q2FY14. Valuations attractive at 12.9x FY15E earnings, given the 17.0% CAGR in earnings for FY13FY15E period: Adjusting for Exides 100% stake in ING Life Insurance (valued at Rs18/share), the stock is trading at 16.1x FY14E and 12.9x FY15E earnings, respectively. This, in our view, is attractive, given the estimated earnings CAGR of 17.0% over FY13-FY15E period. We assign a 14x 1yr fwd multiple to FY15E EPS and value insurance business at Rs18/share. We reiterate our Accumulate call on the stock with a revised SOTP-based TP of Rs136/share (Rs147 earlier). Further, depreciation of Rupee against Dollar is a key risk to our call.

October 23, 2013

Exide Industries

Exhibit1: Y/eMarch NetSales

Q2FY14ResultOverview(Rsm) Q2FY14 14,321 9,374 65.5 855 6.0 2,079 14.5 12,307 2,014 14.1 313 5 37 1,732 546 31.5 1,186 Q2FY13 15,214 10,071 66.2 897 5.9 2,364 15.5 13,332 1,882 12.4 282 10 125 1,716 514 30.0 1,202 (1.3) 11.2 (52.0) (70.7) 1.0 6.2 (7.7) 7.0 (12.1) (4.7) YoYgr.(%) (5.9) (6.9) Q1FY14 16,263 10,454 64.3 938 5.8 2,248 13.8 13,640 2,623 16.1 300 4 62 2,381 795 33.4 1,587 H1FY14 30,584 19,828 64.8 1,793 5.9 4,327 14.1 25,948 4,637 15.2 614 8 99 4,114 1,341 32.6 2,773 H1FY13 30,749 20,185 65.6 1,738 5.7 4,618 15.0 26,540 4,209 13.7 558 24 273 3,901 1,179 30.2 2,722 1.9 10.0 (64.8) (63.8) 5.5 13.7 (2.2) 10.2 (6.3) 3.2 YoYgr.(%) (0.5) (1.8)

Expenditure Raw Material %ofNetSales %ofNetSales %ofNetSales Salaries & Wages Other Exp. Total Expenditure EBITDA EBITDAMargin(%) Depreciation Net interest Non Operative Income PBT Tax Total TaxRate(%) Rep.PAT Source:CompanyData,PLResearch

October 23, 2013

Exide Industries
IncomeStatement(Rsm) Y/eMarch 2012
NetRevenue Raw Material Expenses Gross Profit Employee Cost Other Expenses EBITDA Depr. & Amortization Net Interest Other Income ProfitbeforeTax Total Tax ProfitafterTax Ex-Od items / Min. Int. Adj.PAT Avg.SharesO/S(m) EPS(Rs.) 51,111 34,329 16,782 2,862 7,040 6,880 1,007 53 633 6,453 1,840 4,613 4,613 850.0 5.4

2013
60,767 40,396 20,372 3,493 8,983 7,896 1,135 42 704 7,423 2,195 5,228 5,228 850.0 6.2

2014E
64,352 41,924 22,427 3,731 9,215 9,481 1,270 55 350 8,506 2,807 5,699 5,699 850.0 6.7

2015E
74,384 48,003 26,381 4,058 10,639 11,683 1,400 55 425 10,653 3,516 7,138 7,138 850.0 8.4

BalanceSheetAbstract(Rsm) Y/eMarch 2012

Shareholder's Funds Total Debt Other Liabilities TotalLiabilities Net Fixed Assets Goodwill Investments Net Current Assets Cash&Equivalents OtherCurrentAssets CurrentLiabilities Other Assets TotalAssets 30,573 825 31,398 9,943 15,546 5,909 578 14,834 9,504 31,398

