Companies & Sectors
Exide Industries' FY14 results strong but growth visibility low

As the automobile industry enters into a slow growth phase with only 8%-9% volume growth projected for FY15-16F, further market share loss could lead to no volume growth or even a decline for Exide Industries, says Nomura

Exide Industries has seen a strong improvement in industrial business revenue q-o-q (quarter-on-quarter), led by its re-entry into the telecom segment. However, the company accepted that growth for key segments – UPS (uninterrupted power supply) and inverters (20%-25% of revenue) and four-wheeler replacement (35% of revenue) could be very slow in FY15.


According to Nomura, within the auto replacement segment, there is little visibility on the stabilisation of marketshare as Amara Raja Batteries has been consistently gaining market share for the past five-six years.


Commenting on Exide Industries prospects, Nomura points out that as we enter a slow growth

phase for the industry with only 8%-9% volume growth projected for FY15-16F, further market share loss could lead to no volume growth or even a decline.


With the stock having moved up 24% over the past three months, Nomura believes this factors in improved earnings growth and maintains a 'Neutral' rating on the Exide Industries share.


For both cautious and seasoned investors, Nomura remarks that Exide Industries is a play on strong volume growth in replacement auto battery demand in India over the long term. Cyclical slowdown in the industrial segment and loss of market share in the auto segment will remain a concern for the



On company share valuation, Nomura forecasts, “We value Exide Industries (ex-insurance business) at 15x one-year forward Earnings Per Share of Rs7.3, which is near the middle of its historical trading band of 15x; we value its insurance business investments at a book value of Rs17/share.”


Nomura's performance forecast for Exide Industries is given in the table below:


Gujarat Gas' amalgamation scheme is without detailed valuations, says Nomura

The amalgamation scheme from Gujarat Gas only indicates the discounted cash flow method used for valuing GSPC Gas, GGCL, and GFSL and underlying asset approach method for valuing investment holding company GDNL, says Nomura

Gujarat Gas Co Ltd (GGCL) has released the composite scheme of amalgamation and arrangement for amalgamation of the company with GSPC Gas, Gujarat Gas Financial Services (GFSL), Gujarat Gas Trading Company (GTCL) and GSPC Distribution Networks (GDNL).


According to a research note by Nomura, the scheme provides clarity on swap ratio and final shareholding. However, the scheme does not provide finer details on valuations. It only indicates that the DCF (discounted cash flow) method has been used for valuing GSPC Gas, GGCL, and GFSL and “underlying asset” approach method has been used for valuing investment holding company GDNL.


Independent valuers had recommended the SWAP ratio for amalgamation of GSPC Gas and GGAS (and subsidiaries) with GDNL: 81 equity shares of GDNL for every 2 shares in GSPC Gas; 38 equity shares of GDNL for each share of GGCL; and 38 equity shares of GDNL for each share of GFSL. These swap ratios meant fresh issue of 4,732 million shares to shareholders of transferor companies (GGCL, GSPC Gas and GFSL). GDNL already had 900 million shares (400 million GSPC Gas, 350 million GSPL and 150 million GSFC). Even after extinguishing 400 million shares of GSPC Gas, the total issued capital base of GDNL could have increased to 5,232 million shares.


The final share-holding and swap ratio would be as follows:

(a) Existing share capital of GDNL will reduce to 13.2mn shares from 500mn shares (excl GSPC Gas’s 400mn shares which will be extinguished).

(b) For each share of GGCL, minorities will get 1 new GDNL share.

(c) For every 76 shares of GSPC Gas, 81 new shares of GDNL.

(d) For each share of GFSL, minorities will get 1 new GDNL share.

(e) GGCL’s 69.88% holding in GFSL and 100% holding in GTCL shall get extinguished.

(f) Total new GDNL 124.5 million share issue to the shareholders of transferor companies.

(g) Post amalgamation GDNL will have share capital base of 137.7 million shares (13.2 million existing plus 124.5 million new issuance).

(h) Post amalgamation, GSPC would be the largest shareholder (28.4%) in GDNL followed by GSPL (25.8%). Thus total promoter shareholding would be 54.2%.


Post amalgamation, the name of the new combined entity is proposed to be GSPC Gas.


The pie charts for current shareholding pattern and proposed shareholding pattern are given below:




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