Exide Industries

1QFY2011 Result Update | Auto Ancillary
July 13 2010

Exide Industries ACCUMULATE
CMP Rs136
Performance Highlights Target Price Rs153
Investment Period 12 Months
Y/E March (Rs cr) 1QFY11 1QFY10 % chg (yoy) 4QFY10 % chg (qoq)
Net Sales 1,152.1 903.5 27.5 1,030.3 11.8 Stock Info
Operating Profit 263.2 209.5 25.7 217.5 21.0
Sector Auto Ancillary
OPM (%) 22.8 23.2 (33.8) 21.2 168.7
Market Cap (Rs cr) 11,539
Reported PAT 165.3 122.4 35.1 134.5 22.9
Beta 0.8
Net sales up 27.5%; net profit up 35.1%: Exide Industries, India’s largest auto 52 Week High / Low 137/64
battery manufacturer, reported net profit growth of 35.1% yoy to Rs165.3cr for Avg. Daily Volume 430219
1QFY2011, which came in above our estimate of Rs136cr. Growth came largely
Face Value (Rs) 1
on the back of the substantial 27.5% yoy jump in net sales to Rs1,152cr, which
also exceeded our expectation, and higher other income of Rs6.2cr in BSE Sensex 17,986
1QFY2011. Nifty 5,401
EBITDA margins better than expectation: During 1QFY2011, Exide witnessed a Reuters Code EXID.BO
34bp yoy decline in EBITDA margin owing to the 69bp yoy increase in raw
Bloomberg Code EXID@IN
material costs, which accounted for around 58.6% of sales (58% in 1QFY2010).
However, on a qoq basis, the company recorded a substantial169bp rise in
EBITDA margin, largely because of the significant decline in other expenditure.
During the quarter, average lead prices which fell by 13% qoq to US Shareholding Pattern (%)
$1,924/tonne helped the company to improve margins, while average lead Promoters 46.0
prices increased 28% yoy (from US $1,509/tonne in 1QFY2010). MF / Banks / Indian Fls 28.8
Outlook and Valuation: We estimate the company to clock around 14% CAGR in FII / NRIs / OCBs 13.5
volumes over FY2010-12E on the back of which top-line and bottom-line would
Indian Public / Others 11.7
post a CAGR of 19% and 22% respectively, in the mentioned period. We expect
the prices of its main raw materials to be stable or increase marginally over the
mentioned period (after the recent run-up in FY2010 and the current higher
inventory levels at the LME), which will gradually be passed on. We have Abs. (%) 3m 1yr 3yr
upgraded our EPS estimates to Rs8 (Rs7.2 earlier) and to Rs9.4 (Rs8.9 earlier) for Sensex 1 34 18
FY2011E and FY2012E respectively, owing to the better-than-expected
Exide Industries 14 111 198
1QFY2011performance. At the CMP, the stock is quoting at 17x FY2011E and
14.5x FY2012E earnings. We have valued the company’s stake in ING Vysya Life
Insurance at Rs12/share on the FY2012E new business arrived profit (NBAP). At
adjusted valuations of 15x FY2012E earnings for its core business, the stock is
available at reasonable levels. Hence, we maintain an Accumulate on the stock,
with a Target Price of Rs153.

Key Financials
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
Net Sales 3,393 3,794 4,617 5,359
% chg 19.3 11.8 21.7 16.1
Net Profit 283.3 537.3 679.1 796.8
% chg 14.2 89.7 26.4 17.3
OPM (%) 16.1 23.5 23.7 23.6
EPS (Rs) 3.6 6.3 8.0 9.4
Vaishali Jajoo
P/E (x) 38.2 21.5 17.0 14.5
022-4040 3800 Ext: 344
P/BV (x) 8.9 5.3 4.2 3.4
vaishali.jajoo@angeltrade.com
RoE (%) 25.0 31.0 27.1 25.4
RoCE (%) 31.7 40.8 37.8 35.4 Yaresh Kothari
EV/Sales (x) 3.3 2.9 2.4 2.0 022-4040 3800 Ext: 313
EV/EBITDA (x) 20.3 12.3 10.0 8.6 yareshb.kothari@angeltrade.com

