ICICI Securities Limited

Result Update
April 29, 2011
Rating matrix
Rating : Buy Exide Industries (EXIIND)
Target : | 169
Target Period : 12 months | 150
Potential Upside : 13% WHAT’S CHANGED…
PRICE TARGET .............................................................................................. Unchanged
Key Financials
EPS (FY12E) ........................................................................Changed from | 8.3 to | 9.1
(| Crore) FY10 FY11E FY12E FY13E
Net Sales 3794.0 4575.6 5532.4 6495.8 EPS (FY13E) ....................................................................................Introduced at | 10.6
EBITDA 889.4 900.8 1091.7 1332.7 RATING....................................................................... Changed from Strong Buy to Buy
Net Profit 537.1 633.1 776.3 904.9
EPS 6.3 7.8 9.1 10.6 Earning surprises! Exide back on track…
Valuation summary Exide Industries (EIL) reported its Q4FY11 results that were above our
FY10 FY11E FY12E FY13E estimates with net sales at | 1226.1 crore (I-direct estimate: | 1146.2
Core PE (x) 21.1 17.0 14.6 12.5 crore), up 19.3% YoY and 16.9% QoQ. The jump in revenues was due to
Core target PE (x) 23.8 19.2 16.5 14.1 realisation improvements supported by higher replacement market sales
EV to EBITDA (x) 14.4 14.1 11.5 9.1 (~5% jump QoQ) as capacity constraints eased a tad. The EBITDA
Price to book (x) 5.7 4.7 3.8 3.1 performance improved as RM costs declined (190 bps QoQ). This was
RoNW (%) 31.0 26.9 25.4 24.2 mainly due to higher cost efficiencies from the in-house smelting units
RoCE (%) 41.7 32.4 32.7 32.7 leading to an EBITDA margin rise (390 bps QoQ). EIL’s performance was a
Stock data welcome surprise after the Q3FY11 disappointment and leaves more
headroom for growth. The PAT came in at | 163.7 crore (I-direct estimate:
Mcap |12788.3crore
| 133.4 crore) boosted further by dividend income of | 21.6 crore. On a
Debt (FY11) |0crore
consolidated basis also, FY11 PAT was reported at | 618.82 crore boosted
Cash (FY10) |14crore
by the insurance JV with ING reporting lower losses at | 35 crore (| 68.3
EV |12788.3crore
crore loss in FY10).
52 week H/L | 180 / 108
Equity cap |85crore ƒ Highlights of the quarter
Face value |1 EIL has bounced back strongly after a sluggish Q3FY11 performance as
MF Holding 16% higher margin after-market sales increased by ~4% QoQ from 1.17:1 ratio
FII Holding 15.1% to 1.22:1 between replacement and OEM sales. This has been helped as
Price movement new capacities have been added in Q4 and with the new Ahmednagar
200 7,000 plant ramping up capacity. The industrial segment continued to witness
6,000 lower offtake in the telecom and power segment. The company has seen
150 5,000
lower RM costs with the increase of in-house sourcing of lead continuing
to increase, which has ~10-15% pricing benefit in comparison to LME
4,000
100 prices. The company also received higher dividend income (| 21.6 crore)
3,000
due to better subsidiary performance.
50 2,000
1,000 Valuation
0 0 Exide as a market leader in the battery business acts as a strong proxy to
May-10 Aug-10 Nov-10 Jan-11 Apr-11 expanding auto OEM and replacement demand. Going ahead, we expect
Nifty (R.H.S) Price (L.H.S) the capacity constraints to ease with a better margin performance. At the
CMP of | 150, the stock is trading at12.5x FY13E EPS of | 10.6. We have
Analyst’s name
valued the stock on an SOTP basis with the core business at 14x FY13E
Karan Mittal EPS of | 10.6 to arrive at a per share value of | 149 valuing other
karan.mittal@icicisecurities.com
subsidiaries and investments at | 20/share. We maintain our target price
Nishant Vass
of | 169. We have changed our rating from STRONG BUY to BUY.
nishant.vass@icicisecurities.com
Exhibit 1: Financial Performance
(| Crore) Q4FY11 Q4FY11E Q4FY10 Q3FY11 YoYchg(%) QoQchg(%)
Net Sales 1226.1 1146.2 1028.0 1049.1 19.3 16.9
EBITDA 233.9 192.0 215.2 159.1 8.7 47.0
EBITDA Margin (%) 19.1 16.8 20.9 15.2 (180) bps 390 bps
Depreciation 22.7 21.0 20.8 21.2 8.9 6.9
Interest 0.8 1.4 2.6 1.9 -68.3 -56.4
Reported PAT 163.7 133.4 134.5 124.4 21.7 31.5
EPS (|) 1.9 1.6 1.6 1.5 21.7 31.5
Source: Company press release, ICICIdirect.com Research

