Telephones NAYAN 022-26105973/74/32549230/32448788 Fax.26124310/E-Mail: vala@bom3.vsnl.net.in Website: www.

nayanmvala.com

M. VALA SECURITIES PVT. LTD.
403-404, Cosmos Court, Above Waman Hari Pethe Jewellers, S. V. Road, Vile-Parle (west), Mumbai-400056.

  Key Indicators as on 01/04/2011             (Source: CMIE)  Closing Price (Rs.) ‐ TTM  145.15 EPS (Rs.) ‐ TTM  6.94 P/E ‐ TTM  20.9 BV per Share (Rs.) ‐ TTM  30.77 PB ‐ TTM  4.72 Mkt Cap (Rs. Crore) ‐ TTM  12337.75 Beta ‐ TTM  0.79 Mkt Cap/Sales   2.56 Mkt Cap/PBIDTA   12.49 Mkt Cap/PBDT   12.75 Mkt Cap/PAT   21.24 Mkt Cap/Cash Profit   18.46 PBDITA ` in Crores(March.2010)   988.08 Face Value   1 Shares Outstanding crores   85 Share holding (%)   Dec‐10 Promoters  45.99 Public  11.39 FIIs  15.46 Others   27.16

Exide Industries Ltd. (EIL)
Accumulate with price target of `190/-

Investment Highlights

Duopoly market thus having greater market share and pricing power with EIL holding ~70% market share in the automotive segment. Robust demand from OEM as well as replacement market. Captive lead procurement to widen margins over the years. Capacity expansion will help to capitalize on growing demand. Company has 50% stake in ING VYSYA Life Insurance Co Ltd.

Investment Rationale:
Duopoly market thus having greater market share and pricing power: Given the duopoly in the industry (the top two players command over 80% organized market share), we do not expect any price wars in the immediate future. Moreover, given the top players’ pricing power, we expect them to be able to manage the volatility in lead prices without affecting earnings. Led by relatively stable cash flows and high return ratios, the battery industry will continue to trade at a premium to its peers, in our view. EIL holding ~70% market share in the automotive segment. Robust demand from OEM, Replacement and Industrial Segments: The following gives details of contribution of sales by various segments for the year ended March, 2010.

MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD                                                                                                             CODE NO.23/13511/13 

Telephones NAYAN 022-26105973/74/32549230/32448788 Fax.26124310/E-Mail: vala@bom3.vsnl.net.in Website: www.nayanmvala.com

M. VALA SECURITIES PVT. LTD.
403-404, Cosmos Court, Above Waman Hari Pethe Jewellers, S. V. Road, Vile-Parle (west), Mumbai-400056.

 

The passenger car market in India is expected to grow by 12% annually over the next five years which in effect would translate to more than 100% growth for the domestic battery industry during this period. The unorganized sector, which accounts for two thirds of the Battery Industry, may not benefit from this growth due to strict pollution control and regulatory norms, especially with regard to recycling of toxic wastes such as Lead. The organized sector is, therefore, expected to reap the full benefits of such growth. Furthermore, the strong growth witnessed by the automobile industry over the past five years should lead to high replacement demand for batteries. In addition, rising disposable incomes is likely to lead to customers shifting to the organised battery segment from the unorganised. The industrial battery market is largely influenced by demand from the UPS, railway, power and telecom segments. In the telecom sector, the batteries support switching and transmission networks, whereas the Indian Railways use batteries for train lighting, coach air conditioning and signaling. In the power sector, the batteries support generation, transmission and distribution networks. Few factors that will continue to drive demand in the industrial battery segment are stated below: I. Addition of high-powered data centres in telecom, IT, BFIS and government sectors and continued growth in ATMs II. To address the continued demand-supply gap in power. III. Further, the robust modernisation and expansion plans of the Indian railways are likely to drive battery demand for railway applications. Captive lead procurement to widen margins over the years: Lead is a major raw material required in manufacture of batteries. Volatility in lead prices is generally a significant issue for battery manufacturers across the globe. Exide has reduced its dependence on imported lead by backward integration through acquisition of lead smelting and refining facilities. Captive smelting and refining operations result not only in committed supplies but also provides a price advantage compared to competition. Approximately 45% of Exide’s lead requirements are met through supplies from captive operations.

MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD                                                                                                             CODE NO.23/13511/13 

Telephones NAYAN 022-26105973/74/32549230/32448788 Fax.26124310/E-Mail: vala@bom3.vsnl.net.in Website: www.nayanmvala.com

M. VALA SECURITIES PVT. LTD.
403-404, Cosmos Court, Above Waman Hari Pethe Jewellers, S. V. Road, Vile-Parle (west), Mumbai-400056.

