Stock Radar: This underperformer from battery space offers up to 50% upside potential

Exide Industries Ltd has fallen by about 20 per cent in the last year compared to over 11 per cent upside seen in Nifty50 in the same period, but experts feel that the long-term story still remains intact.

What Does The Company Do:
Exide Industries Limited is India's largest selling battery company. The company with a market capitalization of more than Rs 12,000 crore hit a fresh 52-week high of Rs 202.95 on BSE in September 2021.


Trigger Point:
Exide Industries reported healthy revenue growth of 16% YoY, however, margins contracted mainly due to higher input prices. The revenue growth was largely volume-driven in both the automotive and industrial verticals.

“We believe the worse of margin pressure is behind us and expect improvement, which would be led by mix of price hikes, better sales mix, and cost optimization measures,” Siddarth Bhamre, Research Head at Religare Broking Ltd, said.

“The demand outlook continues to remain healthy for Exide led by overall economic recovery, pick up in auto volumes, and increased traction in the replacement market,” he added.

Exide set up wholly-owned subsidiary Exide Energy Solutions Ltd for lithium-ion business. This subsidiary will set up a greenfield multi-gigawatt-hour lithium-ion cell manufacturing facility.

Exide has also entered into a multi-year technical collaboration agreement with SVOLT Energy Solutions for lithium-ion cell manufacturing. SVOLT will also provide the support required for setting the plant on a turnkey basis.

Long Term Growth Prospects:
Bhamre remains constructive on Exide's long-term growth prospects led by its constant efforts on strengthening its position in India’s battery market.

Further, a healthy relationship with OEMs, focus on technology upgradation, and a faster shift towards organized players in the replacement market would drive growth for the company.

Moreover, the company has also announced a plan to manufacture lithium-ion batteries to cater to electric mobility.

Valuations:
"We believe the worse of margin pressure is behind us and expect it to reach 12.4% in FY24E. Therefore, strengthening leadership position, constant focus on improving technology, debt-free status, expanding return ratios makes it one of our preferred picks in the sector," Bhamre said.

Recommendations:
Religare has maintained a Buy on the stock with a target price of Rs 229, valuing the core business at 15x FY24E EPS and Rs 35 for its 4.1% stake in HDFC Life Insurance (at 40% holding discount).

The target price translates into an upside of over 50 per cent from Rs 148 recorded on 5 May on the BSE.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)