Exide Industries

Stock Opportunities Not-so-Hidden Gems
83

I have done a fair deal of scuttlebutt on batteries for EVs and till now what I have been able to figure out is that the technology is so different that none of the existing players (Exide, ARBL) will have any advantage. The only advantage they have at the current time is the distribution reach.

With the cost of an EV battery likely to be 30-40% of the entire car, the most likely scenario is that the car manufacturers will also get into the game.
(https://www.autocarindia.com/car-news/mahindra-open-to-partnership-to-manufacture-ev-batteries-in-india-413380)

The business model as well as the technology is still evolving in this space and its probably too premature to say what will happen to the existing players.

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84

Muted Q1 2020 results specially consolidated results because of Exide Life

https://www.bseindia.com/xml-data/corpfiling/AttachLive/f64a67d1-6eaf-4b0a-82ad-922f76208461.pdf

I have a question. Do they have any specific plans for the life insurance business - demerger/sale etc? Looks like it is resulting in big loses for the company

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Has any board member purchased a policy from Exide? I would opine they have a good chance to succeed if their policy offers the right mix and their customer communication and feedback process and settlement ratio is market leading.

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Once there is significant volume, the horns and lights can be made to work at higher voltage DC and we would not need lead acid batteries.

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87

Even Maruti has gone one step ahead,Li-ion battery that suzuki will produce in India will replace lead acid battery pack. The li-ion battery will cater to its smart hybrid and electronic accessaries. But only available from premium hatchback and above model.

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The price of the battery is 50k now. Once price drops to 5k, it can be made available for other cars. We need to wait for price to fall.

1GB Ram was considered expensive in a phone. Today we can get 4GB on a budget phone.

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89

Price of storage/memories cant be compared to battery technologies. This is because Moore’s law is only applicable to semi conductors. It’s misconception that all industries would grow at same pace.

This is iterated by Prof. Vaclav Smil . For further information you can refer to Energy and civilization.

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I never mentioned Moore’s law. Economies of scale applies to batteries and run size can reduce cost. The time taken and cost may depend on the technology, access to raw materials, labour, etc. We cannot expect the speed of semiconductor price discount for a battery but the pattern will be similar with adoption.

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Technology change a given; Exide has early mover advantage!

In 2018, Exide formed a 75:25 JV with Switzerland’s Leclanche SA,
(Nexcharge), which would build a manufacturing plant in Gujarat for production of modules & battery packs initially followed by lithium-ion cell production by mid-2020. The JV would have access to Leclanche’s technology expertise and envisions 3 million cells per annum (~1.5 GWh)
capacity by FY21E. Given the regulatory thrust on EV adoption, change in technology from existing lead acid architecture to lithium ion is inevitable. We believe Exide’s JV in this regard is a welcome step that would help the company achieve a first mover advantage in the space. Exide’s annual report
suggest initial assembling to start at the Gujarat plant by CY19E end.

http://content.icicidirect.com/mailimages/IDirect_ExideInds_Q1FY20.pdf

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93

Any views on sales post lockdown, as vehicles are not moving there’s possibility of battery going bad and will need for replacement…

Today i face battery problem in i10.
It had exide battery, in a week we start car once.

Even if 5% of vehicle battery go bad it will lead huge demand

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95

Any views here? Actually they have performed much better in Q1 FY21 than what analysts were expecting; Also hearing some news around monetising their Insurance vertical.

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Why is Exide in life insurance business? Anyone knows what was management’s rationale for starting that line of business? Seems completely out of core competence for the firm and not synergic line of business at all.

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16200 Cr invested in insurance business and year to date it’s making a minor loss!

Can this be explained.

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98

Hey guys,

I read through the AR 19-20 and latest QY results, wanted to share my notes here to get your opinions. I will first talk about the standalone and later move on to the consolidated.

Product Segments

Automotive
They sell batteries for a 4W, 3W, 2W and recently E-Rickshaw under different brand names through their distributor network. And sell batteries to OEMs too. They supply to both the new entrants to Indian market, Kia and MG.

They also include the Home UPS, Inverter Batteries and Generator Batteries in this segment.

Industrial
Here they serve batteries for heavy duty applications like:

  • Railway, Telecom, Solar
  • Power and Infrastructure Projects
  • Industrial UPS

Submarine
They are also the sole supplier of batteries to the Indian Navy.