Source: Company, Angel Research

Please refer to important disclosures at the end of this report 1

Exide Industries | 1QFY2011 Result Update

Exhibit 1: 1QFY2011 Performance
Y/E March (Rs cr) 1QFY11 1QFY10 % Chg FY10 FY09 % Chg
Net Sales 1,152.1 903.5 27.5 3,794.0 3,393.0 11.8
Consumption of RM 675.7 523.7 29.0 2,174.7 2,236.2 (2.7)
(% of Sales) 58.6 58.0 68.5 57.3 65.9
Staff Costs 67.8 53.7 26.3 218.8 165.2 32.5
(% of Sales) 5.9 5.9 5.8 4.9
Purchases of TG 10.6 1.9 447.4 6.0 12.2 (50.5)
(% of Sales) 0.9 0.2 0.2 0.4
Other Expenses 134.8 114.7 17.5 502.3 431.5 16.4
(% of Sales) 11.7 12.7 13.2 12.7
Total Expenditure 888.9 694.0 28.1 2,901.9 2,845.1 2.0
Operating Profit 263.2 209.5 25.7 892.1 548.0 62.8
OPM (%) 22.8 23.2 23.5 16.1
Interest 1.3 0.4 235.0 13.5 51.6 (73.8)
Depreciation 19.4 18.8 3.2 80.7 67.9 18.7
Other Income 6.2 0.9 592.1 12.4 6.8 83.6
PBT (excl. Extr. Items) 248.6 191.1 30.1 810.4 435.2 86.2
Extr. Income/(Expense) - - - - - -
PBT (incl. Extr. Items) 248.6 191.1 30.1 810.4 435.2 86.2
(% of Sales) 21.6 21.2 21.4 12.8
Provision for Taxation 83.3 68.7 21.1 273.3 150.8 81.2
(% of PBT) 33.5 36.0 33.7 34.7
Reported PAT 165.3 122.4 35.1 537.1 284.4 88.9
PATM 14.4 13.5 14.2 8.4
Equity capital (cr) 85.0 80.0 6.3 85.0 80.0 6.3
EPS (Rs) 1.9 1.5 27.1 6.3 3.6 77.7

Source: Company, Angel research

Net sales up 27.5%; overall volumes up by around 18%: For 1QFY2011, Exide
Industries clocked 27.5% yoy growth in net sales to Rs1,152cr (Rs904cr), which
was above our estimate of Rs1,059cr. The company’s OE and replacement sales
growth, which had started improving since the beginning of FY2010, extended the
same to 1QFY2011. The improving growth in commercial vehicles (CV) and
tractor replacement sales (up 14% yoy) and the significant 27% growth in the
motorcycle battery segment aided the company to report higher growth in the auto
battery segment during the quarter. This was also supported by the healthy growth
registered by the industrial battery segment during the quarter. Overall, the
company recorded around 18% yoy growth in volumes and higher lead price
passed on to customers helped the company to clock better yoy growth in
realisations.

Lower raw material costs pump up margins qoq: During 1QFY2011, Exide
witnessed a 34bp yoy decline in EBITDA margins owing to the 69bp yoy rise in raw
material costs, which accounted for around 58.6% of sales (58% in 1QFY2010).
However, on a qoq basis, the company registered a substantial169bp jump in
EBITDA margins, largely because of the significant drop in other expenditure.
During the quarter, average lead prices, which declined by 13% qoq to US
$1,924/tonne, helped the company to improve margins, while average lead prices
increased 28% yoy (US $1,509/tonne in 1QFY2010). This was also aided by a
favourable rupee-dollar movement during the quarter. Exide registered net
exchange gains of Rs4.8cr (Rs1cr) during the quarter. Further, a 100bp yoy decline
in other expenditure also helped to arrest OPM contraction to a certain extent.

July 13 2010 2


Operating profit during the quarter grew by a robust 25.7% yoy to Rs263cr
(Rs209cr).

The strong earnings growth during 1QFY2011 can largely be attributed to the
substantial improvement in EBITDA margins qoq to almost 22.8%, which were
driven by an increase in the contribution of the in-house lead smelter to the total
consumption of lead (almost 50%). Overall, the lead smelter acquisition has
reduced the company’s dependence on imports and on the purchase of pure lead
from the market, due to which management expects EBITDA margins to be in the
range of 20-24%, going ahead.

Exhibit 2: Lead price and EBITDA margin
(US $)
3,500 30
3,000 25
2,500
20
2,000
15
1,500
10
1,000
500 5
0 0
1QFY08

2QFY08

3QFY08

4QFY08

1QFY09

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11
Avg. Lead Price (LHS) EBITDA Margin (RHS)


Bottom-line grows 35.1%: The company reported a 35.1% yoy increase in net
profit to Rs165cr (Rs122cr) during the quarter. Higher other income of Rs6.2cr
(Rs0.9cr), up 592% yoy helped the company to record substantial increase in net
profit. Overall, Exide’s net profit margins improved by a healthy 80bp yoy on the
back of robust growth in top-line, higher other income and reduction in other
expenditure during the quarter.

