India Midcaps
VISIT NOTE
EXIDE INDUSTRIES
Potent enablers to bolster market share
India Equity Research| Automobiles
Our recent interaction with the new MD of Exide Industries (Exide), Mr
Gautam Chatterjee, boosted our confidence about the company’s
strategy to recoup lost share. The company is incurring huge capex (INR56bn) for implementing the punch grid technology, which will lead to
superior battery life and lower warranty costs. Exide is also taking
measures to improve servicing at dealer level. Double digit growth of the
inverter segment in Q4FY16 led by early onset of summer is expected to
continue in Q1FY17. The cyclical uptick in auto OEMs with market share
of >59% (~20% of sales) and technology up-gradation are potent margin
levers. We maintain ‘BUY’.
Punch grid: Superior technology, enhances battery life
EDELWEISS RATINGS
Absolute Rating
BUY
Investment Characteristics
Growth
MARKET DATA (R: EXID.BO, B: EXID IN)
CMP
: INR 148
Target Price
: INR 177
52-week range (INR)
: 169 / 116
Share in issue (mn)
: 850.0
M cap (INR bn/USD mn)
: 126 / 1,887
Avg. Daily Vol. BSE/NSE (‘000) : 1,611.3
SHARE HOLDING PATTERN (%)
Exide plans to implement the punch grid technology in replacement segment by end of
CY16. East Penn Manufacturing Company Inc. USA would be providing the knowhow.
Punched battery grids is a superior technology as the punching system produces
consistent grids, in turn providing better life and reducing warranty cost of the battery.
Promoters *
FII's
Inverters: Healthy traction to continue
Others
Early commencement of summer in 2016 has seen a spurt in demand for inverters in
turn constraining existing capacity. Consequently, Exide clocked double-digit growth
rate in inverters in Q4FY16. Management expects healthy traction in inverters to
extend in Q1FY17.
Current
Q3FY16
Q2FY16
46.0
30.9
46.0
32.3
46.0
17.3
4.5
3.2
15.6
18.6
18.5
21.2
MF's, FI's & BKs
:
NIL
BSE Midcap
Stock
Index
Stock over
Index
* Promoters pledged shares
(% of share in issue)
PRICE PERFORMANCE (%)
Fortifying distribution network
1 month
5.0
10.3
5.3
Management aims to penetrate smaller shops in FY17 in its bid to beef up its
distribution network. It is also taking steps to regain share in replacement such as
starting 2W courier services, which pick up the batteries from the service centers for
faster replacement and develop devices which tap the touch-time of dealers.
3 months
11.0
16.1
5.0
12 months
8.7
(3.5)
(12.1)
Outlook and valuations: Positive; maintain ‘BUY’
Exide, being a leading player in batteries in India, is well poised to benefit from uptick
in OEM cycle and margin improvement driven by cost-cutting initiatives. Hence, we
maintain ‘BUY’ with a SOTP-based TP of INR177, valuing standalone at 18x FY18E EPS
The stock is trading at 18.6x FY17E and 16.5x FY18E EPS.
Financials (Standalone)
Year to March
FY15
FY16
FY17E
FY18E
Revenues (INR mn)
68,742
68,091
73,322
82,300
EBITDA (INR mn)
9,076
10,105
11,058
12,494
Adjusted Profit (INR mn)
5,458
6,228
6,726
7,542
Adjusted Diluted EPS (INR)
6.4
7.3
7.9
8.9
Diluted P/E (x)
22.9
20.0
18.6
16.5
EV/EBITDA (x)
13.6
11.5
10.2
8.8
ROAE (%)
14.0
14.7
14.1
13.8
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Shradha Sheth
+91 22 6623 3308
shradha.sheth@edelweissfin.com
Karishma Kothari
+91 22 6623 3443
karishma.kothari@edelweissfin.com
May 10, 2016
Edelweiss Securities Limited
Automobiles
Key Takeaways:
2

Technology upgradation: Implementing punch grid technology: Exide has been
focusing on upgrading its technology thereby reducing costs and improving product
quality. The company is implemeting the punch grid technology for batteries for the
first time in India. East Penn Manufacturing Company Inc. USA would be providing the
knowhow. The technology has already been introduced in Japan. The battery grid
punching system can address the demand of end customers and needs of the
manufacturers. Punched battery grids have logged superior performance as compared
to grids manufactured with other technology. The punching system not only produces
consistent grids, but also increases overall plant efficiencies, and produces grids at very
high production rate. This technology will be applied at the grid level only. Exide plans
to incurr capex of INR7-8bn over FY17-18 with majority incurred towards technology
upgradation and balance for capacity expansion. The company expects to complete
implemetation of this technology for replacement segment within automotives by end
CY16. With this technology, battery life will improve from current 3 years to 4-5 years,
resulting in lower warranty costs for the company.

