Stock Information NSE Code EXIDEIND BSE Code 500086 Bloomberg Code EXID IN Face Value 1 CMP 139.

55 52 W H/L 146.8/84 No of shares 85 million Market Cap 11.86 billion Volume Traded (NSE: last week) 5315036 * all data as on 04/08/2010 Shareholding Pattern Category % Promoters 45.99 MFs/Banks/FIs 18.21 Foreign 13.54 Total Public 11.59 Non-Promoter Corp. 10.57 Directors & Relatives 0.10 Total 100 Source: FY 2010 Annual Report

Current Market Price: Rs. 139.55

EXIDE INDUSTRIES

Target Price:

Rs. 178

The Company manufactures the widest range of storage batteries in the world from 2.5 Ah to 20,400 Ah capacities, covering the broadest spectrum of applications. The Company has six factories strategically located across the country two in Maharashtra, one in West Bengal, two in Tamil Nadu and one in Haryana. The Company has grown steadily, modernized its manufacturing processes and taken initiatives on the service front. The Company power most of the industrial and automotive segments in the country and the products are used in critical applications in infrastructure and defence sectors. Company Product Profile Company has battery sales in the: 1) Automotive Batteries 2) Industrial Batteries 3) Submarine Batteries Benchmark Performance
160 140 6000 5500 5000 4500 4000 3500 3000 02-01-2010 02-05-2010

Segment-wise distribution of sales

Automotive Industrial Submarine

RECOMMENDATION BUY
Analysts Bharat Mimani Divyang Ranka Harsh Vardhan Jhawar Ishan Bansal Nikhil Mahajan B09016 B09018 B09022 B09023 B09034

120
100 80 60 02-09-2009

EXIDE
NIFTY

FINANCIAL HIGHLIGHTS Particulars Sales EBITDA PAT MI EPS P/E 2010 4824.44 962.21 573.83 87.36 5.723176 20.71 2011E 5747.355 1496.49 912.996 138.995 9.1059 15.59428 2012E 6846.824 1858.54 1146.77 174.584 11.4375 12.41534 2013E 8156.622 2300.886 1418.516 215.9552 14.14778 10.03691 2014E 9716.984 2840.592 1749.439 266.335 17.44829 8.138335 2015E 11575.84 3498.244 2151.85 327.5982 21.46179 6.61641

Value Drivers for the battery manufacturing industry

The battery market is expected to grow in both the industrial and the automotive sectors. The growth drivers for both the segments are mentioned below.

The Industrial Segment

Growth of telecom sector New services (3G), Spreading network, Increasing mobile penetration and usage Growing IT and ITES industries Increasing penetration of Internet in India Increasing computerization and government expenditure on infrastructure and modernization of utilities Plans for capacity expansion in the power sector especially the upcoming nuclear power plants Increased network of BFSI segment ATMs and computerized bank branches Increase in mechanized farming and rural electrification projects

The Automotive Segment

Recovering auto sector in India Decline of global players (GM, Ford) has shifted auto-manufacturing to developing countries like India. India has become the global hub for auto-components and ancillaries. Both auto and auto ancillary Industries are expected to register double digit growth year on year basis for the next five years Replacement market is expected to grow in the coming years

