Exide Industries rallies on Morgan Stanley, Credit Suisse upgrades

MUMBAI: Shares of Exide Industries has been on an upmove after reporting its Q1 results. The stock has rallied over 8 per cent in the last two sessions following brokerages upgrade and revised target price.

At 01:10 p.m.; the stock was at Rs 131.85, up 3.45 per cent, on the BSE. It touched a high of Rs 133.35 and a low of Rs 128.20 in trade today.

Morgan Stanley has upgraded it to "overweight" from "equal-weight", on the back of improved visibility in earnings in the next two years.

"While OEM demand will remain weak we are seeing recovery in replacement demand and Exide with capacities and dealer network is well placed to benefit. Given 18 per cent underperformance in the last one year expectations are low and valuation supportive thus we move to OW," the report said.

The brokerage expects 2 per cent and 10 per cent growth in OEM segment over FY14/15 and 10 per cent growth in the replacement space in the coming two years. It sees margins to remain range-bound at 14.5 per cent in FY14 and 15 per cent in FY15.

Morgan Stanley has increased its target price to Rs 149 from Rs 124 earlier.

The company has managed to improve its profitability with an EBITDA margin of 16.1 per cent despite the weak inverter season (high margin segment) due to the consistent price increases over the last 3 quarters, says a Barclays report.

"Exide has taken a 5-6 per cent price increase in Q4 in the replacement market and negotiated a higher price from OEMs as well. Given the high utilization for peers (90 per cent+), Exide is using this opportunity to improve its profitability through price increase (5 per cent increased in July as well). Exide's current capacity utilization is ~75 per cent for automotive and ~80 per cent for industrial batteries," the Barclays report said.

Following the price increase and lack of spare capacities for competition, Barclays expect Exide's profitability trajectory to remain intact in the coming quarters.

The brokerage has revised its target price upwards to Rs 187 from Rs 179 earlier while maintaining overweight rating on the stock.

Credit Suisse has upgraded Exide to "outperform" from "neutral", citing a return in pricing power and a faster-than-expected correction in its replacement segment mix.

It has also revised the target price upward to Rs 160 from Rs 136 earlier.