>EXIDE INDUSTRIES (ANAND RATHI)

■ Margins have peaked out. Though Exide reported good 3QFY10 performance, strong profit growth was tempered by slow revenue growth. We retain our Hold rating, but raise FY10-11e earnings and target price to Rs128 to factor in the strong operating performance.

■ Slow revenue growth. Despite strong auto volume, revenue grew just 16%, hit by lower 11% growth in its industrial segment (telecoms vertical declined 47%).

Good profit, subdued revenue growth; retain Hold

■ Operating performance improvement. EBITDA margin improved 590bps yoy to 22.7% (declining 310bps qoq). Although lead prices have risen, increased in-house sourcing from owned smelters – from ~30% to nearly 45% of requirement – helped temper the impact.

■ Interest cost reduction. Re-structured loans and repaid shortterm loans substantially lowered Exide’s interest cost, raising its profitability. Hence, the 76.8% yoy growth in adjusted profit was higher than the 56.6% growth in EBITDA.

■ Raising estimates. We raise FY10-11 EPS estimates, by 7% and 13%, respectively, to factor in the good operating performance.

■ Valuation. We raise our target price to Rs128 (15x standalone EPS and Rs12 value of subsidiaries).

To read the full report: EXIDE INDUSTRIES