Nomura bullish on Exide Industries; sees up to 18% potential upside after expected Q2 show

Foreign brokerage firm Nomura is bullish on auto components maker . The brokerage has recommended a ‘buy’ on the stock post its in-line Q2 performance. The suggested target price of Rs 221 implies gains of over 18% from the current level.

The brokerage said the company’s EBITDA margin had been largely in line with estimates, benefiting from lower raw material prices or good sales at 9.5% (-260bp q-q), similar to peers.

The company reportedly plans a capex of Rs 6,000 crore for a 12 GWh Li-ion plant in 2 phases. It plans to supply to all vehicle segments and has multiple chemistries and cell types.

The brokerage is of the belief that auto replacement volume growth should normalise to ~8% over FY24-25F (unchanged) and industrial segment volumes to record 7-8% growth for the same period. Moreover, as the lead prices have edged higher by around 12% in comparison to the second quarter of FY23, the margins would be lower in comparison to the past period.

The company’s Li-ion cell facilities shall be the earliest set-ups within the industry and it shall help in integrating with OEMs, noted the brokerage. Nonetheless, the brokerage is of the view that cell profitability will depend on EV demand and competitive scenario, which is more difficult to predict for cell business than the lead acid business. “Hence, we conservatively value Li-ion cell capex at 0.5x BV (INR24/sh),” said the brokerage.

Shares of Exide Industries, in the last 1 year, have gained by just 4%, while its 1 month return has been at 18%.

The brokerage, considering execution risks for Li-ion and structural growth risks for the lead acid industry, maintains target multiple of 12x P/E (2SD below historical mean) and roll forward to FY25F EPS, discounted back to Dec-23F.

“We add Rs 53 for its stake in

and Rs 24 for Li-Ion cells capex. The stock trades at ~15.1x FY25F core EPS, which is attractive with an 11% EPS CAGR over FY23-25F,” said the brokerage.

Hence, the company has maintained a ‘buy’ rating on the counter with a Rs 221 target price, based on SOTP valuation methodology.

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