Stock pick of the week: Why analysts are bullish on Exide Industries

Though Exide’s growth in the fourth quarter of 2018-19 was modest, it still surpassed Street expectations. Anlaysts were anticipating lower growth due to the ongoing slowdown in auto sales. Exide’s revenue grew 6%, year-on-year (y-o-y), in the fourth quarter due to increased volume growth in all its major segments—automotive, solar, UPS and invertors, and other industrial batteries. Reduced lead prices—down 20%, y-o-y—contributed to Exide’s better operating margins and helped its net profit grow 11%, y-o-y.

Analysts are getting increasingly bullish on this counter now because the recent crash in its share price has brought its valuations to reasonable levels. Exide fell 29% while the ET Auto-Ancillaries Index fell 21% during same period. Exide’s share price fell more than the industry index because of its high dependence on the OEM segment in cars and two-wheelers. Concerns about the NBFC credit squeeze and its impact on auto sales are primarily responsible for the industry-wide downturn. Auto sales have also been impacted by rise in costs due to the implementation of BS VI norms.

While short-term hiccups are expected to continue, Exide’s long-term growth story is intact. First, the GST-led shift in market share from the unorganised to the organised sector in the replacement market is still continuing and this should benefit Exide, which is the market leader, the most.


Second, though OEM sales have suffered, there is no fall in demand for replacement battery. In fact, the demand is expected to grow in the coming years because of robust primary sales in the past 3-4 years. Third, Exide will also benefit from emerging opportunities—increased traction in solar and electric vehicles will augment demand for batteries. For instance, the number of e-rickshaws plying the roads have markedly increased, and other segments—cars, buses, etc.—are expected to see similar growth.

Analysts’ views
Sell 2
Hold 9
Buy 18

Fourth, margin improvement is also expected to continue in the coming years because the global economic outlook is weak and the chance of a rally in lead prices is remote.

More importantly, Exide is now taking a series of measures to strengthen its market share in the automobile battery replacement segment. These steps include increased support to dealers, improvement in after-sales service, faster turnaround in warranty related claims, etc. Exide has also been upgrading its technology and is coming out with new launches. For example, it increased its market share in light commercial vehicles and tractors by introducing a cheaper brand—Dynex.

Selection Methodology
We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts. You can see similar consensus analyst rating changes during the past week in the ETW 50 table.