July 13 2010 3


Investment Arguments
Favourable outlook for the auto battery and industrial segments: Battery
demand is expected to remain robust on the back of a strong growth in the
auto battery replacement market. A better performance by the industrial
segment, especially in the railway and power sectors, also works in favour of
the company. For FY2010, in demand in the industrial segment grew by
around 10%, while the automotive segment recorded around 13% growth,
and the telecom segment de-grew by more than 35%. Going ahead, we
expect the demand for auto batteries (contribute almost 65% of Exide’s profit)
to record CAGR of around 15%, while the industrial battery segment is
expected to register a higher, 16-17% yoy growth over the next couple of
years.

Market leader, primary beneficiary from overall growth: Exide is a dominant
player across segments in which it is present ie. auto battery (OEM and
replacement) and industrial segment. The company has a market share of
approximately 72% in the auto OEM segment and around 72-73% in the auto
replacement segment, both of which enjoy superior hold owing to which the
company enjoys pricing power. The company is also garnering market share
in the industrial segment, which currently stands at 45%. The auto replacement
and Industrial segments are high-margins businesses and contribute to the
company’s superior performance.

Lead smelter acquisitions to boost margins: In FY2009, Exide acquired a 51%
shareholding in Leadage Alloys India, a lead smelter, at a total investment of
Rs33.4cr, to augment availability of indigenous raw materials. The acquisition
came on the heels of its buy-out of another unlisted lead-smelting company,
Tandon Metals, in October 2007 for Rs25cr.

These two acquisitions helped Exide to increase its use of recycled lead and
lead alloys for making storage batteries. This in turn, reduced the company's
dependence on imported lead in FY2010 to 32% (36% in FY2009), which is
the principal raw material for storage batteries. Exide would expand its lead
smelting capacity during the next 12-18 months to meet its increased lead
requirement. The company’s two smelters contributed around 50% of its lead
and lead alloy requirements during FY2010 (as against 35% in FY2009),
which it plans to increase to 70% by FY2012E. This has facilitated the
company in recycling scrap batteries as well as helped it clock better margins
despite the rise in lead prices.

Capex to meet long-term demand and improve company’s market reach:
Exide plans to increase its battery capacity at an investment of Rs350cr in
FY2011E. The company has been operating at almost a 100% capacity
utilisation level and was not able to keep pace with the surge in demand in the
automotive sector owing to which it lost some top-line growth due to capacity
limitations. The company is expanding its production capacities by setting up a
new plant at Ahmednagar, Maharashtra, to be on fast-track mode.

July 13 2010 4


Outlook and valuation
We estimate the company to clock around 14% CAGR in volumes over
FY2010-12E on the back of which top-line and bottom-line are estimated to post a
CAGR of 19% and 22% respectively, in the mentioned period. We expect the prices
of its main raw materials to be stable or increase marginally over the mentioned
period (after the recent run-up in FY2010 and current higher inventory levels at
LME), which will gradually be passed on.

Exhibit 3: Lead price and inventory
(USD/tonne) (
5,000 250

4,000 200

3,000 150

2,000 100

1,000 50

0 0
Oct-03

Oct-08
Jan-05

Jan-10
Jun-05

Jun-10
Apr-01
Sep-01
Feb-02

Dec-02

Mar-04
Aug-04

Feb-07

Dec-07

Mar-09
Aug-09
Jul-02

May-03

Nov-05
Apr-06
Sep-06

Jul-07

May-08
Source: Bloomberg, Angel research

We believe that growth will largely be driven by an increasing contribution from
the industrial segment and replacement market in the automobile sector.
Operating cost-to-sales ratio is expected to decline, with the company targeting to
achieve higher operational efficiencies through its R&D efforts and increasing
usage of recycled lead in batteries. Moreover, Exide's strong brand image has
been creating value while continuously improving its RoCE due to better asset
turnover on incremental capacities. We believe that on the back of its superior
pricing power and declining input costs, Exide will continue to achieve higher
return ratios and margins. A strong balance sheet and lower debt-equity ratio will
aid the company in sustaining strong cash flows and meeting the challenges of the
industry, going ahead.

