HDFC BANK INVESTMENT ADVISORY GROUP
AAG
Impact on
Company Rating
Company
Exide Industries
Hold Neutral
Ltd. (Rs.285)
Brief:
 Exide Industries Ltd. (Exide)
reported mixed set of numbers for
Q1FY19, where topline was better
than expectation while bottom line
was in-line with market
expectations.
 Total income increased by
32.6% YoY to Rs.27.7 bn.
 EBITDA grew by 20.6% YoY to
Rs.3.9 bn.
 However, EBITDA margin fell
marginally by 141 bps YoY to
14.1%.
 Lower other income, higher tax
rate (242 bps YoY) and higher
depreciation impacted the net
profit that came in at Rs.2.1 bn, up
by 9.1% YoY.
 The company reported an EPS of
Rs.2.5 for the quarter.
 Currently, we have a Hold rating
on the stock with the target price
of Rs.301 at 22x (maintaining
earlier multiple) FY20E EPS of
Rs.12.5 and adding Rs.25 per
share for the embedded value in
Insurance business (as of March
2018).
Please refer to Disclaimer on the next page
Market Impact August 7, 2018
Our Comments
Exide Industries Ltd. (Exide) reported mixed set of numbers for Q1FY19,
where topline was better than expectation while bottom line was in-line
with market expectations. Total income increased by 32.6% YoY to
Rs.27.7 bn. EBITDA grew by 20.6% YoY to Rs.3.9 bn. However, EBITDA
margin fell marginally by 141 bps YoY to 14.1% due to sharp jump in raw
material cost that was partially offset by fall in other expenses and
employee cost as a percentage of total income. Lower other income,
higher tax rate (242 bps YoY) and higher depreciation impacted the net
profit that came in at Rs.2.1 bn, up by 9.1% YoY. The company reported
an EPS of Rs.2.5 for the quarter.
During the quarter, the raw material cost as a percentage of total income
grew by 304 bps YoY to 66.4% due to rise in Lead prices (key raw
material) and rupee depreciation. However, employee cost fell by
100 bps YoY to 5.8% and Other expense fell by 63 bps YoY as a
percentage of total income to 13.6% due to cost control initiatives
undertaken by the company. As a result, the EBITDA margin fell by
141 bps YoY to 14.1%.
As per the management, the revenue growth during the quarter was on
the back of good volume growth in automotive and motorcycle segments
while growth in UPS, Telecom, Solar as well as other infrastructure
segments remained buoyant. The management also highlighted that
while the higher lead costs coupled with currency depreciation had an
adverse impact on the margin, the Company continues to focus on cost
control measures and technology upgradation to improve the bottom line.
Exide is India’s largest manufacturer of lead acid storage batteries
and power storage solutions provider with strong presence in
automotive, power, telecom, infrastructure projects, computer
industries, railways, mining, renewable energy and defence sectors.
Going ahead, the steady demand for Automobile in India especially
in passenger vehicle bodes well for Exide’s Original Equipment
Manufacturers (OEM) segment. Further, the strong market share in
Industrial segments of Solar, Backup Power, Manufacturing and
Project sector may drive the volume growth with the expected
recovery in industrial capex cycle over the long term. The company
is working on expanding its portfolio for emerging requirements
like electric vehicles, hybrid cars and start-stop batteries and has
recently added e-rickshaw battery and completely sealed and
maintenance-free battery in its portfolio. The management in its
recent media interaction has highlighted that the company would be
manufacturing lithium-ion batteries at the recently acquired facility
of Tudor India in Gujarat in collaboration with Swiss company,
‘Leclanché’. The company expects module and battery-pack
assembly line to be operational by Q2CY19 and a lithium-ion cell
production plant is expected to be operational by mid-CY20.
Further, it is focusing on capturing market share from the
unorganized commercial vehicles and tractor battery markets with
target to enhance customer outlet and launch of nine new products
in the aftermarket segment across categories and price points. The
company is also expanding its reach in overseas markets like GCC
(Gulf Co-operation Council) countries, South East Asian countries
and select African nations. The lead prices (key raw material) had
been very volatile and would be the key parameter to watch out for
in the near term. However, the management is working on various
cost cutting initiatives and improving the product mix to maintain
its margins. Currently, we have a Hold rating on the stock with the
target price of Rs.301 at 22x (maintaining earlier multiple) FY20E
EPS of Rs.12.5 and adding Rs.25 per share for the embedded value
in Insurance business (as of March 2018). Any earning/target price
revision would depend on the improvement in margin, changes in
market share, implementation of GST and its tax structure, value in
Insurance business and changes in general business momentum.
 Daily closing price for last 3 years of Exide Inds.
300