Inverter segment: Season begins strong - With the early onset of summer, Exide has
witnessed sharp increase in demand for inverters. After 3 quarters of negative growth,
the segment posted double-digit growth in Q4FY16. Management stated there was a
shortfall in capacity to meet the increased demand and expects this healthy demand
traction to continue in Q1FY17 as well.

Distribution network: In FY15, Exide had 15,500 plus dealers, 14,250 plus humsafar
outlets and 775 plus exide care outlets. The company supplies products to majority of
its large stores. In FY17, management aims to penetrate smaller shops and strengthen
its distribution network.

Improving servicing at dealer level: Exide had historically lost some market share due
to longer servicing time in replacing the batteries. The company is taking steps to regain
share in the replacment segment. In 96 out of its 206 offices, the company has started
2W courier services which picks up the batteries from the service centers and helps in
faster replacement. The company also provides equipment to dealers to detect the
defects in the battery within less than 10 minutes. Exide has also developed devices to
tap the touchtime of dealers to replace the batteries, and KPI is defined based on the
time taken for replacment. A software has also been developed by the company for the
dealers to track the credit limit and status of the warranty.
Edelweiss Securities Limited
Exide Industries
Company Description
Exide is a leading battery producer in India and one of the largest power storage producers
in South Asia. It supplies batteries to the automotive, industrial, infrastructure
development, information technology and defence sectors in India. It has six battery
manufacturing facilities located across India. In addition, through its subsidiaries, the
company has two lead smeltering facilities that supply a significant amount of the
company's lead requirement. The company is servicing 8 mn customers via all different
types of batteries. Current capacity in 4W, 2W and industrial batteries is at 12.2mn units,
22mn units and 2.5mn amph, respectively. The company recently increased its stake in ING
Vysya Life Insurance Company (IVL) to 100%. IVL began its operations in 2001 and currently
services more than 1mn customers.
Investment Theme
Company is well poised for cyclical uptick in OEM within automotives and inverters and
telecom segment within industrial batteries. This would result into improvement of margins
led by operating leverage with increasing capacity utilization which is currently at 79% in
automotives, 83% in motorcycles. Also company is undertaking technology upgradation and
cost cutting initiatives. We expect a 9.9% sales CAGR and 10% PAT CAGR over FY16-18E.
Key Risks
Downside risks
If economic slowdown prolongs, not only would it affect OEM demand but also prolong the
replacement cycle, thus affecting the replacement demand.
Destructive Competition
Any increase in competitive activity which triggers price war kind of scenario will negatively
impact margins
Upside risks
After a considerable fall, lead prices bounced back recently to some extent. USD-INR has
also been very volatile in recent days. Any significant fall in lead prices in INR term poses
upside risks to margin.
3
Edelweiss Securities Limited
Automobiles
Financial Statements
Key Assumptions
Income statement
Year to March
FY15 FY16 FY17E FY18E
Macro
GDP(Y-o-Y %)
Inflation (Avg)
7.2
5.9
7.4
4.8
7.9
5.0
8.3
5.2
Repo rate (exit rate)
7.5
6.8
6.0
6.0
61.2
64.5
67.5
67.0
USD/INR (Avg)
Sector
Year to March
Income from operations
Materials costs
Manufacturing expenses
Employee costs
Total SG&A expenses
(INR mn)
FY15
FY16
FY17E
FY18E
68,742
45,528
68,091
43,665
73,322
46,852
82,300
52,919
614
675
716
759
4,168
4,747