Exhibit 4: Change in estimates
Y/E March (Rs cr) Earlier Estimates Revised Estimates % chg
FY11E FY12E FY11E FY12E FY11E FY12E
Net Sales 4,588 5,406 4,617 5,359 0.6 (0.9)
OPM (%) 22.6 22.5 23.7 23.6 113bp 107bp
EPS 7.2 8.9 8.0 9.4 10.8 5.9

We have revised upwards our EPS estimates to Rs8 (Rs7.2 earlier) and to Rs9.4
(Rs8.9 earlier) for FY2011E and FY2012E respectively, owing to the better-than-
expected 1QFY2011 performance. At the CMP, the stock is quoting at 17x
FY2011E and 14.5x FY2012E earnings. We have valued the company’s stake in
ING Vysya Life Insurance at Rs12/share on FY2012E NBAP. At adjusted valuations
of 15x FY2012E earnings for its core business, the stock is available at reasonable
levels. Hence, we maintain an Accumulate rating on the stock, with a Target Price
of Rs153.

July 13 2010 5


Exhibit 5: One year forward P/E Band

160
140
120

(Share Price Rs)
100
80
60
40
20
0

Apr-02
Jul-02
Oct-02
Jan-03
Apr-03
Jul-03
Oct-03
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
6x 10x 14x 18x


Exhibit 6: Key Assumptions
Y/E March FY07 FY08 FY09 FY10 FY11E FY12E
Storage Batteries ('000 units) 17,686 17,996 19,109 21,899 25,117 28,527
% yoy chg 22.1 1.8 6.2 14.6 14.7 13.6
Realisation per Battery(Rs) 1347 1978 2206 2069 2216 2273
10.8 46.8 11.5 (6.2) 7.1 2.5
Million Ampere Hours (Ma/h) 2,721 3,124 3,475 3,949 4,525 5,147
% yoy chg - 14.8 11.2 13.6 14.6 13.7
Total Revenue 2,383 3,580 4,215 4,532 5,569 6,486
Automotive (Rs cr) 1,668 2,561 2,905 3,108 3,814 4,373
% yoy chg - 53.6 13.4 7.0 22.7 14.7
Industrial (Rs cr) 715 1,019 1,269 1,397 1,725 2,077
% yoy chg - 42.6 24.5 10.1 23.4 20.4
Other (Rs cr) - - 41.9 27.0 31.1 35.7

July 13 2010 6


Profit & Loss Statement (Rs cr)
Gross sales 2,383 3,606 4,233 4,542 5,579 6,496
Less: Excise Duty 299.7 449.1 464.4 328.3 460.3 552.1
Less: Sales Tax, VAT, Octroi 212.7 311.9 375.9 419.5 502.1 584.6
Net Sales 1,870 2,845 3,393 3,794 4,617 5,359
Total operating income 1,870 2,845 3,393 3,794 4,617 5,359
% chg 35.6 52.1 19.3 11.8 21.7 16.1
Total Expenditure 1,565 2,373 2,845 2,902 3,521 4,096
Net Raw Materials 1,141 1,874 2,248 2,181 2,679 3,143
Other Mfg costs 143 163 188 219 264 287
Personnel 120 146 165 219 252 289
Other 161 191 243 284 327 376
EBITDA 305.5 471.9 548.0 892.1 1,096 1,263
% chg 38.8 54.5 16.1 62.8 22.8 15.3
(% of Net Sales) 16.3 16.6 16.1 23.5 23.7 23.6
Depreciation& Amortisation 54 64 68 81 91 102
EBIT 251 408 480 811 1,005 1,161
% chg 52.0 62.2 17.8 69.0 23.8 15.6
(% of Net Sales) 13.4 14.3 14.1 21.4 21.8 21.7
Interest & other Charges 31.0 40.8 51.6 13.5 7.2 7.2
Other Income 14.7 7.3 6.8 12.4 14.3 16.0
(% of PBT) 6.3 2.0 1.6 1.5 1.4 1.4
Recurring PBT 235 374 435 810 1,012 1,170
% chg 55.1 59.2 16.3 86.2 24.9 15.6
Extraordinary Expense/(Inc.) 3.1 2.3 1.1 (0.2) - -
PBT (reported) 232 372 434 811 1,012 1,170
Tax 80 124 151 273 333 373
(% of PBT) 34.4 33.3 34.7 33.7 32.9 31.9
PAT (reported) 152 248 283 537 679 797
ADJ. PAT 155 250 284 537 679 797
% chg 54.1 61.3 13.6 88.9 26.4 17.3
(% of Net Sales) 8.3 8.8 8.4 14.2 14.7 14.9
Basic EPS (Rs) 2.1 3.1 3.6 6.3 8.0 9.4
Fully Diluted EPS (Rs) 2.1 3.1 3.6 6.3 8.0 9.4
% chg 54.1 51.2 13.6 77.7 26.4 17.3

