>EXIDE INDUSTRIES LIMITED (PPFAS)

Improving OE and Replacement Sales to sustain the growth momentum
Exide Industries Ltd. (EIL) has clocked a 92% Y-Y bottom line growth to Rs. 1,497Mn for Q2FY10 v/s Rs. 778.4Mn for Q2FY09, on the back of falling raw material costs. The company's top line growth was flat at 5.5% Y-Y to Rs. 9,503Mn (Rs. 9,004Mn), which came ahead of our expectations. Improving growth in OE and Replacement sales aided EIL's Auto Battery segment in clocking better growth during the quarter, this was also supported by the robust growth in its Industrial Battery segment.

The strong growth in profits was attributed to a 1,142bps fall in raw material to sales ratio owing to a huge decline in lead prices and an exchange gain of Rs. 20.4Mn for Q210 as against a loss of Rs. 29.7Mn for Q209. The fall in raw material costs pulled up the operating margins to 26% for Q210 v/s 16.5% for the corresponding previous quarter.

Other Highlights:
■ Operating Profit was up by 66.5% to Rs. 2,471Mn for Q210 v/s Rs. 1,484Mn for Q209

■ Margin Increase was also on account of lower imports and growing backward integration, i.e., captive sourcing of lead and lead alloys from Tandon Metals and Leadage Alloys India which EILhas acquired during the year

■ This acquisition will augment availability of indigenous raw materials and also facilitate the company in recycling scrap batteries

■ Further on, Exide plans to increase its Automotive and Industrial battery capacity by 50%, at an investment of Rs. 4,500-5,000Mn over the next 10-12months.

Outlook and Valuation:
The unprecedented growth reported in the past, huge upcoming capex signaling volume growth in the business and focus on new products catering to different industries will ensure improved performance by the company. The backward integration and expansion will also support the growth in business.

We upgrade our EPS estimates of Exide to Rs. 5.5/- (earlier Rs. 4.4/-) and to Rs. 6.2/- (earlier Rs. 5.3/-) for FY10E and FY11E respectively. At the CMPof Rs. 106.9/-, the stock is trading at 17.3x FY11E earnings (net of insurance value). We recommend HOLD on the scrip with a SOTP based revised target price of Rs. 126.8/- (19x FY11E earnings + Rs. 9.3/- value of Exide's investment in ING Vysya Life Insurance).

To see the full report: EXIDE INDUSTRIES LIMITED