Accumulate. Exide Industries Ltd(EIL) Automobile Ancillaries RETAIL EQUITY RESEARCH

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1 Q3FY16 RESULT UPDATE GEOJIT BNP PARIBAS Research RETAIL EQUITY RESEARCH Exide Industries Ltd(EIL) Automobile Ancillaries BSE CODE: NSE CODE: EXIDEIND Bloomberg CODE: EXID IN SENSEX: 23,759 Accumulate Rating as per Midcap 12 months investment period CMP Rs127 TARGET Rs144 RETURN 13% 10 th February 2016 Awaiting for revival in volume. Exide Industries (EIL) is a leader in storage battery business with a market share of 60% in India. Its segment includes automotive and industrial lead acid batteries. EIL s Q3FY16 sales de-grew by 2.2% on a YoY basis which is below our estimates. PAT grew 38% YoY to Rs134Cr. Revenue was subdued due to reduction in inverter volumes by -27% and -7% for Automotive and Industrial. EBITDA margins improved by 380bps YoY to 15.4% due to reduction in lead prices and cost reduction efforts. Replacement volume increased by 5% & 10% YoY for 4W and 2W. The industrial segments (36% of revenue) remain subdued. The prospects depend on economic recovery. Going forward we expect rise in market share from unorganised sector which is currently about 40% through implementation of GST. We revise downward our Revenue and PAT estimate for FY17E by -9% and -11% respectively. We expect the worst has come in the price and maintain our rating at accumulate with a target price of Rs144. Technology & GST Implementation to aid growth EIL capex stands at Rs7bn in FY2016, which is likely to increase to Rs11bn by FY2017. Management has indicated that the spur in the capex of 4.5bn will be used in technology up-gradation that could enable reduction in cost of production. Implementation of GST will accelerate the market share from bringing the unorganized sector to organized sector. The unorganized sector currently constitutes 40% Market share which sells at 20-25% discount to organized players due to evasion of indirect tax. Transition in Inverter batteries Industry Industrial segment which contributes 38% of the total revenue consists of telecom, solar, UPS etc. The segment which has performed really well in H2FY15 will remains subdued for H2FY16 due to slow growth in the telecom sector. Inverter segment which constitutes 22% of revenue is become less in demand due to improved power situation in the country. Flat-plate inverter battery volumes declined 27% in 3Q. Tubular battery volume is also in decline. Current Inverter capacity is fungible and can be used for other applications. EBITDA margins will improve... EBITDA margin for the quarter improved at 380bps due to lower lead prices and favorable product mix. However margin for the full year FY16E is expected to be at 15.4% & 16.1% by FY18, once 1) New technology up gradation is operational by FY18 2) Rebound in OEM and CV segments 3) Lowering of lead prices and 4) Cost saving initiatives. Valuation EIL at CMP is currently trading at P/E of 18.2x and 16.2x on FY16E and FY17E earnings respectively. Using SOTP methodology we value the standalone business at 16x over FY17E EPS which is at a discount of 12.5% to its historical average of 18x. Insurance business which is valued at book value of Rs19 per share has been performing well in the south India and it is now expanding well to northern India. We revised our estimates and maintain Accumulate rating with a target price of Rs 144. Company Data Market Cap (mn) Rs 1,07,950 Enterprise Value (mn) Rs 1,08,126 Outstanding Shares (mn) 850 Free Float (%) 54.0 Dividend Yield (%) week high (Rs) week low (Rs) 116 3m average volume-bse+nse (mn) 2.5 Beta 0.9 Face value Rs 1 Shareholding (%) Q1FY16 Q2FY16 Q3FY16 Promoters FII s MFs/Insti Public Total Price Performance 3mth 6mth 1 Year Absolute Return -11.4% -20.1% -31.3% Absolute Sensex -7.5% -14.0% -15.4% Relative Return* -4.2% -7.1% -18.8% *over or under performance to benchmark index SOTP Valuation Standalone 125 Insurance business SOTP Based Value Exide May-14 Oct-14 Mar-15 Aug-15 Jan-16 Value Per share Comment 19 Sensex Rebase EPS FY17E Valued at 16x Valued at 1x book value 144 Total Value Saji John Analyst

