Buy This Small-Cap Battery Stock For 20% Upside, Reported Revenue Growth Of 57% YoY: Geojit

Geojit, a leading brokerage firm, has recommended buying the stocks of Exide Industries Limited, a major Auto Ancillaries -Battery company. The brokerage estimated a target price of Rs 191 with a buy call for the stocks of the company.

Exide Industries Limited is a market leader in storage batteries in India, with a 60% market share. Its segment includes automotive & industrial batteries and it controls 86 per cent of the 2W market. The company's progress on the lithion ion battery is on track, by setting up a green field project. The 1st phase is expected to commence production by 2HFY25.

Stock Outlook & Returns

On Friday, 12 August, the shares of the company closed at Rs 159.20 apiece. Currently, the stock's 52 week low is Rs 130.25 apiece and the 52 week high is Rs 204.90 apiece, respectively.

Over the week, the shares gained roughly 1.79%. Whereas, in the past 1 month, the shares price value gained 5.22%. In the past 1 year, the share price has slid down 5.13%. In the past 3 & 5 years, the share gave a negative return of return 11.6% and 21,58%, respectively.

The brokerage has estimated a target price of Rs 191 apiece for the stocks of the company. Considering this, if an investor buys the stocks of the company at the current market price, they can expect potential gains of 20% in 12 months.

The ROE is 41.36%. The dividend Yield is 1.26% and the face value is Rs 1.

Superior product mix, offset further decline in margin

During Q1FY23, Exide Industries posted a revenue growth of 57% YoY, primarily driven by strong growth from the Aftermarket, UPS and Solar segment. It also delivered impressive growth in the OEM and Industrial segment. Despite 6% increase in the lead price for the quarter stringent cost control measure, has led the PAT to grew by 185% YoY. While the overall demand scenario is showing sign of pick up due to cyclicality in nature. "We expect the margin to show some resilience going forward due to cost optimization and easing commodity price. However, we factor 310bps lower margin in FY23, from our early estimate due to 36% increase in the lead price during the (FY21-22). The lead price has declined by 13 percent from its peak for the first quarter and expected to correct further due to the anticipated slowdown in global growth. We expect the revenue to grow by 28% YoY in FY23 on account of robust sales in OEM and Aftermarket volume," the brokerage said.

Revival expected in H2 auto volume numbers

The demand scenario for 2Ws is likely to fair well both in the domestic and export market. The segment registered strong double digit growth in Q1 on account of increased rural income due to strong agri. output and new product launches by OEMs. In addition the company is well poised to take advantage of the replacement market from the unorganized sectors. With batteries being a product that needs to be replaced, Exide is in prime position to drive home its advantage. Exide Industries will be the direct beneficiary from any structural change in the auto demand owing to its leadership position (~60% market share) in the automotive battery and having 86% market share in two -wheelers. We factor positive growth for H2 owing to festival season, normal monsoon and easing supply concerns.

Green field capex for lithium ion battery cell

Exide Industries through its subsidiary said its subsidiary Exide Energy " Solutions Ltd (EESL) has executed a sales agreement in Bengaluru to set up a lithium ion battery cell manufacturing facility. The plant would be used to set up multi-gigawatt Li-ion battery cell manufacturing facility for the new age electric mobility and stationary application business in India. The company reiterated that the first phase of Li-ion cell manufacturing is expected to commence by 2HFY25.

Superior product mix and cost optimization, buy for target price of Rs 191

Exide has a stronger balance sheet after the divestment of its life insurance business to HDFC Life. The company will be able to maintain its cash position and fund the capex through internal accruals. "We remain positive on a medium to long term basis owing to its concentration on the development of EV batteries and respite in the market price. On a 1 yr. fwd basis, Exide Industries is currently trading at 13.5x (25% lower to its 3yr avg.)near to its all-time low at 12x. We value Exide Industries at 15x (I yr. avg.) FY24E EPS and recommend Buy rating with a target price of Rs.191 per share," the brokerage said.

Disclaimer

The stock has been picked from the brokerage report of Geojit. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.