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Target: ₹215
CMP: ₹180.80
Exide’s Q3-FY23 revenue growth was below our estimate largely led by weaker mix. Softening lead prices benefitted gross margin but operating deleverage restricted margin expansion. We, however, expect a sustained recovery, fueled by OEM production and after-market growth, with a continuous shift from the unorganised to the organised segment. However, disruption from new chemistries is evolving at a much faster face and will influence both auto and industrial businesses.
Its revenue/EBITDA/Adj. PAT grew 6.5 per cent/7.5 per cent/9 per cent y-o-y. Gross margin improved 120 bps y-o-y (170 bps q-o-q) to 32.2 per cent (est. 29.5 per cent) due to benefits of softening RM basket.
Growth during the quarter was largely driven by volume as there were no price hikes taken during the quarter.
Exide would see a lower impact of lead price inflation due to its captive smelter. . We prefer Exide as it offers superior risk-reward considering its market leadership, technological alliances, backward integration, better mix, and a strong balance sheet – post-sale of the insurance business to support the new Li-ion cell plant.
Valuing it at ~12x standalone December 2024E EPS + ₹36/share for a stake in HDFC life Insurance (@ 40 per cent Holdco discount), we maintain our Buy rating with TP of about ₹215.
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