Why should you buy stocks of Exide Industries at every dip in its stock price? Let’s have a look at this mid cap stock, it’s stock valuations and why should you invest in it.
This is another stock in my list of "Stocks to buy in 2011". Exide Industries Limited (EIL) is undisputed the number one battery manufacturer in India. And do you know Exide is one of the top five battery manufacturers in world? Yes it is.
If you own an automatic vehicle (Truck, car or bike) in India, checkout your vehicle’s battery and there are high chances that you would see the name “Exide” on it. I am sure don’t need to open it, you would probably know it. Overall Indian battery market is more than Rs.10,000 crores. It has grown in past 5 years (2005-2010) at 30%. Average profits for battery industry grew at 50% every year, thanks to ever growing demand from automotive sector in India.
Target markets for battery industry are mainly divided into two segments, automotive and industrial. Automotive sector (cars/trucks/bikes etc.) is expected to grow at 20%. The same is for industrial segment. Leading stock broker firm, Angel stock broking has mentioned in it’s industry report that revenues for battery industry are expected to grow at 19.7% compounded (CAGR) for next 3 years. In automobile, new cars as well as battery replacement for old cars is what drives the volume for batteries. In industrial segment, it is railways and power sector. All the entities mentioned here are on growth curve and not expected to slow down their growth for sure.
Exide industries has very strong distribution network with presence at 206 locations and they are expected to grow to 250 by mid 2012. Company has plans to make it’s presence in small 3-tier cities where battery market is dominated by unbranded and unorganized sector batteries.
Being market leader, company has full control and power for pricing it’s products. Company revises it’s prices whenever need arises which helps maintaining it profit margins.
Company has a plan to invest Rs.400 crores and expand the capacity for growing two wheeler and 4 wheeler markets. Exide has already launched batteries for electric bikes. It is researching and developing batteries for electric and hybrid cars which is going to be next big growing sector looking at ever rising petrol and diesel prices. So huge growth ahead if Exide comes up with good products for this market.
A few concerns
Last two years have been slow due to recession but economies are recovering and India is growing at pretty good rates now. Many new competitors are entering this segment, recent example being Tatas. Another concern is competition from cheap imports from China. These could take away some market share from this industry leader. Amara Raja is making it’s moves fast to capture more and more market share.
Stock valuation
One of the best part I liked about Exide is that it is a zero debt company. It has very good cash flow which would help it expand without any debt. Company has observed high returns on networth (RONW) ratio which is good. At current ock price, stock trades at P/E ratio of 17.40. Company’s EPS has grown at more than 40% CAGR (Compounded Annual Growth Rate). The Price to Earnings growth ratio stands at 0.6. All this makes Exide a high growth and value stock to buy. One may buy stocks of Exide at every dip in it’s stock price for long term investment.