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ICICI Securities Limited
Result analysis

Replacement volume improves as capacities flow through…

Unlike the Q3FY11 results, EIL improved its ratio for sales to aftermarket
in relation to OEM sales. The ratio of replacement sales to OEM improved
to 1.2:1 (~5% QoQ rise) mainly due to incremental capacity addition and
improved utilisation of the newly commissioned Ahmednagar facility.
However, the company plans to improve this ratio towards 1.6:1 by
H2FY12E. This would lead to a significant boost to its margins at the
EBIDTA and PAT level. The demand outlook towards OEM remains
positive with 12-15% growth expected in FY12E. The management
remains confident of improving its margin performance with higher
replacement sales share by H2FY12E.

The increasing auto-OEM volume contribution has been a problem in the

short-term with capacity constraints. However, post H2FY12E, this would
provide EIL a strong position in both the OEM as well as aftermarket
sales. EIL is expected to raise further capacity in the PV and two-wheeler
segment by 0.44 crore units and 0.2 crore units, respectively, by
H2FY12E. EIL would greatly benefit from the fact that the strong growth of
battery led self starting vehicles in the two-wheeler OEM segment in the
past two or three years would see a replacement cycle in FY12-13
providing strong replacement demand.

The industrial segment has remained sluggish in FY11 with demand from
the telecom, railways and even UPS segment not witnessing strong
traction. The telecom segment continues to be worst hit in both volume
terms as well as lower per ampere realisations. The UPS segment, which
under normal circumstances witnesses strong growth in H1 of any
calendar year, has witnessed tepid pick-up due to slower onset of
summer in the northern region and improvement in the power supply
situation. We remain cautious on the industrial segment growth and
would wait for H1FY12 to view the demand growth and future outlook for
the same.

Exhibit 2: Revenue contribution from automotive and industrial segment

Auto-contribution 65% Industrials contribution 35%

Others
9%

OEM
35% Telecom
20%

Power
54%

Replaceme
nt Railways
65% 17%

Source: Management discussion, Industry reports ICICIdirect.com Research

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ICICI Securities Limited

The topline as well as bottomline have seen a jump on a Exhibit 3: Topline and bottomline trends
sequential basis mainly improvement in the replacement 1300 250
market sales as capacity limitations start to ease out
1200
200
1100
1000 150

900 100
800
50
700
600 0
Q4FY11 Q1FY11 Q2FY11 Q3FY11 Q4FY11

Topline (LHS) Bottomline

Source: Company press release, ICICIdirect.com Research

Average lead prices have seen an increase of ~8% on a Exhibit 4: Average lead LME price and EBITDA margins trend
QoQ basis.
140 30
120 25
100
20
80
(|/Kg)

15
60
10
40
20 5

0 0
Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

Avg. Lead cost (LHS) EBIDTA margins

Source: Company press release, Bloomberg, , ICICIdirect.com Research

ICICIdirect.com | Equity Research

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ICICI Securities Limited

Outlook and valuation

Outlook
Exide Industries is one of the most suitable proxy plays to the auto sector
demand juggernaut. The duopolistic nature of the battery business, with
EIL leading the charge in the OEM space along with the replacement
market, makes us confident over the outlook. We are confident of seeing
a further recovery in sales towards the replacement segment with
incremental capacity coming through by H1FY12E. The replacement
segment continues to have a significant unorganised presence. Exide has
recovered a certain portion of the loss of market share (~4-6%) in
Q3FY11.

On the input costs front, we have witnessed rising lead LME prices (up
~8% QoQ). However, EIL continues to increase its backward integration
through its smelting arms. FY11 has witnessed ~50-55% in house supply
(to be raised to ~70% by FY13E) of lead requirement through its own
lead smelters. We expect adequate cushion on the raw material front.

We have revised our FY12 estimates upwards factoring in the

improvement in replacement sales and a gradual improvement in market
share in FY12 along with higher dividend income from subsidiaries. We
have raised our EPS estimates for FY12 by 10.6% to | 9.1 and introduced
our FY13E EPS at | 10.6.

