Multi Baggers

Exide Industries

Exide Industries is engaged in the manufacturing of lead acid storage batteries. Exide product mix automotive batteries, industrial batteries and submarine batteries. The Company has seven battery manufacturing facilities located across the country three in Maharashtra, two in West Bengal, one in Tamil Nadu and one in Haryana.

In addition, Exide also has two Home UPS/Inverter manufacturing facilities in Uttarakhand. The batteries of the company used in Automotive, telecom, power back up and railways. Exide Industries India is one of the largest manufacturers of Lead Acid Storage Batteries in the World, marketing its products to Western Europe, Middle East, Africa, South America, SAARC and South East Asian Countries.

The Key Trigger

Exide is in search of Insurance biz partner after buying out ING stake in the JV. Insurance business valuation grows as the life of the business increase because the multiple is derived on growing business. Our experience suggests the valuation of insurance business doubles from age 11h to age 19th every 4.5 years being high growth phase. Last year it was valued at 200 million dollar as (ING stake + others) 50 percent was bought for 550 crores. We are working with 1250 crores of valuation for the company. Another 3 years this could be valued at over 1850 crores.

Company PE multiple reflects the amount of pessimism built on the stock. But if one sees Maruti, M&M, Tata Motor and their recent outperformance vis-a-vis market it reflects a buoyancy of worst getting over. We picked Escorts at 60 last year based on a simple logic a small revival will trigger buzz. Our recent recommendation on Apollo Tyre and other Tire companies had a simple logic of adjustment towards better scenario and margin improvement

During the various scenarios Exide has traded at average PE multiple of 20 and over 26 during high growth phase where dynamics of environment is favoring the co.

Company has taken price hikes recently across product mix. This has helped in maintaining margins. But we expect substantial improvement in margin realization over next one year as dollar has stabilized around 61 compared to last 2 quarter mean of over 65.

Interesting Market cap to Sales ratio:

Adjusting for Insurance biz the market cap to sales for Exide is 1.3 times and Amara Raja is 1.9 times. The key catalyst that Exide Market Cap is going to expand is based on margin expansion and further capacity expansion undertaken. Company utilization levels have fallen to ~72 percent we expect revival in demand in the replacement market for next year. Working with EPS of 9 and conservatively valuing the company at 18 times we expect the stock will stabilize around 162. However if the insurance deal is done as reported in media there will be cash surplus for the company and one can easily see 20 PE multiple on the stock.