5,175
5,796
9,356
8,898
9,521
10,333
59,665
57,986
62,264
69,806
EBITDA
9,076
10,105
11,058
12,494
Total operating expenses
4W OEM - Volume sold (mn units)
3.6
3.4
3.7
4.1
4W replacement - Volume sold (mn units)
7.5
8.4
9.3
10.3
Depreciation
1,395
1,602
1,764
2,044
12.2
12.1
13.2
14.4
EBIT
7,681
8,504
9,294
10,449
6.3
6.9
7.9
8.9
320
562
516
523
17
3
62
42
2W OEM - Volume sold (mn units)
2W replacement - Volume sold (mn units)
Company
Add: Other income
Less: Interest Expense
Automotive
68
73
74
74
Profit Before Tax
7,985
9,063
9,748
10,931
OEM
26
25
26
25
Less: Provision for Tax
2,526
2,835
3,022
3,389
Aftermarket
41
46
47
48
Reported Profit
5,458
6,228
6,726
7,542
1
1
1
1
Adjusted Profit
5,458
6,228
6,726
7,542
32
27
25
26
Shares o /s (mn)
850
850
850
850
4
4
4
4
Adjusted Basic EPS
6.4
7.3
7.9
8.9
17
13
11
11
Diluted shares o/s (mn)
850
850
850
850
Infrastructure
7
6
6
6
Adjusted Diluted EPS
6.4
7.3
7.9
8.9
Traction
1
1
1
1
Adjusted Cash EPS
8.3
9.2
10.0
11.3
Exports
2
2
2
2
Dividend per share (DPS)
2.2
2.4
3.0
3.5
Others
1
1
1
1
Dividend Payout Ratio(%)
40.4
38.7
44.7
46.5
Year to March
FY15
FY16
FY17E
FY18E
66.2
13.6
65.1
13.1
64.9
13.0
65.2
12.6
13.2
14.8
15.1
15.2
7.9
9.1
9.2
9.2
Year to March
FY15
FY16
FY17E
FY18E
Revenues
EBITDA
15.3
11.1
(0.9)
11.3
7.7
9.4
12.2
13.0
PBT
10.4
13.5
7.6
12.1
Adjusted Profit
12.1
14.1
8.0
12.1
EPS
12.1
14.1
8.0
12.1
Others
Industrial
UPS
Inverters
Submarine
0.4
0.5
0.5
0.5
RM cost (% sales)
67.1
65.1
64.9
65.2
Other costs as % of sales
19.6
20.0
20.0
19.6
6.6
6.1
5.8
13.4
Tax rate (%)
28.9
31.4
31.0
31.0
Materials costs
S G & A expenses
Dividend payout (%)
40.4
38.7
44.7
46.5
EBITDA margins
Net borrowings (INR mn)
176
850
(500)
-
Depreciation rate (%)
Capex (INR mn)
Common size metrics
Net Profit margins
3,067 4,186 4,000 4,000
Debtor days
28
31
32
31
109
111
94
96
Payable days
52
58
57
51
Cash conversion cycle
85
84
69
77
Inventory days
4
Growth ratios (%)
Edelweiss Securities Limited
Exide Industries
Balance sheet
As on 31st March
(INR mn)
Cash flow metrics
FY15
FY16
FY17E
FY18E
FY15
FY16
FY17E
FY18E
Share capital
Reserves & Surplus
850
39,696
850
43,491
850
50,172
850
57,667
Operating cash flow
Investing cash flow
3,262
(2,372)
12,425
(12,100)
6,447
(4,000)
6,594
(4,000)
Shareholders' funds
Financing cash flow
(1,785)
115
57
455
(895)
440
2,504
3,049
Year to March
40,546
44,341
51,022
58,517
Short term borrowings
176
1,025
525
525
Net cash Flow
Total Borrowings
176
1,025
525
525
Capex
(3,067)
(4,186)
(4,000)
(4,000)
Long Term Liabilities
330
395
345
345
Dividend paid
(1,961)
(709)
(2,407)
(3,009)
1,259
1,249
1,249
1,249
Sources of funds
42,311
47,009
53,141
60,636
Profitability and efficiency ratios
Gross Block
Net Block
22,261
10,700
26,447
13,284
30,447
15,520
34,447
17,476
Year to March
FY15
FY16
FY17E
FY18E
1,002
1,002
1,002
1,002
ROAE (%)
ROACE (%)
14.0
20.5
14.7
21.1
14.1
20.2
13.8
19.8
Inventory Days
Def. Tax Liability (net)
Capital work in progress
Intangible Assets
202
202
202
202
109
111
94
96
Total Fixed Assets
11,903
14,488
16,724
18,680
Debtors Days
28
31
32
31
Non current investments
17,550
17,607
17,607
17,607
Payable Days
52
58
57
51
1,705
10,001
12,505
15,554
Cash Conversion Cycle
85
84
69
77
15,228
11,335
12,856
15,107
Current Ratio
2.1
2.0
2.3
2.6
Sundry Debtors
5,550
6,075
6,629
7,441
Fixed asset turnover (x)
6.6
5.6
5.0
4.9
Loans & Advances
2,077
1,773
1,128
1,267
Gross Debt/EBITDA
-
0.1
-
-
13
7
7
7
Gross Debt/Equity
-
-
-
-
22,868
19,191
20,621
23,823
Trade payable
6,479
7,449
7,232
7,441
Operating ratios
Other Current Liab
5,237
6,829
7,086
7,587
Year to March
Total Current Liab
11,716
14,278
14,318
15,028
Net Curr Assets-ex cash
11,152
4,913
6,304
8,795
Uses of funds
42,311
47,009
53,141
60,636
47.7
52.2
60.0
68.8
Cash and Equivalents
Inventories
Other Current Assets
