CMP TARGET PRICE Investment Horizon Recommendation Date

Rs.163 Rs.210 8-12 months Accumulate 03/01/2011

Exide Industries is the largest manufacturer of lead acid storage batteries in India with 25% revenue share. It dominates the branded automotive battery market with over 72% market share and industrial battery market with nearly 45% market share. Exide has manufacturing presence in India, Srilanka, UK, Singapore and Australia. Exide Industries Limited is engaged in manufacturing storage batteries from 2.5 ampere-hour to 15,000 ampere-hour. The Company is not only one of the leading manufacturers of Lead Acid Batteries in India and South Asia, but also is reckoned among the first five major companies in the global battery manufacturing industry.

PRODUCTS MANUFACTURED

BUSINESS

AUTOMOTIVE BATTERIES

INDUSTRIAL BATTERIES

SUBMARINE BATTERIES

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Automotive Batteries In India the company markets the products under Exide, SF, Sonic and Standard Furukawa brands and supplies to all car and two-wheeler manufacturers. In international market it sells products under Dynex, Index & Sonic brands. It has a distribution network of 4000 outlets, supported by 4 regional offices and 28 branch offices. It also exports batteries to the Middle East, Japan and CIS countries. Industrial Batteries It manufactures industrial batteries in a wide range from 2.5 Ah to 20,600 Ah. In India it sells products under Exide, Index, SF, CEIL and Power Safe brands and in international market under CEIL, Chloride and Index brands. Industrial batteries cater mostly to the infrastructure sector such as railways, telecom, power plants, solar cells and other industrial segments including uninterrupted power supply, inverters and traction batteries. Submarine Batteries The Company is also engaged in manufacturing of high-end submarine batteries. It is one of the five companies in the world which has capacity to manufacture submarine batteries for Russia and Germany. It manufactures two to three submarine batteries a year for Indias defence requirement.

Exides strength lies in its technologically superior and high quality products coupled with a wide distribution and after sales network. The wide range of storage batteries ranging from 2.5 Ah to 15000 Ah capacities covers a broad spectrum of applications thereby giving it a definite edge in the automotive, infrastructure, power, telecom, information technology and agricultural sectors. Moreover, the companys foray into new areas such as Electric and Hybrid batteries for cars and two wheelers and in development of environmental friendly storage power alternatives would not only result in building up its strength for the present but also lead to being recognized as a major player in the new generation storage power solutions industry.

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PERFORMANCE CHART
5,000.00 4,000.00 3,000.00 2,000.00 1,000.00 0.00 2005 2006 2007 Sales EBITDA 2008 PAT 2009 2010

RECENT FINANCIAL PERFORMANCE Exide Industries Ltd. reported net profit of Rs 213 crore and gross sales of Rs 1374 crore for the second quarter of 2010-11. The company witnessed a growth of about 21% on a YoY basis in its topline while its bottom line grew by almost 42%. The companys gross sales for the half year ended 30 September stood at Rs 2783 crore and net profit for the same period was Rs 538 crore. Y-o-Y Performance Description No. of Months Net Sales Growth% 200603 12 1388.6 200703 12 1870.3 34.69 200803 12 2844.9 52.11 (Rs. In crores) 200903 201003 12 3768.9 32.48 12 4213.5 11.8

Total Income Total Expenditure PBIDT Growth% PBIT PBT PAT Growth% Cash Profit

1397.0 1164.5 232.5 177.7 151.7 100.7 155.5

1881.1 1560.7 320.4 37.81 266.2 235.2 155.2 54.12 209.4

2856.2 2372.8 483.4 50.87 419.2 374.3 250.3 61.28 314.6

3775.7 3220.8 554.9 14.79 487.0 435.4 284.4 13.62 352.3

4225.9 3321.2 904.8 63.06 824.1 810.6 537.1 88.85 617.7

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(Rs. In crores) Quarterly Analysis Net Sales Total Expenditure PBIDT(Excl OI) PAT PBIDTM% (Excl OI) PBIDTM% PATM% 201009 201006 201003 200912 200909 200906 200903 200812 1127.2 1152.1 1030.3 912.9 950.7 903.5 799.5 789.2 881.7 888.9 812.8 694.2 703.6 694.0 665.4 674.4 245.5 212.9 17.86 19.25 15.49 263.2 165.3 18.67 19.1 11.73 217.5 134.5 17.6 18.06 10.89 218.7 130.5 20.1 20.19 11.99 247.1 149.7 21.74 21.85 13.17 209.5 122.4 19.31 19.39 11.29 134.1 68.2 13.73 13.9 6.98 114.9 56.2 11.6 11.6 5.67

