Exide Faces Challenges Amid Sluggish Auto Volumes But Long-Term Growth Prospects Intact: Citi

Exide Industries Ltd. is grappling with a slowdown in automotive original equipment manufacturer volumes, which has raised concerns about revenue growth for the near term, according to Citi.

Recent data indicates that the passenger vehicle market in India has experienced a mere 1% year-on-year growth from April to August, while commercial vehicle manufacturers are also reporting disappointing volume trends. This downturn inevitably impacts Exide, which derives 69% of its revenue from the automotive sector, although only about 15% of that comes from OEM sales, the brokerage said.

Despite these challenges, Citi remains cautiously optimistic about Exide's prospects. The firm has revised its target price to Rs 560 per share from Rs 610 apiece, but this still implies a potential upside of 19% from the previous closing price.

The company is expected to benefit from the first battery-replacement cycle of vehicles sold in fiscals 2022 and 2023, with increased demand anticipated, as these vehicles reach the end of their initial battery life in fiscal 2025. Additionally, lead prices have recently shown signs of moderation, which could help stabilise margins.

Citi analysts cut earnings projections by 12% for fiscal 2025 and 9% for fiscals 2026 and 2027. The firm's core business valuation has been adjusted downward from Rs 470 apiece to Rs 420 per share, though its lithium-ion cell manufacturing segment remains valued at Rs 140 per share. Consequently, Exide's sum-of-the-parts target price has been lowered from Rs 610 to Rs 560 per share.

Investments in new technology signal long-term confidence, Citi said, with Exide committing Rs 100 crore to its lithium-ion cell plant, raising its total investment in the subsidiary to Rs 2,752 crore. The first phase of the plant is expected to be operational by the end of fiscal 2025, positioning Exide to capture future demand in the growing EV market.

Risks include slower-than-expected volumes, increased lead prices, and intensified competition, which could further pressure margins. Moreover, the long-term shift towards electric vehicles poses a strategic challenge for Exide, if it cannot adapt swiftly to the evolving landscape of battery technologies, Citi said.