We upgrade Exide Industries to ‘buy’ (earlier 'sell') and raise our target price to R193 (earlier R100) as we become more positive on volume growth in industrial segment and auto OEMs (4/2 Ws) which appear to be troughing.
Our new target price reflects an EPS increase of 25-44% over FY15/16e, increase in target multiple for the core business to 18x from 14x earlier (~15% above the long-term average of ~15.5x, for insurance business), and roll forward to March 2016 EPS from March 20115 EPS.
Exide has over 80% market share in the power, projects and manufacturing segments. We estimate these segments contribute ~35-40% of Exide’s industrial battery sales. With expectations of an overall demand revival, Exide’s industrial segment volume growth should be healthy. An increase in power cuts (anecdotal) combined with sustained increase in diesel prices (which makes DG sets operations more expensive) also augers well for inverter battery demand.
After a long period of muted demand, there appears to be some uptick in auto volumes. Domestic car and two-wheeler volumes rose ~2/~14% y-o-y in Q1FY14. MHCV volume decline of ~10% y-o-y compared favorably with Q4 (down ~21% y-o-y). While we do not expect a significant near-term recovery, a volume growth uptick in FY16 augers well for Exide, (~70% OEM market share). We forecast a steady replacement demand growth of ~10-14% y-o-y over FY15/16.