  It acquired two smelting companies with total capacity of 96,000 tonnes at a cost of Rs580m – 100% in Chloride Metals Limited (formerly Tandon Metals Limited) in 2007 with 36,000 tonnes and a 51% stake in Leadage Alloys India Limited in 2008 (it recently hiked its stake to 100%) with 60,000 tonnes.

Capacity expansion will help to capitalize on growing demand: In order to address the growing demand in both the automobile and industrial segments, Exide has embarked upon a capex of about Rs4bn in FY11 across its six plants as well as the new facility in Ahmednagar. The company plans to expand its two-wheeler battery capacity by 60% and the four-wheeler battery capacity by 28%. The company is increasing its motorcycle battery capacity to 15.4m units (earlier 9.6m units) by setting up a new two-wheeler facility at its once abandoned plant at Ahmednagar at an investment of Rs800m. The company is also planning to increase its four wheeler battery capacity to 10.2m units in FY11 from 8m units earlier. The capex would partly be funded through the Rs5.3bn raised via QIP in Mar 2010 and partly through internal accruals. Peer Comparison: From the table below it can be noted that Exide has always earned a better margin when compared to it peer: Year ended Mar ‐ 2010  Last 5 years Average Margin  9 months ended DEC‐2010     Amara Raja.  EIL  Amara Raja.  EIL  Amara Raja.  EIL      Sales  1698.83 4545.78 ‐  ‐  1264.72 3329.45            Interest paid  6.77 14.11 ‐  ‐  1.13 4.91     PBDITA  304.14 903.94 ‐  ‐  191.86 774.12     PBIT  261.19 823.29 ‐  ‐  160.62 713.35     PAT  167.03 537.09 ‐  ‐  106.98 502.69     Cash profits  211.53 616.92 ‐  ‐  138.22 563.46     PBDITA Margins  17.90% 19.89% 12.71% 14.02% 15.17% 23.25%     PBIT Margins  15.37% 18.11% 9.87% 11.66% 12.70% 21.43%     PAT Margins  9.83% 11.82% 6.08% 7.14% 8.46% 15.10%     Cash profit Margin  12.45% 13.57% 8.88% 9.29% 10.93% 16.92%

MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD                                                                                                             CODE NO.23/13511/13 

Telephones NAYAN 022-26105973/74/32549230/32448788 Fax.26124310/E-Mail: vala@bom3.vsnl.net.in Website: www.nayanmvala.com

M. VALA SECURITIES PVT. LTD.
403-404, Cosmos Court, Above Waman Hari Pethe Jewellers, S. V. Road, Vile-Parle (west), Mumbai-400056.

  Company has 50% stake in ING VYSYA Life Insurance Co Ltd.: EIL also has a 50% stake in ING Vysya Life Insurance Company Limited ("IVL"), a joint venture with ING Group, Netherlands, and a significant player in the global life insurance industry. In 2005, the Company acquired a 50% stake in IVL as a strategic investment intended to diversify the use of its available capital. The Company's Rs. 5,319.9 million investment in IVL as of March 31, 2009 is equivalent to 12.6% of the Company’s revenue for the Fiscal Year 2009. Under the terms of the IVL joint venture agreement, the Company cannot divest its stake in IVL until October 2010. The industry values EIL stakes to be somewhere in the range of ` 10 – 15 per equity share of EIL. Historical P/E: Companies average P/E of last eight years is 18.31x and its current P/E is 20.9x which means buying at CMP is not dangerous. We recommend to accumulate the stock with a price target of ` 190/-.

Standalone Quarterly Results:
(Rs. Crore)     (Source: CMIE)  Total Income      Net Sales      Other Income      Extra‐ordinary Income  Change in stock  Expenditure      Consp. raw mat.      Personnel cost      Other expenses      Extra‐ordinary exp.  PBDIT     Interest  PBDT     Depreciation  PBT     Tax   PAT  Sep‐09  952.24  950.7  1.54  0.4  26.09  828.66  543.56  59.17  126.95  0  248.65  4.4  244.25  22.15  222.1  72.43  149.67  Dec‐09  913.93  913.35  0.58  0  90.2  873.65  602.97  54.05  127.38  0  219.73  2.9  216.83  18.85  197.98  67.5  130.48  Mar‐10  1035.99  1030.28  5.71  0  1.05  902.5  617.13  57.17  139.53  0  223.21  2.59  220.62  20.83  199.79  65.25  134.54  Jun‐10  1163.19  1152.08  11.11  0  1.53  999.38  692.79  67.8  134.78  0  269.35  1.34  268.01  19.42  248.59  83.25  165.34  Sep‐10  1193.22  1127.2  66.02  46.93  49.01  1029.3  717.63  66.02  147.07  0  311.51  1.69  309.82  20.14  289.68  76.75  212.93  Dec‐10  1083.3  1050.17  33.13  0  29  987.88  712.08  63.61  143.35  0  193.26  1.88  191.38  21.21  170.17  45.75  124.42 

MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD                                                                                                             CODE NO.23/13511/13 

Telephones NAYAN 022-26105973/74/32549230/32448788 Fax.26124310/E-Mail: vala@bom3.vsnl.net.in Website: www.nayanmvala.com

M. VALA SECURITIES PVT. LTD.
403-404, Cosmos Court, Above Waman Hari Pethe Jewellers, S. V. Road, Vile-Parle (west), Mumbai-400056.