Financials

For the year FY 19-20

Numbers

Sales: 9857 Crs
Operating Profit: 1367 Crs (13.86%)
EBITDA: 1111 crs (14.51%)
Interest: 11 Crs
PBT: 1035 Crs (10.5%)
PAT: 826 Crs (8.38%)

Growth

(in CAGR)
Sales: -6.9% 1Y, 9.14% 3Y
Profit: 2.13% 1Y, 6% 3Y
EPS: -8.4% 1Y, 5.97% 3Y

Ratios

ROE = 13.11%
ROCE = 16.44%
ROA = 10.04

The numbers were bad during Q1’21 because of the lockdown, but have bounced back decently during Q2’21.

Consolidated

Main reason I didn’t give the numbers for the consolidated report above was because of their Life Insurance business. I didn’t know how to value a Life Insurance company properly, so I looked up online and had to study the business separately.

From the annual report,
AUM: 15700 Crs
Premium Collected: 3220 Crs (10.37% up from previous year)

From ELI’s latest Public Disclosures,
Shareholders Funds: 1850 Crs
Policyholder Funds: 15549 Crs
Embedded Value: 2540 Crs
Expense Ratio: 25.30%

Premium Income Distribution
First year = 17.5%
Renewal = 79.6%
Single = 2.8%

As far as I’ve seen all the numbers are not very big but decent. Embedded Value is growing slowly. Since the Premium income does not belong the shareholders, it must be stored in the Policyholders funds until it’s not further required, which means the LIs would take some time to show profits.

Other Notes from AR

  • Exide Leclanche Energy Private Limited, a new JV established to to take a leading position in the lithium-ion battery market in India.
  • Invested in CSE Solar subsidies to construct, operate and supply solar power for various manufacturing facilities of Exide.
  • Anticipating the stricter emission norms due to the new BS6 engine, the company initiated the development of the advanced EFB and ISS batteries in technical collaboration with Moura Battery of Brazil.

Comparison with Peer

On comparing with it’s closest peer, Amara Raja Batteries:

  • Sales hasn’t grown much for both of them especially in the last 3 years.
  • Low debt for both the companies
  • Exide has better 2W, 4W market share while Amara Raja has better telecom and UPS share.
  • Better ROCE (21.88%), ROE (18.08%)
  • 24.00% decrease in promoter holding in Amara Raja compared to 0% in Exide

Key Audit Report

  • Assesed the provision for Warranty Costs based on historical product failures
  • Assesed the estimation of deferred revenue from the customer loyalty program
  • Consolidated report included the key audit matter of “valuation and impairment of investments” of ELI where the evaluation methodology was assesed.

One trivial thing which caught my eye was:
In Note 20 Non Current Provisions (Standalone), the provision for Compensated Absences was increased from 31.92 Crs to 36.44 (around 5Cr increase). Is this normal?

My views

Good

  • With increasing focus on EVs and Renewable Energy, India along with the world is moving towards a more electric future and I feel Exide has the potential to capture the future demand.
  • Low debt, high promoter holding and positive Cash Flow from Operations for atleast 10 years.
  • Leading market share in automotive industry.
  • Life Insurance business can give an edge against Amara Raja.

Bad

  • Topline and Bottomline growth in single digits.
  • Amara Raja seems to have slightly better growth and capital efficiency (only thing bothering me in AMRJ is their low promoter holding).
  • Life Insurance business has tail risk.

Disc: Invested.
Also thinking of dividing future investments across Exide and Amara Raja.

P.S This is my first post here in ValuePickr and since am not from finance background please point out if there are any mistakes. :pray:

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99

I like Amarraja better than Exide for this sole reason. Exide promoters seem to be wasting capital in search for growth in other areas while Amarraja is focusing and is all in on battery tech.

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Does anyone the reason of step increase in the Manufacturing costs and other costs over the last decade?

This has led to the following…

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Huge gulf between Gross Margins and Operating Margins in the last 3 yrs… Gross Margins have increased substantially , but the operating margins & net margins have been on a downward slope… Anyone knows the reason for this?

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Competitor Amara Raja batteries have manufacturing plants in 2 locations only. Both these facilities has been asked to close plants by Andhra Pradesh government citing environment pollution. Also Southern Discom has been asked to cut power supply to the Amara Raja plants. There is tremendous risk in investing in companies owned by politicians… which is materialized in this case of Amara Raja.

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102

APPCB went head and indeed closed the entire Amara Raja batteries’ plants. Amara Raja problem don’t just seems to be pollution but more of political issues. With what confident one can have long term exposure to Amara Raja.

I feel it will leads to Exide Industries capturing most of the Indian batteries segment and great future for the company. India’s dupoly batteries industry becoming a monopoly in favor of Exide Industries.

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Since it is political, I think it will get settled… everything has a price…so once Amara raja guys pay the price, it will be allowed to function… as you can see from price action of Amara raja stock…did not go down like falling knife… so be careful in making your investment thesis based on single event