Geojit Financial Services puts BUY on Exide Industries

Geojit Financial Services puts BUY on Exide Industries

Lead prices have undergone a sharp correction recently and it has come down to $1800 / tonne from the peak of $4000 / tonne in October last.

According to sources, the company has not cut battery prices at the retail level despite the sharp fall in the raw material cost resulted from easing lead prices.

Better price realization coupled with declining raw material cost is expected to boost profitability of the company. Fall in lead prices has more than offset the adverse effects in the import bill of the company due to unfavorable currency movements.

The recent appreciation of the dollar by 10% against the rupee would have increased import bill of the company. As against this, lead prices have declined by 30% resulting in a net benefit of 15-20%.

Even if this benefit is passed on to institutional and retail customers at the rate of 100% and 50% respectively, there is further potential for an 8-10% increase in the earning numbers.

Exide Industries has a 50% stake in ING Vysya Life Insurance and this business also is expected to contribute to the earnings of the company.


Going forward, the EPS is expected to grow at 27% CAGR between 2008 –10, based on a 15% revenue growth and 150 bps rise in operating margin as a result of the lead price correction and increase in the use of recycled lead from local smelters.

After the recent stock correction, the scrip looks grossly undervalued with good potential for an upward march. It also seems that its medium term profitability is immune to the current auto slowdown and deserves a premium value over its peers.

The scrip can be acquired with a target price of Rs86 in the medium-term.