2 Quarterly Financials Profit & Loss Account (Rs mn) Q3FY16A Q3FY15A YoY Growth % Q2FY16A QoQ Growth % Sales 15,247 15, , EBITDA 2,343 1, , Depreciation EBIT 1,937 1, , Interest Other Income PBT 1,936 1, , Tax Reported PAT 1, Adjustment Adj PAT 1,340 9, , No. of shares (mn) EPS (Rs) Source: Geojit BNP Paribas Research, Company Data Old estimates New estimates Change % Year / Rsmn FY16E FY17E FY16E FY17E FY16E FY17E Revenue 70,321 79,629 67,520 72, EBITDA 10,679 12,351 10,020 11, Margins (%) bps +30bps PAT* 6,272 7,485 5,918 6, EPS*

3 Standalone Financials Profit & Loss Account Sales 59,642 68,742 67,521 72,220 82,509 % change EBITDA 8,145 9,077 10,020 11,391 13,162 % change Depreciation 1,256 1,395 1,577 1,898 2,151 EBIT 6,889 7,682 8,443 9,493 11,011 Interest Other Income PBT 7,231 7,985 8,740 9,788 11,356 % change Tax 2,360 2,526 2,822 3,136 3,657 Tax Rate (%) 33% 32% 32% 32% 32% Reported PAT 4,871 5,459 5,918 6,652 7,699 Adj Adj PAT 4,871 5,459 5,918 6,652 7,699 % change No. of shares (mn) EPS (Rs) % change DPS (Rs) CEPS (Rs) Cash flow Net inc. + Depn. 8,487 9,380 10,317 11,686 13,507 Non-cash adj. -2,491-2,678-2,619-2,931-3,402 Changes in W.C 474-3,439 1,757 1, C.F.O 6,470 3,263 9,455 10,632 9,692 Capital exp. -1,346-3,067-5,246-4,045-4,031 Change in inv. -1,352-1, ,000-2,180 Other invest.cf -1,645 2, C.F - investing -4,343-2,148-5,154-5,045-6,211 Issue of equity Issue/repay debt Dividends paid -1,661-2,180-1,581-1,581-1,581 Other finance.cf C.F - Financing -1,675-2,016-1,585-1,586-1,592 Chg. in cash ,717 4,001 1,889 Closing cash 1, ,015 7,016 8,905 Balance Sheet Cash & Bank 1, ,015 7,016 8,905 A/C receivable 5,166 5,550 5,735 6,332 7,234 Inventories 11,856 15,228 13,215 11,277 12,112 Other Cur. Assets 1,185 2,090 1,489 1,595 1,822 Investments 19,670 18,957 18,864 19,864 22,044 Gross fixed assets 19,826 21,883 26,883 30,883 34,883 Net fixed assets 9,768 10,700 14,139 16,262 18,124 CWIP 510 1,002 1,200 1,200 1,200 Intangible assets Def. tax net -1,051-1,259-1,459-1,659-1,910 Other assets Total assets 48,516 52,768 56,432 62,145 69,807 Cur. liabilities 8,883 9,258 8,691 9,147 10,402 Provisions 2,318 2,788 2,682 2,869 3,165 Debt funds Other liabilities Equity capital Reserves 36,465 39,696 44,033 49,103 55,220 Total Equity 37,315 40,546 44,883 49,953 56,070 Total liabilities 48,516 52,768 56,432 62,145 69,807 BVPS (Rs) Ratios Y.E March (Rs mn) FY14A FY15A FY16E FY17E FY18E Profitably. & Return EBITDA margin (%) EBIT margin (%) Net profit mgn.(%) ROE (%) ROCE (%) W.C & Liquidity Receivables (days) Inventory (days) Payables (days) Current ratio (x) Quick ratio (x) Turnover & Levg. Gross asset T.O (x) Total asset T.O (x) Int. covge. ratio (x) Adj. debt/equity (x) Valuation ratios EV/Sales (x) EV/EBITDA (x) P/E (x) P/BV (x)

4 Recommendation Summary (last 3 years) Dates Rating Target May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 1 August 2013 Buy October 2013 Accumulate January 2014 Accumulate April 2014 Accumulate July 2014 Accumulate October 2014 Accumulate February 2015 Accumulate May 2015 Accumulate December 2015 Accumulate February 2015 Accumulate 144 Source: Bloomberg, Geojit BNP Paribas Research Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is 10% or more. Buy - Upside is 15% or more. Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%. Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. General Disclosures and Disclaimers CERTIFICATION I, Saji John, author of this Report, hereby certify that all the views expressed in this research report reflect my personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of Geojit BNP Paribas Financial Services Limited, hereinafter referred to as GBNPP. COMPANY OVERVIEW Geojit BNP Paribas Financial Services Limited (hereinafter GBNPP), a publically listed company, is engaged in services of retail broking, depository services, portfolio management and marketing investment products including mutual funds, insurance and properties. 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