Battery major Exide Industries' partnership with Hyundai Motor Co. and Kia Corp. for EV battery localisation in India is viewed as a rerating trigger, according to Morgan Stanley. The lithium battery business is a high capital-expenditure business with evolving technology and Exide is well placed in this sphere giving confidence about future business viability, it said.
The brokerage has reiterated an 'overweight' rating on the stock, with a target price of Rs 373 apiece, implying a potential upside of 16%.
Exide is expected to invest $550 million in Phase-1 of 6 GW battery capacity. The margin will see an improvement and the company will lead the new energy business, the April 8 Morgan Stanley note reads.
The new partnership will allow the carmakers to equip their future electric cars in India, with locally made batteries, as per the memorandum of understanding signed at Hyundai Motor's research and development centre in Namyang, South Korea. The move is part of their EV expansion plans in the world’s third-largest automotive market.
"Through this global partnership with Exide Energy Solutions Ltd., we'll gain a competitive advantage by equipping Hyundai Motor and Kia's future EV models in the Indian market with locally produced batteries," Heui Won Yang, head of the Hyundai and Kia's research and development division, said.
Risks To Upside
Pickup in auto-replacement demand.
Any strength in home UPS growth.
Further updates on lithium-ion manufacturing facility.
Risks To Downside
Any sustained slowdown in key auto segments.
Prolonged weakness in the home UPS segment.
Inability to pass through very sharp increases in lead prices.
Shares of Exide rose as much as 5.26% during the day on the NSE before paring gains to trade 4.93% higher at 10:20 a.m., compared with a 0.33% advance in the benchmark Nifty.
The stock has risen 116.84% in the last 12 months. Of the 24 analysts tracking the company, 15 have a 'buy' rating on the stock, four recommend 'hold' and five suggest 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 11.8%.
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