Investment Arguments
Excellent Industry Outlook and Company Performance
Exide undoubtedly is in very fast growing industries in India and it is sure to benefit to an extent to its market share given the dynamics of these industries and given the fact that it is the biggest player in these segments. Automotive Sector (62% of companys sales) The automotive segment has been on a very steady growth path and though it was hit during recession, it is now on a very strong growth path. The two wheeler segment and the small car segments are the most attractive of them. A very important driver of the growth in two-wheeler majorly and the small car segment is the penetration levels which the industry players are now targeting. India till 2009 was amongst the least penetrated markets in 2-wheelers (6~7 %) in Asian emerging markets which include China, Indonesia, Vietnam, Malaysia, Thailand & Taiwan. (ENAM Securities India Research). The growth for the year FY 2010 was a whopping 23%, which definitely was due to the low base effect, but still the average growth in the coming years is expected to be around 15%. Hence there is a huge potential in these segments and accordingly Exide is investing in capacity increment to be able to meet the demand in these segments. The revival in Indias automobile industry and factors like low vehicle penetration, increasing GDP growth and entrance of global car giants (as India becomes a major auto manufacturing hub) will drive the growth of the company going ahead. Table: Auto Sales Trend in the past Category Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers Grand Total 2003-04 2004-05 902096 260114 2005-06 2006-07 1379979 467765 2007-08 2008-09 1549882 1552703 490494 384194 2009-10 1949776 531395

1061572 1143076 318430 351041

284078 307862 359920 403910 364781 349727 440368 5364249 6209765 7052391 7872334 7249278 7437619 9371231 6810537 7897629 8906428 10123988 9654435 9724243 12292770

Source: http://www.siamindia.com/scripts/domestic-sales-trend.aspx

Exide has a market share of 72% in case of Automotive OEM and 70% in case of Organized Retail in the automotive segment. Exide was the preferred supplier for most of the new vehicles launched by the vehicle manufacturers during the year under review. These included Chevrolet Beat, Honda Jazz & Accor V6, Toyota Fortuner, Maruti Suzuki Ritz & EECO, Fiat Grand Punto, Premier RIO, Tata Sumo Grande and Caterpillar Dumpers.

Industrial Sector (37% of its total sales) Sales of Industrial batteries for 2009-10 registered a growth of around 10%, both in terms of value as well as volume. This has been possible in spite of severe competition and low cost imports in the domestic market. In the Fast Moving Industrial Battery segment, sales for 2009-10 recorded a growth of around 21% in terms of value and 18% in terms of volume. While there had been a de growth of 7% in UPS manufacturing segment, trade growth during the period was 28%. The growth in the industrial batteries business is driven by infrastructure and technologyrelated industries such as telecommunications, UPS and power. This segment has been growing at a rapid pace registering a CAGR of 34% over the last four years with booming demand from the telecom and UPS segments.

Exide could gain from the falling lead prices and regulatory norms
In case of Exide, operating leverage has driven the margin expansion and it is expected to improve further as lead prices fell by 12% last quarter, and are now down to 9%.

New Product launches and Plant Expansions

Exide has launched the Deep Cycling E-bike batteries for electric bicycles and scooters and is also in the process of developing batteries for Stop Start MicroHybridvehicles. Further, thepossibilitiesof development and marketing of Lithium-ion batteries for the emerging electric vehicle segments is also under active consideration. Exide plans to increase its battery capacity at an investment of Rs350cr in FY2011E. The company has been operating at almost a 100% capacity utilization level and was not able to keep pace with the surge in demand in the automotive sector owing to which it lost some top-line growth due to capacity limitations. The company is expanding its production capacities by setting up a new plant at Ahmednagar, Maharashtra, to be on fast-track mode.

Technical Collaborations: More R&D

Exides strength lies in its technologically superior and high quality products coupled with a wide distribution and after-sales network. Exide has forayed into new areas such as Electric and Hybrid batteries for cars and two wheelers and in development of environmental friendly storage power alternatives. This would lead to being recognized as a major player in the new generation storage power solutions industry. The in-house R&D Department has not only been consistently developing quality products for existing as well as new applications, but also has been successful in reducing costs which ultimately benefits the end consumers. During the year, your Company entered into a new Agreement with Furukawa Battery Company Limited, Japan for Idling Stop System (ISS) automotive batteries.

Risks and Concerns

Volatility in the prices of Lead, which is the major constituent of Exides products, continues to remain a constant area of concern. During the last two years, the prices of Lead had peaked to US$ 2800 per MT, crashed to US $ 963 per MT and is presently aroundUS$2100perMT. These volatile prices not only have a major impact on the manufacturing costs but also create uncertainty for procurement and availability.