250

200

150

100 Rating Interpretation

50 Rating Expected to
0
Buy Appreciate more than 10% over a 12 to 15 month period
Hold Appreciate below 10% over a 12 to 15 month period
Dec-15

Dec-16

Dec-17
Jun-16

Jun-17

Jun-18
Oct-15

Apr-16

Oct-16

Oct-17
Feb-16

Feb-17
Apr-17

Feb-18
Apr-18
Aug-15

Aug-16

Aug-17

Aug-18
Under Review Rating under review
Source: Bloomberg Exit Exited out of the Model Portfolio

Disclaimer:
This communication is being sent by the Investment Advisory Group of HDFC Bank Ltd., registered under SEBI (Investment
Advisors) Regulations, 2013
This note has been prepared exclusively for the benefit and internal use of the recipient and does not carry any right of reproduction
or disclosure. Neither this note nor any of its contents maybe used for any other purpose without the prior written consent of HDFC
Bank Ltd, Investment Advisory Group. In preparing this note, we have relied upon and assumed, without any independent
verification, accuracy and completeness of all information available in public domain or from sources considered reliable.
This note contains certain assumptions and views, which HDFC Bank Ltd, Investment Advisory Group considers reasonable at this
point in time, and which are subject to change. Computations adopted in this note are indicative and are based on current market
prices and general market sentiment. No representation or warranty is given by HDFC Bank Ltd, Investment Advisory Group as to
the achievement or reasonableness or completeness of any idea and/or assumptions.
This note does not purport to contain all the information that the recipient may require. Recipients should not construe any of the
contents herein as advice relating to business, financial, legal, taxation, or other matters and they are advised to consult their own
business, financial, legal, taxation and other experts / advisors concerning the company regarding the appropriateness of investing
in any securities or investment strategies discussed or recommended in this note and should understand that statements regarding
future prospects may not be realized. It may be noted that investments in equity and equity-related securities involve a degree of
risk and investors should not invest any funds unless they can afford to take the risk of losing their investment. Investors are advised
to undertake necessary due diligence before making an investment decision. For making an investment decision, investors must
rely on their own examination of the Company including the risks involved. Investors should note that income from investment in
such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back
less than originally invested. Neither HDFC Bank nor any of its employees shall be liable for any direct, indirect, special, incidental,
consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this
material.
This note does not constitute an offer for sale, or an invitation to subscribe for, or purchase equity shares or other assets or
securities of the company and the information contained herein shall not form the basis of any contract. It is also not meant to be or
to constitute any offer for any transaction.
HDFC Bank and its affiliates, officers, directors, key managerial persons and employees, including persons involved in the
preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities thereof,
of company (ies) mentioned herein. HDFC Bank may at any time solicit or provide commercial banking, credit, advisory or other
services to the issuer of any security referred to herein. Accordingly, information may be available to HDFC Bank, which is not
reflected in this material, and HDFC Bank may have acted upon or used the information prior to, or immediately following its
publication.
HDFC BANK neither guarantees nor makes any representations or warranties, express or implied, with respect to the fairness,
correctness, accuracy, adequacy, reasonableness, viability for any particular purpose or completeness of the information and
opinions. Further, HDFC BANK disclaims all liability in relation to use of data or information used in this report which is sourced from
third parties.

Disclosures:
Research analyst or his/her relatives or HDFC Bank or its associates may have financial interest in the subject company in ordinary
course of business. Research analyst or his/her relatives does not have actual/ beneficial ownership of 1% or more securities of the
subject company at the end of the month immediately preceding the date of publication of research report: HDFC Bank or its
associates may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month
immediately preceding the date of publication of research report. Subject company may have been client of HDFC Bank or its
associates during twelve months preceding the date of publication of the research report. HDFC Bank or its associates may have
received compensation from the subject company in the past twelve months. HDFC Bank or its associates may have managed or
co-managed public offering of securities for the subject company in the past twelve months. HDFC Bank or its associates may have
received compensation for investment banking or merchant banking or brokerage services from the subject company in the past
twelve months. HDFC Bank or its associates may have received compensation for products or services other than investment
banking or merchant banking or brokerage services from the subject company in the past twelve months. HDFC Bank or its
associates has not received compensation or other benefits from the subject company or third party in connection with the research
report. Research analyst has not served as an officer, director or employee of the subject company. Neither research analyst nor
HDFC Bank has been engaged in market making activity for the subject company. Three year price history of the daily closing price
of the securities covered in this note is available at www.nseindia.com and www.bseindia.com.