Exide at Rs 216 is a fundamental buy

For more than six decades, Exide Industries has been one of India’s most reliable brands and a market leader in packaged power technology. The company is today the largest storage battery company, enjoying an unrivalled reputation with a market share of over 60% in the country. With constant emphasis on innovation, technology upgrade and strong relationship, Exide is a front runner in their lead acid storage battery space for both automotive and industrial applications. The company has collaborations with Shin Kobe and Furukawa of Japan, Oldham of UK and East Penn of the US, giving the company a global dimension in manufacturing capability. Contrary to general perception, many investors and analysts feel that lead acid batteries would become irrelevant in the future. This is because car manufacturers who are turning towards the production of electric vehicles would have no use of the batteries in the coming electric generation. Unless there is significant change of technology, lead acid batteries will continue to be the most reliable and affordable power source for vehicles.

Moreover, most of the electric vehicles would have a 12v lead acid battery as auxiliary battery for SLI (starter, lighting and ignition) application. It is pertinent to note that newer lead acid batteries are redefining the performance limits of the applications. The two wheeler segment has been dominating the automobile market in the country in terms of volume owing to a growing emerging middle class and a younger population. The company’s Q4FY2019 net revenue grew 6% y-o-y due to higher automotive and industrial battery sales, while EBIDA rose 10% y-o-y along with expanded margin at over 14%. Fall in lead prices and excellent cost control measures undertaken by the company led to the company posting excellent quarterly results, which were ahead of many analysts’ estimates. The company owns a 100% stake in Exide Life Insurance, which commenced operations in the country in September 2001. With a solid and trusted brand as backup, Exide Life has become a foremost established and profitable life insurance company. In case there is a part disinvestment of the stake to a strategic partner in the future, immense value can be created for Exide shareholders. The outlook is quite bright for Exide on the back of strong volume growth across segments such as automobile, inverter and industrial batteries. Improvement in gross margins due to softening in lead prices, cost control initiatives, better product mix, technological upgrade and introduction of new cost effective brands at competitive prices are all expected to support Exide’s market share gain from unorganised players. The Exide stock currently quoting at Rs 216 on the Indian stock exchanges is a fundamental buy, with a potential to appreciate by 20% in the next nine months’ time frame.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.