>EXIDE INDUSTRIES LIMITED (MERRILL LYNCH)

Strong June Q raises hope

■ Raising PO to Rs88 driven by stronger June Q; Buy
Exide Industries Q1FY10 PAT at Rs1.22 is up 49% y-o-y and is 20% higher than our estimate, driven by higher margin and volume. We have raised EPS estimates for FY10E and FY12E by 11% and 18% respectively, driven by higher EBITDA margin. Consequently we have raised our DCF based PO to Rs88 from Rs74. We maintain our Buy owing to (1) strong EPS growth of 40% likely in FY10E and (2) attractive valuation as stock is trading at a PE of 12xFY10E after adjusting for the value of the company’s 51% stake in ING Vysya Life Insurance.

■ June Q beat expectation on better margin and product mix
Strong earnings growth in June09 Q can be attributed to increase in EBITDA margin by 770bp y-o-y to 23.2% owing to (i) decline in cost of lead (ii) FX gain of Rs10mn and (iii) inventory gain. The company also benefited from delayed monsoon that led to stronger demand for UPS and improved the product mix.

■ Inventory & FX gain to boost FY10E, higher vol in FY11
We expect that nearly 90% of incremental profit in FY10E could come from (1) marginal FX gain in FY10 owing to appreciation of rupee compared to loss of around Rs544mn in FY09, owing to 26% depreciation in value of rupee (2) marginal gain inventory is likely in FY10E compared to an estimated loss of Rs1bn in value of lead inventory in FY09, owing to 46% decline in cost of lead. We expect the company to sustain 16-18% EPS growth in FY11/12E owing to recovery in volume growth to trend line level.

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