Exhibit 5: Revised financials

Previous Revised Introduced %chg.
(| crore) FY12E FY12E FY13E FY12E
Net sales 5,118.3 5,532.4 6,495.8 8.1
EBITDA 1,030.7 1,091.7 1,332.7 5.9
EBITDA margin(%) 20.1 19.7 20.5 (40) bps
Net profit 704.6 776.3 904.9 10.2
EPS(Rs) 8.3 9.1 10.6 10.0
Source: Company, ICICIdirect.com Research

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ICICI Securities Limited

Valuation
We believe the automotive demand witnessed till now is more structural
in nature this time around. We expect EIL to reap the benefits of the same
since it is the market leader in the duopolistic organised battery business.
At the CMP of | 150, the stock is trading at 14.6x FY12E core EPS of | 9.1
and 12.5x FY13E of | 10.6. We have used the SOTP methodology to value
the stock. We value the standalone business at 14x FY13E EPS of | 10.6
to arrive at a per share value of | 149 for the core business. The smelting
subsidiaries are valued at | 10/share (assuming 85% discount to
Hindustan Zinc’s market cap/sales multiple for smelting businesses) along
with a P/BV valuation of 1.0 for the rest of the subsidiaries. We have
valued the 50% stake in ING Vysya at | 10/share using an NBAP multiple
of 14x. Our target price of | 169 implies an upside potential of 13%. We
have changed our rating on the stock from STRONG BUY to BUY.

Exhibit 6: Valuation
SOTP Valuation Estimated value Value per share Remark
Standalone Business
FY13E EPS 10.6
Multiple 14.0
Value per share 149
Insurance stake (50%)
Value of ING Vysya Insurance (| crore) 1761.1 Market Cap
Value towards Exide Industries 880.6
Value per share 10
Value of subsidiaries (| crore)
Value of smelting subsidiaries 778 9 Market cap
Value of other subsidiaries 58.6 1 1 P/BV
Total Value per Share 169
Source: Company annual report, ICICIdirect.com Research

Exhibit 7: Valuation table

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) (x) (%) (%)
FY10 3794.0 6.3 21.1 14.4 31.0 41.7
FY11E 4575.6 20.6 7.8 24.1 17.0 14.1 26.9 32.4
FY12E 5532.4 20.9 9.1 16.5 14.6 11.5 25.4 32.7
FY12E 6495.8 17.4 10.6 16.6 12.5 9.1 24.2 32.7
Source: Company, ICICIdirect.com Research

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ICICI Securities Limited
ICICIdirect.com Research coverage universe (Automotive ancillaries)
Apollo Tyres Sales (| cr) EPS (|) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code APOTYR CMP(|) 71 FY09 4,070.4 2.1 33.1 12.0 8.4 14.7
Target(|) 62 FY10 5,036.6 8.4 8.4 5.7 27.0 32.0
Mcap (|cr) 3451.3 % Upside -12.7 FY11E 5,302.9 3.6 19.4 9.7 10.2 12.8
FY12E 6,321.4 5.7 12.3 6.9 14.3 15.0

Automotive Axle Sales (| cr) EPS (|) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code AUTAXL CMP(|) 443 SY09 267.2 3.6 124.4 20.4 3.1 6.3
Target(|) 477 SY10 669.7 29.2 15.2 7.9 23.3 27.0
Mcap (|cr) 669.7 % Upside 7.8 SY11E 965.3 39.3 11.3 6.1 26.0 30.1
SY12E 1113.3 50.3 8.8 4.9 26.9 32.9

Balkrishna Industries Sales (| cr) EPS (|) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code BALIND CMP(|) 148 FY09 1,252.3 36.2 4.1 7.9 15.9 16.3
Target(|) 136 FY10 1,387.0 106.9 1.4 9.6 36.6 32.4
Mcap (|cr) 285.6 % Upside -8.3 FY11E 2,011.2 108.4 1.4 5.3 27.6 25.5
FY12E 2,219.1 19.4 7.6 6.6 19.8 17.0

Bharat Forge Sales (| cr) EPS (|) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code BHAFOR CMP(|) 353 FY09 4,775.1 1.9 189.2 17.1 2.5 9.6
Target(|) 409 FY10 3,327.6 -3.5 NA 24.8 NA NA
Mcap (|cr) 7853.5 % Upside 16.0 FY11E 4,897.7 12.4 28.3 12.7 13.7 14.0
FY12E 5,866.7 20.7 17.0 8.8 16.2 20.9

