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
market.
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:
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