Current Assets (ex cash)
BVPS (INR)
FY15
FY16
FY17E
FY18E
Total Asset Turnover
Fixed Asset Turnover
1.7
6.6
1.5
5.6
1.5
5.0
1.4
4.9
Equity Turnover
1.8
1.6
1.5
1.5
Year to March
FY15
FY16
FY17E
FY18E
Adj. Diluted EPS (INR)
Y-o-Y growth (%)
6.4
12.1
7.3
14.1
7.9
8.0
8.9
12.1
Valuation parameters
Free cash flow
(INR mn)
Year to March
FY15
FY16
FY17E
FY18E
Reported Profit
Add: Depreciation
5,458
1,395
6,228
1,602
6,726
1,764
7,542
2,044
11
2
42
28
Others
(163)
(12)
(42)
(28)
Less: Changes in WC
3,439
(4,606)
2,042
Operating cash flow
3,262
12,425
Less: Capex
3,067
195
Interest (Net of Tax)
Free Cash Flow
Adjusted Cash EPS (INR)
8.3
9.2
10.0
11.3
23.1
20.2
18.7
16.7
P/B (x)
3.1
2.8
2.5
2.2
2,992
EV / Sales (x)
1.8
1.7
1.5
1.3
6,447
6,594
4,186
4,000
4,000
EV / EBITDA (x)
Dividend Yield (%)
13.7
1.5
11.6
1.6
10.3
2.0
8.9
2.4
8,239
2,447
2,594
Diluted P/E (x)
Peer comparison valuation
Market cap
(USD mn)
Name
Exide Industries
Amara Raja Batteries
Diluted P/E (X)
FY17E
FY18E
EV / EBITDA (X)
FY17E
FY18E
ROAE (%)
FY17E
FY18E
1,887
2,445
18.7
28.9
16.7
24.0
10.3
16.1
8.9
13.6
14.1
24.1
13.8
23.9
Median
-
23.8
20.3
13.2
11.2
19.1
18.8
AVERAGE
-
23.8
20.3
13.2
11.2
19.1
18.8
Source: Edelweiss research
5
Edelweiss Securities Limited
Automobiles
Additional Data
Directors Data
R G Kapadia
G. Chatterjee
Subir Chakraborty
Vijay Aggarwal
Sudhir Chand
Nawshir H. Mirza
Chairman & Independant director
Managing Director & Chief Executive Officer
Director Automotive
Independent Director
Independent Director
Independent Director
R B Raheja
A.K. Mukherjee
Arun Mittal
Mona N. Desai
Bharat Dhirajlal Shah
Vice Chairman & Non Executive Director
Director Finance & Chief Financial Officer
Director Industrial
Independent Director
Independent Director
Auditors - S. R. Batliboi & Co.
*as per last available data
Holding – Top10
Perc. Holding
2.28
2.05
PrudentialICICI Life Insurance
Norges Bank Investment Management
PrudentialICICI Life Insurance
Norges Bank Investment Management
Perc. Holding
2.28
2.05
Templeton Asset Management
Templeton Asset Management
1.89
1.61
Templeton Asset Management
Templeton Asset Management
1.89
1.61
HDFC Life insurance
1.45
HDFC Life insurance
1.45
*as per last available data
Bulk Deals
Data
Acquired / Seller
B/S
Qty Traded
Price
No Data Available
*as per last available data
Insider Trades
Reporting Data
Acquired / Seller
B/S
Qty Traded
No Data Available
*as per last available data
6
Edelweiss Securities Limited
Exide Industries
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com
Nirav Sheth
Head Research
nirav.sheth@edelweissfin.com
Coverage group(s) of stocks by primary analyst(s): Automobiles
Amara Raja Batteries, Exide Industries
`
Recent Research
Date
Company
Title
Price (INR)
Recos
29-Apr-16
Exide
Industries
Turning the corner: Revenue
gaining traction;
Result Update
147
Buy
09-Feb-16
Amara
Raja
Batteries
Robust show; outperformance
continues; Result Update
867
Buy
21-Jan-16
Exide
Industries
Sales lackluster; gross margins
expand; Result Update
120
Buy
Distribution of Ratings / Market Cap
Rating Interpretation
Edelweiss Research Coverage Universe
Rating Distribution*
* 3 stocks under review
> 50bn
Hold
153
63
Reduce
Total
11
227
Between 10bn and 50 bn
< 10bn
158
62
7
Rating
Expected to
Buy
appreciate more than 15% over a 12-month period
Hold
appreciate up to 15% over a 12-month period
Reduce
depreciate more than 5% over a 12-month period
One year price chart
175
160
145
130
115
Apr-16
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
100
May-15
(INR)
Market Cap (INR)
Buy
Exide Industries
7
Edelweiss Securities Limited
Automobiles
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Exide Industries
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Automobiles
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