Exide powers up with lithium-ion biz despite weak revenue outlook
The shift to electric vehicles is gradually picking up pace. For instance, in August, the share of electric two-wheelers stood at 5% versus 4.4% in FY23, according to Vahan data. Exide Industries Ltd aims to capitalize on these opportunities by venturing into lithium-ion cell manufacturing. Investors have given a thumbs up. Exide’s shares have risen by nearly 52% so far in 2023, versus the 9.5% gain in the Nifty 50 index.
Sentiment for the stock has also been supported by the steady outlook for the company’s core business—lead acid batteries. But given that Exide’s lithium-ion cell plant is in focus now, meaningful progress here is crucial. Last week, Exide invested ₹100 crore in the equity share capital of its wholly owned subsidiary—Exide Energy Solutions Ltd—through a rights issue. It is under this subsidiary that Exide is setting up a plant to manufacture lithium-ion cells. The plant is yet to start operations and once it scales up it would add to Exide’s earnings.
According to the company’s FY23 annual report, the proposed investment for the lithium-ion manufacturing facility is ₹6,000 crore. “Lithium-ion cell plant should be ready by FY25-end and may have single digit margin initially, and reach mid-teens in medium term in line with global peers at higher capacity utilization,” said a report by Prabhudas Lilladher dated 7 September. Having said that, the path ahead is not without bumps. “The transition from lead acid business to lithium-ion does not offer good revenue visibility in the near term as Exide is yet to acquire anchor customers for its plant. A positive development on this front would lead to re-rating of the Exide stock,” said Mumuksh Mandlesha, an analyst at Anand Rathi Institutional Equities. However, the intensifying competition is a key risk with companies such as Ola Electric, Reliance Industries and Tata group entering the lithium-ion manufacturing segment, he added.
Meanwhile, faster electrification in the automobile industry is a threat to its core business, though the lithium-ion business could compensate to a certain extent. Within the core business, demand from the automotive division is on a strong footing. Further, the demand from the industrial division has tailwinds in the form of public and private capex on the back of upcoming elections.
To be sure, the sharp rally in Exide’s shares suggests investors are factoring in a good share of the optimism. The stock hit a new 52-week high of ₹273.45 apiece on Friday, trading at nearly 19 times its FY25 estimated earnings, according to the Bloomberg data.
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Updated: 10 Sep 2023, 09:31 PM IST
