Legacy Lead Acid Demand And Fierce Competition Will Depress Margins

Key Takeaways

• Falling demand for lead-acid batteries and stricter environmental regulations pose serious threats to core profitability and growth prospects.
  
• Slow innovation, operational inefficiencies, and stronger competition are likely to compress margins and erode market share over time.
  
• Rapid lithium-ion expansion, portfolio diversification, and strong financials position Exide to capitalize on EV and energy storage growth while mitigating cyclicality and supporting sustainable margins.

Catalysts

Designs, manufactures, markets, and sells lead acid storage batteries in India and internationally.

• The rapid decline in demand for traditional lead-acid batteries due to ongoing global electrification, especially as lithium-ion chemistries become the industry standard, threatens Exide's core business and could drive a sustained drop in revenue growth over the next decade.
  
• Intensifying environmental regulation and ESG mandates worldwide are likely to result in higher compliance costs and new restrictions on the production and sale of lead-acid batteries, putting long-term downward pressure on Exide's net margins and overall profitability.
  
• Despite significant investment in lithium-ion gigafactories, initial years will be challenged by high internal rejection rates, operational inefficiencies, and a lack of manufacturing scale relative to dominant Chinese and Korean players, likely leading to persistent margin pressure and delayed break-even for this segment.
  
• The entry of large global battery manufacturers with greater economies of scale and existing technological lead is expected to result in widespread price wars and shrinking market share for Exide both in automotive and industrial storage, undermining medium-term revenue and earning stability.
  
• Exide's slow pace of technological innovation, legacy cost structures, and overreliance on commodity price pass-throughs-evidenced by the margin hit from antimony price spikes-signal ongoing vulnerability to margin compression, operational volatility, and ultimately lower long-term earnings power.

Exide Industries Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Exide Industries compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Exide Industries's revenue will grow by 6.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.6% today to 7.5% in 3 years time.
• The bearish analysts expect earnings to reach ₹15.5 billion (and earnings per share of ₹18.28) by about July 2028, up from ₹8.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 23.6x on those 2028 earnings, down from 41.9x today. This future PE is lower than the current PE for the IN Auto Components industry at 31.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.96%, as per the Simply Wall St company report.

Exide Industries Future Earnings Per Share Growth

Risks

• Exide's aggressive investments and rapid progress in lithium-ion cell manufacturing position it as the first giga-scale domestic producer in India, providing significant growth opportunities as EV adoption and energy storage demand rise, which can boost revenues and earnings over the long term.
  
• The company's ongoing R&D initiatives, punch grid technology shift, and cost excellence programs are already yielding noticeable improvements in manufacturing efficiency, internal rejections, warranty costs, and margin expansion, indicating a trend toward higher net margins in future years.
  
• Exide's broadening of its product portfolio to include solar batteries, industrial UPS batteries, and expansion into new distribution channels such as e-commerce and white goods for home inverters, leverages multiple secular growth trends, strengthening its revenue base and lowering its exposure to economic cyclicality.
  
• Robust auto and solar aftermarket growth, combined with export market recovery and government-driven mandates for storage and local cell manufacturing, suggest strong structural tailwinds for Exide's core businesses, likely supporting stable or growing earnings.
  
• The company maintains a debt-free balance sheet with high cash flow generation, enabling it to invest in technology and capacity expansion without significant financial risk, which can underpin future returns and support net margin resilience.

Valuation

• The assumed bearish price target for Exide Industries is ₹290.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Exide Industries's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹534.0, and the most bearish reporting a price target of just ₹290.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹206.4 billion, earnings will come to ₹15.5 billion, and it would be trading on a PE ratio of 23.6x, assuming you use a discount rate of 14.0%.
• Given the current share price of ₹391.85, the bearish analyst price target of ₹290.0 is 35.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.