Revenue growth to improve ahead; Maintain Buy

* Q2FY21 revenue grew 5% yoy to Rs27.5bn (est.:Rs27.4bn), supported by growth in Auto replacement and UPS segments. Revenue growth could have been better, but dispatches were impacted by supply-chain issues in the quarter.

* Robust replacement demand, coupled with a pick-up in OEM/industrial segments, is expected to support revenue performance going ahead. We expect revenue growth to improve to 24%/14% in H2FY21/FY22.

* EBITDA margin expanded 20bps to 14.2% (est.: 14.1%), on better mix and cost-reduction efforts. Exide has taken price hikes to partially pass-through the recent increase in lead prices. We expect EBITDA margin to broadly sustain around 14% level in H2FY21/FY22.

* Average ROCE is expected at 17%, with FCF of Rs6bn/year over FY21-23E. Retain Buy with a TP of Rs216 (Rs205 earlier), based on 15x FY23E EPS (Sep’22E EPS earlier) and the value of the Insurance business at Rs30/share.

Revenue/EBITDA growth turns positive: Revenue grew 5% yoy to Rs27.5bn, in line with estimates (est.: Rs27.4bn). Growth was supported by Auto replacement and UPS segments. Dispatches were impacted by supply-chain issues in the quarter. EBITDA margin expanded 20bps yoy to 14.2% (est.: 14.1%), supported by lower Other expenses (down 6%). Overall, adjusted PAT declined 4% yoy to Rs2.3bn, in line with estimates (est.: Rs2.3bn). Insurance segment revenue increased 9% to Rs1.2bn, and segmental profit increased to Rs248mn from Rs51mn in Q2FY20.

Outlook and valuations: We increase FY21 EPS forecast by 6% to Rs8.7, driven by an increase in our revenue assumptions. Our FY22/23 EPS estimates remain broadly unchanged at Rs10.8/Rs12.4. After the revision, we expect revenue and earnings CAGRs at 8% each over FY20-23E. Average ROCE is expected at 17%, with FCF of Rs6bn/year over FY21-23E. We believe that current valuations are reasonable with a P/E of 15x/13x on FY22/23E EPS. Maintain Buy with a TP of Rs216 (Rs205 earlier), based on 15x FY23E EPS (Sep’22E EPS earlier). Although the shift toward EVs remains a structural risk for the company, EV penetration could be gradual, in our view. Other risks are lower-than-expected revenue in OEM/replacement demand in the Auto segment, weak demand for inverter batteries, higher competitive intensity, and adverse currency/commodity prices.

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