Stock Market Update on Exide Industries for 1QFY2012

Stock Market Update on Exide Industries for 1QFY2012 with a Neutral recommendation.

Exide Industries (Exide) reported a weak performance in 1QFY2012, missing our top-line and bottom-line estimates, largely due to lower-than-estimated growth in automotive replacement battery volumes and lower demand for inverter batteries. Further, slowdown in demand growth restricted Exide’s ability to completely pass on raw-material cost increases, thus negatively affecting its operating margin. We maintain our long-term positive outlook on the battery industry; however, considering the lower-than-expected 1QFY2012 results and subdued guidance for the next couple of quarters going ahead, we revise our revenue and earnings estimates downwards. We recommend Neutral on the stock.

Lower automotive and industrial battery demand and raw-material cost pressures led to weak quarterly performance: For 1QFY2012, Exide reported modest 8% yoy growth (1.4% qoq) in its total revenue to `1,244cr, led by a ~5% increase in sales realisation. Revenue growth was restricted on account of muted volume growth due to 1) slower growth in the automotive vehicle segment, resulting in lower OE demand for automotive batteries and 2) pleasant weather conditions in north Indian markets, leading to a 25.7% decline in inverter battery volumes. EBITDA margin declined substantially by 498bp yoy (88bp qoq) to 17.9%, impacted by lack of buoyancy in industrial and automotive batteries demand and increased lead prices. Lead prices jumped by 31% yoy, leading to a 400bp yoy increase in raw-material costs – which accounted for 63.6% of sales. However, higher other income of `31cr and lower tax outgo restricted the fall in net profit to a large extent. Thus, the bottom line reported a marginal 1.3% yoy decline (0.3% qoq) to `163cr.

Outlook and valuation: We expect Exide to post a ~15% revenue CAGR over FY2011–13E, leading to a 12% CAGR in net profit. At `155, Exide is fairly valued at 16.6x FY2013E earnings. We recommend Neutral on the stock. Our fair value for Exide works to `161. We value Exide’s core operations at 16x its FY2013E earnings at `149 and its stake in ING Vysya Life Insurance at `12/share on FY2013E NBAP.

Stock Market Update on Infotech Enterprises for 1QFY2012

StockMarket Update on Infotech Enterprises for 1QFY2012 with a Neutral recommendation.

For 1QFY2012, Infotech Enterprises (Infotech) reported good set of results with volume growth of 4.4% and 6.3% qoq in the network and content engineering (NCE) and engineering manufacturing and industrial products (ENGG) verticals, respectively. To control staff costs and rationalise the employee pyramid, the company plans to hire 1,300 freshers in FY2012, out of which ~270 were hired in 1QFY2012 and the remaining are expected to join in 2QFY2012. We expect Infotech to post a 21.5% CAGR in USD revenue over FY2011–13E. Valuing the company at 9x FY2013E EPS of `16.3, we recommend a Neutral rating.

Quarterly highlights: For 1QFY2012, Infotech reported revenue of US$77.5mn, up 7.8% qoq, on the back of 5.6% qoq volume growth. The company witnessed price increase of 0.1% qoq in this quarter. In rupee terms, revenue came in at `346.7cr, up 6.4% qoq. EBITDA and EBIT margin declined by 180bp and 136bp qoq to 12.5% and 9.2%, respectively, due to wage hikes given from April 1, 2011 (12% for offshore employees and 3–4% for onsite employees).

Outlook and valuation: Management has now guided for revenue growth of 23–30% for FY2012, and it expects to maintain the revenue growth rate of 5–7% CQGR. The company plans to hire 2,600 employees in FY2012 with ~1,300 freshers. Also, management expects the EBITDA margin exit rate to be at 16%. Management has been time and again missing on its guidance by a wide margin in terms of revenue growth as well as profitability metrics. Also, growth in NCE is primarily due to contribution from Wellsco. We expect margins to bottom out in FY2012 at 14.3% and rebound to 16.1% only in FY2013 as on the back of strong fresher additions, utilisation will not stand as a margin lever. Hence, with no near-term triggers, we recommend Neutral on the stock.

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