Exide Industries – Powering Your Portfolio

The company expects to benefit from decline in lead price in LME to US$2,532/t in Dec07 from a peak rate of US$3,666/t in Oct07 from Jan08 onwards.The company expects its average cost lead to be benchmarked to around US$2,500/t in Q4FY08E, which is 21% lower than its average benchmark cost of US$3,200/t.

Q3FY08 PAT at Rs552mn, is up 58% y-o-y, about 8% below our estimate. The company absorbed the impact of 115% y-o-y increase in lead cost and improved its EBITDA margin by 20bp y-o-y to 15.1% thanks to pricing power. Key reason for lower than estimated profit are (1) Delay in benefit from lead price decline since early Dec07 and (2) change in product mix in favour of OEM sales.

Sum of the Parts Valuation:
SOTP valuation is based on: (1) core lead acid battery business at 16.5x FY09E EPS of Rs5.7 equals Rs94 and (2) 50% stake in ING Vysya life at 17x FY09E NBAP equals Rs17/sh. Exide is expected to report an EPS of Rs 3.82 for FY09 and Rs 5.15 for FY10. Merill Lynch recommends a BUY with a Taregt Price of Rs 110 / share.