Imports from China mainly for industrial batteries, especially after the economic slowdown in the West, have been a source of concern. Unfortunately, the present Anti-Dumping laws do not provide adequate protection against such imports. Several battery manufacturers are present in the Indian market and quite a few big companies have recently diversified into this industry, which will lead to increased competition. Whilst on the one hand this leads to betterment of quality and service, on the other, it may also result in unreasonable reduction in prices thereby creating pressure on margins.

VALUATION Multiple Valuation

For the purpose of multiples valuation we have used the ratios P/E, EV/EBITDA, EV/Sales of the auto component manufacturing industry. Based on any industry average P/E multiple of 20.69X and EPS forecast for the next financial year we get a target price of Rs. 188.3. The high EV/EBITDA numbers of Motherson Sumi systems used to calculate industry average are outliers. Hence removing them we get an EV/EBITDA multiple of ~9X. Based on this the target price comes to be Rs. 176. The EV/ Sales multiple come out to be 2.5X on similar reasoning. Based on this and FY 2011 projected target price is Rs. 173.

Discounted Cash Flow Valuation

Weighted average cost of capital computation For the purpose of calculating the WACC the cost of equity for the company derived from an industry (auto component manufacturers) average unlevered beta was 16.53%. The company has been rated LAA+ by ICRA and based on the spread on a 10-year bond yield from FIMDAA the cost of debt was 9.46%. The company though has minimal debt/equity of 0.07. Hence the WACC for the company comes out to 16.48%. VALUATION OF THE COMPANY We have estimated fundamental target price to be 173.39. Also, EPS for FY2011 is estimated as 9.1 to get relative valuation of 188. At CMP, the stock is trading at 15.6X to FY2011E earnings and 12.4x to FY2011E. We have considered consolidated figures for valuations and Investments are valued at book value. Sales growth for valuations is considered at 19% for 5 years and 13% for terminal value. Hence, we give a Buy rating on stock, with a Target Price of Rs178 based on both the methods. Seeing the trend of Debt reduction we have also assumed that company will have no debt from next year hence the enterprise value is equal to the market capitalization. The assumptions for the same are in the excel sheet.

ANNEXURE 1:

PROFIT AND LOSS STATEMENT Sales Excise Duty Sales Tax, Vat, Octri Net Sales Ram Material Consumption Staff Cost Stores and Spare parts consumed Power & Fuel Admin Selling Other Manufacturing expenses Misc Expenses Total Expense EBITDA Depriciation EBIT Tax PAT Minority Interest PAT after MI Dividends Reserve & Surplus for this year 2010 2011E 2012E 2013E 2014E 2015E 4824.44 5741.08 6831.89 8129.95 9674.64 11512.82 403.71 480.41 571.69 680.32 809.58 963.39 441.87 525.83 625.73 744.62 886.10 1054.46 3978.86 4734.84 5634.46 6705.01 7978.96 2184.00 2325.30 2720.61 3183.11 3724.24 261.24 287.36 316.10 347.71 382.48 43.95 52.30 62.24 74.06 88.13 152.14 181.05 215.45 256.38 305.09 59.93 52.16 62.07 73.86 87.89 236.36 281.27 334.71 398.30 473.98 53.27 63.39 75.44 89.77 106.82 25.76 25.76 25.76 25.76 25.76 3016.65 3242.83 3786.60 4423.20 5168.65 962.21 1492.01 1847.86 2281.82 2810.32 87.53 300.85 573.83 87.36 486.47 99.06 387.41 104.83 477.13 138.55 771.51 157.10 614.41 110.54 597.56 173.52 196.76 769.49 138.66 737.15 214.05 242.72 173.95 906.79 263.31 298.58 874.68 1387.18 1737.32 2143.15 2636.37 910.05 1139.76 1406.00 1729.58 966.25 1191.95 1466.27 949.24 1167.69 9494.97 4357.36 420.73 104.88 363.06 104.59 564.04 127.12 25.76 6041.78 3453.18 218.21 3234.97 1112.68 2122.29 323.10 1799.19 366.37 1432.82

