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Sunday, January 18, 2009

Good Mid Cap Stock in Automotive Batteries - EXIDE INDUSTRIES

Merrill Lynch maintains `Buy’ rating on Exide Industries, however, it has cut the target price to Rs 62 on a weak Q3.

RESEARCH: MERRILL LYNCH
RATING: BUY
CMP: RS43
Target: Rs. 62


Exide Industries reported 30% below estimated PAT in 3QFY09 largely due to Rs 20 crore FX loss and in small part due to weaker sales. Merrill Lynch has cut EPS on slower demand, however, it maintains `Buy’ as
(1) FY10E EPS to grow 22% on falling cost and
(2) FY10E PE of 9.9x is close to trough valuation.


Exide Industries, the largest lead acid battery manufacturer of India, reported a net profit of Rs 56.1 crore, a growth of only 1.8% y-o-y in 3QFY09. This was the slowest growth in the last 15 quarters and is driven by
(1) volume growth of only 11% and
(2) foreign exchange loss of Rs 20 crore that reduced profit by 23%.


Volume growth weakened considerably from the recent trend of over 15% growth due to slowdown in automobile demand. With FX loss accrued due to unhedged payables of over Rs 450 crore, Merrill Lynch still expects strong EPS growth of 220% in FY10E driven by
(1) lower cost of lead along with rupee appreciation could help expand EBITDA margin by 200 bps and
(2) demand growth of over 12% driven by market share gain in the relative secular segment of the automotive after market.

Thus far, FX loss on account of sharp depreciation of the rupee has been negating the impact of decline in lead cost.

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