2016-09-26
Exide Industries may post growth in double digits soon

The stock of ExideBSE -1.09 % Industries, India's leading battery manufacturer for automobile industry, has been underperforming its peer Amara RajaBSE -1.41 % over the past three years by a wide margin following tepid business growth. However, the extent of underperformance is likely to narrow since Exide looks well poised to show double digit growth in the coming quarters .

Exide may post growth in double digits soon

The company's revenue grew at 4% annualised rate in the past three fiscals. This is likely to improve considering higher penetration of organised players, improving vehicle volumes, and increasing business from solar energy segment.

Over the past decade, the market share of organised players has increased due to demand from replacement market for commercial vehicles. The increasing share of established players has been key reason Exide earns nearly one-fourth of revenue from replacement market.

The implementation of Goods and Service Tax will be beneficial to Exide as it will reduce the discount given by unorganised battery makers. Currently, unorganised players sell batteries about 30% cheaper.

A factor that impacted the company's valuation was fluctuating operating margin in the range of 14-19% in the past five years. This was on account of volatility in inverter segment. 

his may, however, change since the share of revenue from the segment has fallen to 20% from 30% a year ago as other segments gather momentum. This makes sense at a time when the country's power deficit is expected to narrow as more power capacity comes on stream thereby reducing the usage of inverters.

The price of lead, a major raw material, has fallen 10-15% in a year but battery firms have been able to keep product prices firm. This will add to the profitability.

The price multiple of Amara Raja is 59% higher than Exide's. As revenue growth is expected to pick up with better margin, the price-earnings (P/E) difference may reduce. Exide's stock trades at a P/E of 18 based on FY17 projection, which is lower than the five-year average P/E of 20. 

(This news story is from The Economic Times)
The company's revenue grew at 4% annualised rate in the past three fiscals. This is likely to improve considering higher penetration of organised players, improving vehicle volumes, and increasing business from solar energy segment.

Over the past decade, the market share of organised players has increased due to demand from replacement market for commercial vehicles. The increasing share of established players has been key reason Exide earns nearly one-fourth of revenue from replaceme ..