*All figures are in Crores

ANNEXURE 2: BALANCE SHEET Gross Fixed assets Less: acc. Depreciation Net fixed assets Capital WIP Total Investments Cash and cash equivalents Inventories Debtors Loans and Advances Total CA without cash Total current assets Total without cash Total assets Equity share capital Reserves & Surplus Preference share capital Total equity Minority interest Total Loans Total long-term liabilities Total current liabilities Deferred tax Liabilities Total liabilities Total liabilities and equity 2010 2011E 2012E 2013E 1487.31 1924.84 2029.67 2546.14 -693.52 -798.35 -908.89 1047.55 793.79 1126.49 1120.78 1498.59 42.93 16.00 18.00 18.00 877.09 877.09 877.09 877.09 30.14 78.68 739.51 1191.50 796.86 948.26 1128.43 1342.84 298.05 354.68 422.07 502.26 85.62 101.89 121.25 144.28 1180.53 1404.83 1671.75 1989.38 1210.67 1483.51 2411.25 3180.88 2894.34 3424.41 3687.62 4383.06 2924.48 3503.09 4427.13 5574.56 85.00 85.00 85.00 85.00 1831.50 2445.91 3215.39 4164.63 0.00 0.00 0.00 0.00 1916.5 2530.91 3300.39 4249.63 36.62 36.62 36.62 36.62 174.13 0.00 0.00 0.00 174.13 0.00 0.00 0.00 736.61 876.57 1043.11 1241.30 60.62 59.00 47.00 47.00 971.36 935.566 1090.11 1288.3 2924.48 3503.09 4427.13 5574.56 2014E 3194.03 1221.50 1972.53 18.00 877.09 1743.11 1597.97 597.69 171.70 2367.36 4110.47 5234.99 6978.09 85.00 5332.32 0.00 5417.32 36.62 0.00 0.00 1477.15 47.00 1524.15 6978.09 2015E 4006.79 1439.71 2567.08 18.00 877.09 2412.25 1901.59 711.25 204.32 2817.16 5229.41 6279.33 8691.57 85.00 6765.14 0.00 6850.14 36.62 0.00 0.00 1757.81 47.00 1804.81 8691.57

*All figures are in Crores

Annexure 3: Free Cash Flow NOPAT Less: Capex Less: Change in WC Add: Depriciation FCF Terminal Value Present Value of Cash flows Investments Enterprise Value Number of Shares Target Price 2010 486.47 95.53 137.28 87.53 341.19 33643.61 13860.68 877.09 14737.77 85.00 173.39 2011E 771.51 437.53 84.34 104.83 354.46 2012E 2013E 2014E 2015E 966.25 1191.95 1466.27 1799.19 104.83 516.47 647.89 812.76 100.37 119.44 142.13 169.14 110.54 138.66 173.95 218.21 871.58 694.71 850.19 1035.51

*All figures are in Crores

Projected P & L for the next 5 years

14000.000 12000.000 10000.000 8000.000 6000.000 4000.000 2000.000 0.000 2010 2011 2012 2013 2014 2015

PAT EBITDA Sales

References
1) 2) 3) 4) 5) 6) 7) 8) Data and future Plans: EXIDE INDUSTRIES Annual Report 2010. Industry Data and Sales Forecast: Angel Breaking Equity Report on Exide dated July 13 2010 Product Profile and other information: data:www.exideindustries.com Auto Industry: http://www.siamindia.com/scripts/domestic-sales-trend.aspx Inflation: http://www.fundsupermart.co.in/main/research/viewHTML.tpl?articleNo=346 Historic Price data: Bloomberg Financial data: www.moneycontrol.com Industrial Beta: Based on historic prices from Bloomberg