KEY RATIOS 2006 Performance Ratios Return on Equity Return on Capital employed EBITDA Margin PAT Growth Efficiency Ratios Receivable days Inventory days Payable days 21.59 23.48 12.73 30.34 32.87 48.63 49.96 27.42 30.48 12.99 54.09 23.07 48.89 50.69 30.95 36.58 13.09 61.29 20.63 48.96 49.86 25.77 33.89 12.95 13.61 21.13 43.51 39.54 31.53 43.21 19.65 88.86 19.51 42 37.42 2007 2008 2009 2010

SMELTER ADVANTAGE In-house smelting is helping Exide in reducing import and 3rd party purchase of lead within India. Reduction in import as well as 3rd party purchase of lead helps Exide save on: (1) import duty of 5% (2) transportation cost; and (3) cost of making lead alloys. Leadage acquisition to add value Exide has two smelter company as subsidiary including (1) Chloride metal and (2) Leadage Alloys.

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Total lead supplied by the in-house smelter to Exide (parent company) increased from 34% in FY09 to 43% in FY10. Increase in in-house contribution not only helped in expanding EBITDA margin of Exide from an average of 13% to 19% on a sustainable basis, but has also helped expand margin relative to competitors like Amara Raja Batteries. We expect increased lead sourcing from in-house smelters to enable Exide to leverage its low cost structure which along with pricing power and capacity expansions going on stream would fuel growth. To cater to the increasing demand of battery the company had recently commissioned a new plant in Ahmednagar for manufacturing of motorcycle batteries and it has also started two new production lines for four-wheeler batteries in two of its plant. The company would do well in the future mainly on account of new capacity coming on stream and increased sourcing from its own smelters, which would lead to significant reduction in cost and improvement in margin. PEER ANALYSIS

Exide industries EBITDA Margin Vs its peer Amara Raja batteries

25 20 15 10 5 0 2010 2009 2008 2007 2006 Exide Industries Amara Raja batteries

KEY RISKS 1. 2. 3. 4. Slowdown in global and domestic auto demand. Higher than expected rise in lead prices Increased competition Environmental concerns

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FUTURE OUTLOOK India is emerging as a small car hub in the Asia-Pacific region with most of the major global players setting up their manufacturing bases in this country. The existing automobile manufacturers are expanding their capacity and also setting up Greenfield projects. In addition, India is not only being looked at as a manufacturing base for export of passenger vehicles but also heavy vehicles including tractors. The growth of the Indian middle class, availability of trained manpower at competitive costs and stagnation in the US, European and Japanese markets is attracting the global majors to invest in capacities in India and China. This will not only increase the market base for the domestic battery industry several fold but would also lead to strict conformity to global quality standards and processes. The domestic battery industry is poised to more than double within four years given the current rate of growth of over 20 per cent per annum, according to Mr. S.B. Ganguly, Chairman, Exide Industries Ltd. The growth is coming from not just the automotive segment but significantly from the industrial sectors powered by usage in the telecom, railways, power and other industrial applications. India, now, accounts for about 14 major automotive manufacturers, and all of them are growing rapidly in India, and also looking at making India their home for exports. This would further enhance the overall market base. But what is significant is that the industrial batteries consumption is going up with the economy booming. This will create opportunities for supply of batteries in the telecom towers, railway usage and in the power sector. Due to strong growth in automobile demand over the last 7 years, replacement demand for batteries has been robust as replacement cycle for batteries is typically around 4 years. RECOMMENDATION: ACCUMULATE EXIDE INDUSTRIES LTD. The company is a leader in automotive battery segment. The unique strength of the company is its strong distribution network and its way ahead of its all other rivals in the industry. The company is the major supplier of batteries to almost all automobile companies like Tata Motors, Honda, Hyundai and M&M. Based on the management strength, network distribution strength and positioning in the industry, we expect the company to do very well and an investor investing in the company at this stage will definitely benefit. Exide industries is growing on the back of strong vehicle sales that improved its margins and enabled a double digit growth in sales and profits in 2010. Backward Integration for inputs in the past few years, which accounts for 80% of total operational cost, has improved its operating margin to around 18% which is higher than its peers.

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With the growth momentum picking up and the all round sense of buoyancy the future outlook, as far as the battery industry is concerned, looks promising. Both auto and auto ancillary Industries are expected to register double digit growth year on year basis for the next five years. Added to this, the huge expenditure proposed in the infrastructure sector, both by public and private enterprises augur well for the Company's business. Moreover, the high growth envisaged in telecom and power including setting up of nuclear power plants should lead to increased opportunities. With the expectation of rise in demand for automobiles, Exide is expected to post sustainable earnings in future. At current Market price of Rs.163, the stock trades at 21 times its TTM EPS. Based on the future earning estimates of the company, we expect it to post an EPS of approx Rs.9.85 in FY11-12; hence we can expect the stock at levels of Rs.200-210 in a short-medium term.
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