Exide’s broad-based battery growth beats estimates as lithium-ion returns remain a concern

Strong 1QFY27 Financial Performance

Exide delivered a strong 1QFY27 performance, with broad-based double-digit growth across its major businesses. Standalone revenue increased 17.6 per cent year-on-year to Rs 53,051 million, ahead of Motilal Oswal Financial Services’ (MOFSL) expectation. EBITDA grew 19.5 per cent year-on-year to Rs 6,552 million, while the EBITDA margin expanded to 12.4 per cent, above MOFSL’s estimate of 11.4 per cent. Adjusted PAT rose 27.1 per cent year-on-year to Rs 4,073 million, compared with the broker’s estimate of approximately Rs 3,269 million.

The company remained debt-free, supported by high cash-flow generation.

Broad-Based Volume-Led Growth

The revenue performance was led by volume growth. Automotive original-equipment business grew more than 25 per cent year-on-year for the third consecutive quarter. The two-wheeler and four-wheeler replacement businesses also delivered their third consecutive quarter of double-digit growth.

• Four-wheeler replacement volume grew by approximately 10 per cent.
• Two-wheeler original-equipment volume grew by approximately 20 per cent.
• Four-wheeler original-equipment volume grew by approximately 21 per cent.
• Industrial infrastructure, excluding telecom, maintained low double-digit growth, supported by industrial UPS and traction-battery demand.
• Home UPS, inverter and solar businesses grew more than 20 per cent year-on-year. Quarterly solar revenue exceeded Rs 4,000 million for the first time.
• Export revenue increased more than 20 per cent year-on-year after five quarters of decline, although the comparison was from a low base.

Margin Expansion and Capacity Preparation

Margins improved despite raw-material and currency pressures. Lead prices were broadly range-bound, but rupee depreciation against the US dollar increased input costs, while the West Asia conflict prolonged disruption. Management implemented price increases of around 4-6 per cent year-on-year across product categories during 1QFY27 and may consider further calibrated increases in 2Q, depending on commodity and currency movements.

Cost optimisation, operating efficiencies and supply-chain improvements supported margin expansion. Exide continues to invest around Rs 5,000 million annually in its lead-acid business, with spending focused on automation, manufacturing technology and debottlenecking. Brownfield debottlenecking, particularly at four-wheeler battery plants, is intended to prepare for future original-equipment demand and the replacement cycle over the next 2.5-3 years.

Lead-Acid Demand Outlook and Competitive Strengths

Management remains constructive on lead-acid battery demand across automotive, replacement, industrial and consumer markets. However, percentage growth is expected to moderate in 2HFY27 because automotive original equipment faces a high base following the prior-year post-GST recovery. Government industrial tenders are expected to improve in 2HFY27 and support infrastructure-battery demand.

MOFSL highlights Exide’s leading positions across lead-acid segments other than telecom, its dominant presence in two-wheeler and four-wheeler original equipment, and a replacement market that is largely a duopoly. The company has a distribution network of 115,000 channel partners, while digitised, on-the-spot warranty resolution is identified as a differentiator.

Lithium-Ion Programme Progress

Exide’s lithium-ion programme is progressing operationally. All four production lines at the Bengaluru Gigafactory have been installed and utilities have been commissioned. Commercial customer deliveries have begun from the NMC cylindrical-cell line, while the LFP prismatic line is supplying samples for three-wheeler and telecom applications.

Management expects commercial lithium-ion revenue in FY27, with utilisation increasing gradually as customer approvals and production yields improve. It is targeting localisation of 50-60 per cent of the lithium-ion bill of materials over the next two to three years and intends to fund expansion through internal cash generation.

MOFSL’s Concerns on Lithium-Ion Returns

MOFSL remains cautious on the long-term returns from lithium-ion manufacturing and believes the business could be return-dilutive, with its outcome remaining uncertain. The broker’s concerns include:

• Domestic passenger-vehicle original-equipment manufacturers may develop their own cell plans or already have existing partnerships.
• The Hyundai-Kia LFP localisation arrangement is non-binding.
• Exide does not have prior greenfield cell-manufacturing experience.
• The business is expected to require a multi-year stabilisation and validation period.
• Exide is absent from the PLI programme.
• Global cell-manufacturing margins are low despite the substantial capital commitment required.

Valuation and Recommendation

MOFSL reiterates its Neutral recommendation, viewing the stock as fairly valued at 29.4 times FY27E EPS and 24.4 times FY28E EPS. Its sum-of-the-parts target price is Rs 419.