Exide Industries Limited
(Rs. 71.00, FY09E - P/E 19.1x, BUY with a Target Price of Rs. 88)
Exide Industries Limited, India's flagship of the storage battery industry, is also the largest Power Storage Solutions Company in South East Asia. The Company power most of the industrial and automotive segments in the country and the products are used in critical applications in infrastructure and defence sectors. Exide is India's largest manufacturer of automotive batteries with 72% market share in the Original Equipment Manufacturers (OEM) battery segment and 80% market share in passenger vehicles market in India. The company is expected to witness strong revenue growth from high margin and booming replacement demand on the back of its market leadership in OEM automotive segment. The strong growth in high margin industrial battery segment is a key driver for the company going forward. We envisage industrial segment to grow by 22.1% CAGR for FY07- 10E on the back of huge demand and capex/ investment in telecom, power and railway. We expect operating margins to improve by 40 basis points from 16.5% in FY07 to 16.9% in FY10E due to better product mix, high margins and cost reduction exercises. We believe Exide will able to retain if not increase its market share on the back of strong brand and wide-spread sales and distribution network (over 8,000 dealers outlets and 100 Exide Care shops). We view this acquisition as positive development. We believe it will help the company to reduce its dependence on imported lead and thus giving boost to its margins. Given the company's continued strong performance in domestic market on the back of its market leadership and strong brands, we expect exciting times ahead for Exide. We expect Exide to report strong growth in revenues at CAGR 27% during FY07-FY10E. We expect the company to record Net profit growth at CAGR 35% during FY07-FY10E.
We are quite optimistic about Exide's future revenue growth. The stock is currently trading at 19.1x FY09E EPS of Rs 3.7 and 14.7x FY10E EPS of Rs 4.8 on a stand alone basis. It is trading at 10.8x FY09E and 8.5x FY10E EV/EBDITA on a stand alone basis. We believe these valuations are attractive and offer excellent long term investment opportunity considering its strong growth potential on the back of market leadership in automotive segment, booming replacement demand, increasing contribution from Industrial segment, latest technological skills, strong brand image and wide spread distribution network. We have valued Exide Industries on sum-of-the-parts basis. We value exide's core battery business at Rs 70 based on DCF valuation. We believe investment in ING Vysa Life insurance company to be value accretive and arrive at a value of Rs 18 for Exide's share in insurance joint venture. We maintain 'BUY' recommendation on the company at SOTP target price of Rs 88.
Exide Industries Limited. - Event Update 24-06-08.pdf
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