 

Company Profile:

Exide Industries Ltd having registered office in Kolkata – West Bengal promoted by Rajan Raheja group is the largest Power Storage Solutions Company in India. It manufactures a wide range of storage batteries from 2.5Ah to 20,600Ah capacity, covering broad spectrum of applications. The Company broadly serves two Segments viz. Automotive Batteries and Industrial Batteries (including Submarine sub segment). It is the market leader in the organized sector in both the automotive and industrial segments. 'EXIDE' and ‘SF (Standard Furukawa)', the flagship brands of the Company, are also the leading battery brands in the country. The Automotive batteries account for ~62.4% of the sales turnover & industrial batteries the balance 36.6% and remaining 1% by Submarine batteries. Exide has the dominant share in the original equipment segment for automobiles. It powers almost all the cars which have been introduced in India & also has the dominant share in the organized sector replacement segment for Automobile batteries. The Industrial applications of EIL batteries cater mostly to the infrastructure sector such as railways, telecom, power plants, solar cells and other industrial segments for uninterrupted power supply, inverters and traction batteries. Exide has eight manufacturing plants producing world class products. Exide factories are located strategically around the country (two in Maharashtra, one in West Bengal, two in Tamil Nadu and one in Haryana) to provide logistic support for its production of over ten million batteries per annum. The Company has technology tie-up with ShinKobe, Japan the makers of world class Hitachi VRLA batteries giving it the technological edge in maintenance free batteries. Other strategic technology agreements with Furukawa, Japan and Oldham, U.K. have given Exide the competitive edge in providing the most reliable solutions for packaged power. In addition the Company has a standalone Research and Development Centre recognized by the Department of Science and Technology, Government of India, which is carrying out research on various facets of lead acid technology including development of new products in various applications, primarily to make the product range internationally competitive. Company has taken several inorganic initiatives over the years. These acquisitions are making negligible contribution to the company’s bottom-line currently. However, in the long run, they are expected to be the major force driving the export growth and making a mark for the company in the global arena. Company has a vast distribution network for both industrial batteries and auto batteries as seen below: o Industrial Batteries - Approx. 1,200 authorized dealers. Sales & Marketing staff of 268. “Tracmobile”: For its traction customers. Exide Power Centre shops: Launched to establish a common look and feel and a standardized positive brand experience for the consumer. At present, there are 32 Exide Power Centre shops across India. o Automobile Batteries - 11,350 authorized distributors and dealers. Sales & Marketing staff of 517. “Humsafar partner” network: Tertiary distribution network comprising of garages; presently there are 41,500 outlets including 23,000 Humsafar partners. C Dealer network: For heavy commercial vehicles.

MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD                                                                                                             CODE NO.23/13511/13 

Telephones NAYAN 022-26105973/74/32549230/32448788 Fax.26124310/E-Mail: vala@bom3.vsnl.net.in Website: www.nayanmvala.com

M. VALA SECURITIES PVT. LTD.
403-404, Cosmos Court, Above Waman Hari Pethe Jewellers, S. V. Road, Vile-Parle (west), Mumbai-400056.

  Kisan dealer network: For Tractor Owners. Exide Care shops: Conceptualized to establish a common look and feel and a standardized positive brand experience for the consumer. Project Kissan: To target customers in the rural markets. exidereachout.com: Web-based CRM initiative. From NAYAN M. VALA SECURITIES PVT.LTD.RESEARCH By Harsh B. Chauhan
Disclaimer: The information contained herein is confidential and is intended solely for the addressee(s). Any unauthorized access; use, reproduction, disclosure or dissemination is prohibited. This information does not constitute or form part of and should not be construed as, any offer for sale or subscription of or any invitation to offer to buy or subscribe for any securities. The information and opinions on which this communication is based have been complied or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, correctness and are subject to change without notice. NAYAN M. VALA SECURITIES PVT.LTD. and/ or its clients may have positions in or options on the securities mentioned in this report or any related investments, may effect transactions or may buy, sell or offer to buy or sell such securities or any related investments. Recipient/s should not consider this report as only a single factor in making their investment decision. Neither NAYAN M. VALA SECURITIES PVT.LTD. nor any of its affiliates shall assume any legal liability or responsibility for any incorrect, misleading or altered information contained herein.

MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD                                                                                                             CODE NO.23/13511/13 

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