2013
34,235 977 35,212 10,532 16,401 8,350 748 17,802 10,200 35,283

2014E
38,669 977 39,645 11,782 17,251 10,612 2,290 18,563 10,241 39,645

2015E
44,139 977 45,115 11,982 18,001 15,133 4,722 21,719 11,308 45,115

CashFlowAbstract(Rsm) Y/eMarch
C/F from Operations C/F from Investing C/F from Financing Inc. / Dec. in Cash Opening Cash Closing Cash FCFF FCFE

2012
5,102 (3,026) (1,647) 430 148 578 3,308 3,286

2013
3,597 (2,422) (1,005) 170 578 748 2,331 2,331

2014E
5,929 (3,050) (1,337) 1,542 748 2,290 3,749 3,749

2015E
7,050 (2,950) (1,668) 2,432 2,290 4,722 4,850 4,850

QuarterlyFinancials(Rsm) Y/eMarch Q2FY13

NetRevenue EBITDA %ofrevenue Depr. & Amortization Net Interest Other Income ProfitbeforeTax Total Tax ProfitafterTax Adj.PAT 15,214 1,882 12.4 282 10 125 1,716 514 1,202 1,202

Q3FY13
14,632 1,647 11.3 289 11 121 1,469 428 1,041 1,041

Q4FY13
15,412 2,044 13.3 288 8 304 2,053 588 1,465 1,465

Q1FY14
16,263 2,623 16.1 300 4 62 2,381 795 1,587 1,587

KeyFinancialMetrics Y/eMarch Growth

Revenue (%) EBITDA (%) PAT (%) EPS (%)

2012
11.8 (23.8) (25.5) (25.5)

2013
18.9 14.8 13.3 13.3

2014E
5.9 20.1 9.0 9.0

2015E
15.6 23.2 25.2 25.2 15.7 9.6 17.3 17.2 (0.1) 65 12.9 2.4 8.8 1.4

KeyOperatingMetrics Y/eMarch

2012

2013
21,649 40,250 2,389 33,317 8,299

2014E
20,473 45,393 2,137 32,985 8,714

2015E
21,852 52,005 2,231 37,794 9,934

Profitability
EBITDA Margin (%) PAT Margin (%) RoCE (%) RoE (%) 13.5 9.0 16.0 15.9

13.0 8.6 16.2 16.1

14.7 8.9 15.7 15.6

Industrial Seg. Turnover (Rs m) 17,974 Auto Seg. Turnover (Rs m) 34,489 Lead Price ($/tonne) 2,420 Lead & Lead Alloys (Rs m) 27,661 Other RM (Rs m) 6,916 Source:CompanyData,PLResearch.

BalanceSheet
Net Debt : Equity Net Wrkng Cap. (days) 48

62

(0.1) 63

Valuation
PER (x) P / B (x) EV / EBITDA (x) EV / Sales (x) 19.9 3.5 15.5 2.1

17.6 3.1 13.5 1.8

16.1 2.8 11.1 1.6

EarningsQuality

Eff. Tax Rate 28.5 29.6 33.0 33.0 Other Inc / PBT 9.8 9.5 4.1 4.0 Eff. Depr. Rate (%) 5.7 5.8 5.8 5.9 FCFE / PAT 71.2 44.6 65.8 67.9 Source:CompanyData,PLResearch.*adj.forRs18/shareforinsurancevalue

October 23, 2013

Exide Industries

Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 RatingDistributionofResearchCoverage

60%
%of TotalCoverage

56.0%

50% 40% 30% 20% 10% 0% BUY Accumulate Reduce

25.6% 16.8% 1.6% Sell

Accumulate Sell TradingSell UnderReview(UR) : : : : Outperformance to Sensex over 12-months Over 15% underperformance to Sensex over 12-months Over 10% absolute decline in 1-month Rating likely to change shortly

PLsRecommendationNomenclature
BUY Reduce TradingBuy NotRated(NR) : : : :

Over 15% Outperformance to Sensex over 12-months Underperformance to Sensex over 12-months Over 10% absolute upside in 1-month No specific call on the stock

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October 23, 2013