July 13 2010 7


Cash Flow Statement (Rs cr)
Profit before tax 232 372 434 811 1,012 1,170
Depreciation 54 64 68 81 91 102
Change in Working Capital 25 124 (55) 62 0 94
Less: Other income 42 243 (202) 159 (23) 225
Direct taxes paid 80 124 151 273 333 373
Cash Flow from Operations 189 194 498 521 793 768
(Inc.)/Dec. in Fixed Assets (88) (167) (130) (100) (291) (201)
(Inc.)/Dec. in Investments (99) (140) (150) (667) (375) (455)
(Inc.)/Dec. in loans and advances (0) (13) 6 3 (12) (13)
Other income (7) 14 (41) (11) - -
Cash Flow from Investing (194) (307) (315) (775) (678) (669)
Issue of Equity - 149 - 530 - -
Inc./(Dec.) in loans 35 25 (33) (227) (0) -
Dividend Paid (Incl. Tax) 26 31 37 56 95 99
Others (71) (91) (156) (135) (188) (197)
Cash Flow from Financing (10) 113 (151) 224 (93) (97)
Inc./(Dec.) in Cash (16) 0 32 (31) 22 1
Opening Cash balances 17 1 2 34 3 25
Closing Cash balances 1 2 34 3 25 26

July 13 2010 8


Key Ratios
Valuation Ratio (x)
P/E (on FDEPS) 65.6 43.4 38.2 21.5 17.0 14.5
P/CEPS 48.6 34.5 30.8 18.7 15.0 12.8
P/BV 16.2 11.0 8.9 5.3 4.2 3.4
Dividend yield (%) 0.3 0.3 0.4 0.7 0.7 0.9
EV/Sales 6.0 3.9 3.3 2.9 2.4 2.0
EV/EBITDA 36.6 23.8 20.3 12.3 10.0 8.6
EV / Total Assets 10.8 7.9 6.9 4.6 3.7 3.0
Per Share Data (Rs)
EPS (Basic) 2.1 3.1 3.6 6.3 8.0 9.4
EPS (fully diluted) 2.1 3.1 3.6 6.3 8.0 9.4
Cash EPS 2.8 3.9 4.4 7.3 9.1 10.6
DPS 0.4 0.4 0.6 1.0 1.0 1.3
Book Value 8.4 12.4 15.2 25.8 32.6 40.5
Dupont Analysis
EBIT margin 13.4 14.3 14.1 21.4 21.8 21.7
Tax retention ratio 0.7 0.7 0.7 0.7 0.7 0.7
Asset turnover (x) 2.1 2.4 2.3 2.0 1.8 1.7
ROIC (Post-tax) 18.1 22.8 21.4 27.7 25.8 24.5
Cost of Debt (Post Tax) 6.6 8.1 10.1 4.4 5.4 5.4
Leverage (x) - - - - - -
Operating RoE 18.1 22.8 21.4 27.7 25.8 24.5
Returns (%)
RoCE (Pre-tax) 26.0 33.1 31.7 40.8 37.8 35.4
Angel RoIC (Pre-tax) 25.2 29.4 31.1 34.7 34.7 32.7
RoE 25.4 29.5 25.0 31.0 27.1 25.4
Turnover ratios (x)
Asset Turnover (Gross Block) 2.0 2.8 2.9 2.9 3.1 3.1
Inventory / Sales (days) 62 62 54 50 49 49
Receivables (days) 29 26 26 23 26 26
Payables (days) 53 51 46 42 40 39
Working capital cycle (ex-cash) (days) 30 30 28 26 24 24
Solvency ratios (x)
Net debt to equity (0.1) (0.2) (0.3) (0.6) (0.6) (0.6)
Net debt to EBITDA (0.2) (0.4) (0.7) (1.4) (1.5) (1.7)
Interest Coverage (EBIT / Interest) 8.1 10.0 9.3 60.1 139.9 161.6

July 13 2010 9


Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.

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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).

Disclosure of Interest Statement (Company name)
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock Yes
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No

Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)

July 13 2010 10

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