Exide Industries shares up 51% in April so far; Nomura shares fresh price target

Shares of Exide Industries Ltd have climbed 51 per cent in April so far, largely on its signing up of an MoU with Hyundai India Motor Ltd and Kia India Pvt Ltd for a strategic cooperation in the India EV market. In its latest note, Nomura India said the development provides significant validation to Exide's cell development as Hyundai and Kia are already selling EVs in the global market and plan to launch many EVs in India.
 
Nomura India said Exide will start commercial production of battery cells by FY25E at its new factory in Karnataka with initial capacity of 6GWH and Rs 4,000 crore capex. This can be expanded to 12 GWH with further capex of Rs 2000 crore. 
 
Exide, it said, would make both LFP and NMC cells, and source technology from SVOLT.
 
"We are now more optimistic of Exide's ability to win new orders from other OEMS. OEMs will need to meet 50 per cent localisation for Domestic Value addition (DVA) to meet PLI (Production Linked Incentive) norms. The PLI incentive is 15 per cent of the company’s revenue. Further, Exide is likely to benefit from lower-priced raw material sourcing through SVOLT suppliers and also receive incentives to set up the plant in Karnataka," it said.
 
Nomura India said OEMs may also pay some premium for local sourcing. Besides, it believes there is a possibility of import duties being imposed on cells in a few years, which can support medium-term margins. "Hence, we raise the multiple to value li-ion cell capex at 3 times book value, which is in line with leading global peers," it said.
 
The brokerage has marginally realigned its EPS estimates by minus 5 per cent/5 per cent growth for FY24F-25F. It believes that earnings from li-ion cells may be volatile in the near term.
 
"We raise the multiple for the base business to 18x FY26F P/E, in line with its historical average (from 12x) as we do not see a risk of sub-par ROEs from new investments. We add Rs 56 for its stake in HDFC Life and Rs 141 for li-ion cells," it said.
 
The brokerage upped its target price on Exide Industries to Rs 485 from Rs 233 earlier. At Tuesday's closing price of Rs 459.80, the Exide Industries price target suggests a modest 5.84 per cent potential upside.