JK Tyres Sales (| cr) EPS (|) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code JKIND CMP(|) 99 FY09 4,903.6 4.6 21.3 5.0 3.5 10.7
Target(|) 118 FY10 3,677.7 39.8 2.5 3.0 25.9 20.0
Mcap (|cr) 405.3 % Upside 19.6 FY11E 4,727.3 10.3 9.6 5.6 5.9 8.7
FY12E 5,596.4 36.9 2.7 4.1 18.9 15.1

Subros Sales (| cr) EPS (|) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code SUBROS CMP(|) 35 FY09 694.4 2.2 16.1 5.5 7.6 12.2
Target(|) 35 FY10 906.5 4.6 7.7 3.9 14.2 18.7
Mcap (|cr) 212.1 % Upside -0.7 FY11E 1073.7 4.3 8.3 4.0 11.8 13.5
FY12E 1,241.0 5.4 6.5 3.2 13.3 14.7

Motherson Sumi Sales (| cr) EPS (|) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code MOTSUM CMP(|) 226 FY09 2595.6 5.0 66.2 34.1 26.7 9.0
Target(|) 200 FY10E 6702.2 6.5 25.3 12.8 24.9 18.3
Mcap (|cr) 6542.96 % Upside -11.9 FY11E 8176.6 9.1 20.2 8.2 25.6 28.0
FY12E 9813.0 11.0 16.7 6.0 26.5 32.1

Exide Industries Sales (| cr) EPS (|) PE(x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code EXIIND CMP(|) 150.5 FY09 3393.0 3.6 42.3 22.1 25.0 32.4
Target(|) 169.3 FY10E 3794.0 6.3 23.8 13.3 31.0 41.7
Mcap (|cr) 12788.25 % Upside 12.6 FY11E 4473.7 7.5 20.1 13.7 29.0 34.3
FY12E 5214.7 8.6 17.5 10.9 29.6 37.5
Source: Company, ICICIdirect.com Research SY~ September Year end

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ICICI Securities Limited
Exhibit 8: Recommendation history
200
180
160
140
120
100
80
60 TP:184, Buy
Initiated coverage TP:169,
40
StrongBuy
20
0
May-10 Jun-10 Aug-10 Sep-10 Nov-10 Dec-10 Jan-11 Mar-11 Apr-11

Price (L.H.S)

Source: Reuters, ICICIdirect.com Research

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ICICI Securities Limited

ICICIdirect.com Universe price movement vis-à-vis BSE Auto index

Exhibit 9: OEM comparison with BSE Auto

The chart compares the movement of OEM stocks in the 250
ICICIdirect.com Universe with the BSE Auto index, thereby 240
230
reflecting the degree of mimicking of the index 220
210
200
190
Since mid-February 2010, Bajaj Auto, Tata Motors and 180
170
Escorts have outperformed while Maruti Suzuki has 160
150
underperformed in comparison to the index by being 140
130
divergent on the upside and downside, respectively 120
110
100
90
80
70 Escorts
60
Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11
BSE Auto Bajaj Maruti Tata Motors
M&M Escorts Hero Honda

Source: Company, ICICIdirect.com Research

Exhibit 10: Ancillaries comparison with BSE Auto

The chart compares the movement of auto ancillary stocks

in the ICICIdirect.com universe with the BSE Auto index 175

155
The volatile nature of smaller ancillary companies is
135
reflected. These have met with numerous fluctuations with
the exception of larger market capitalisation companies like 115
Bharat Forge and Exide Industries, which mimic the index
95
greatly. The tyre companies post November 2010 have
Bharat Forge Auto Axl
grossly underperformed due to the intense rubber price 75 Subros
overhang
55 JK Tyres

35
Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11
BSE Auto Auto Axl Bharat Forge
Balkrishna JK Tyres Apollo Tyres
Subros Motherson Sumi Exide Inds

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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 ICICI Securities Limited

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according
to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance
horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock.

Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093

research@icicidirect.com

ANALYST CERTIFICATION
We /I, Karan Mittal MBA Nishant Vass MBA (FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all
of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA
and might not be an associated person of the ICICI Securities Inc.

Disclosures:
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The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may
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