Exide Industries Stock: A Deep Dive into Investment Opportunities and Risks
Since the stock market peak in September 2024, numerous stocks have underperformed, with Exide Industries, a key auto ancillary player, being a notable example. While the Nifty 50 has remained largely flat over the past year and a half, Exide's stock has trended downward, peaking earlier in July 2024 at approximately ₹580 before declining significantly. This editorial provides a comprehensive analysis of the pros and cons of investing in Exide Industries, helping investors navigate its future prospects.
Advantages of Investing in Exide Industries
1. Dominant Market Position and Legacy
Exide Industries stands as India's largest manufacturer of lead-acid storage batteries, boasting over 75 years of industry experience and a trusted household brand. The company commands a substantial 50% market share in the domestic battery sector, supported by a diversified product portfolio that includes batteries with capacities from 2.5 ampere-hours to 20,200 Ah. Its offerings span traditional flooded batteries and advanced VRLA technologies, positioning it as a leader in packaged power solutions.
With 10 manufacturing facilities across India and additional units in Sri Lanka, the UK, and Singapore, Exide exports to more than 60 countries, underscoring its global reach and operational scale.
2. Strategic Expansion into Lithium-Ion Technology
Anticipating robust growth, Exide is aggressively capitalizing on the rising demand for lithium-ion batteries, projected to reach 120 gigawatt-hours by 2030. The company has committed a ₹3,600 crore investment through Exide Energy Solutions, focusing on a greenfield lithium-ion cell manufacturing project with an initial capacity of 12 GWh. Of this, 6 GWh is slated for commercialization in the current fiscal year.
To bolster its energy transition strategy, Exide has formed a strategic partnership with a major Indian passenger vehicle manufacturer for joint lithium-ion battery cell development and supply. Additionally, it has entered into a multi-year collaboration with SVOLT Technology, a leading Li-ion cell manufacturer, to enhance its technological capabilities. The company has also introduced advanced AGM VRLA batteries for Battery Energy Storage Systems (BESS), complementing its Tubular Gel solutions to cater to diverse applications and budgets.
Challenges and Risks for Exide Industries
1. Declining Growth Rates and Profitability
Despite a long history of debt-free operations and strong growth, Exide has recently experienced a significant slowdown in its growth trajectory. Once celebrated for delivering over 20% growth in both topline and bottomline, the company's revenue growth has decelerated sharply: from 23.5% year-on-year in FY22 to 17.9% in FY23, 11.2% in FY24, and a mere 2.8% in FY25. This slowdown has led to stagnant profits, attributed to factors such as the electric vehicle transition, increased competition, and margin pressures from ongoing investments.
The impact on financial metrics is evident, with return on equity (RoE) declining from 10.1% in FY21 to 5.8% in FY25, and return on capital employed falling from 14.1% to 9% over the same period. While management initiatives aim to improve long-term prospects, they have yet to reverse the sales growth decline, raising concerns among investors.
2. Investment Implications and Due Diligence
Investors should carefully assess Exide Industries' fundamentals, corporate governance practices, and stock valuations before making investment decisions. The company's efforts to pivot towards lithium-ion technology and energy storage solutions offer potential upside, but the current slowdown and competitive pressures necessitate a cautious approach. Evaluating these factors is crucial for aligning investments with individual financial goals and risk tolerance.
Disclaimer: This analysis is for informational purposes only and does not constitute stock recommendations. Investors are advised to conduct thorough due diligence and consult financial advisors.
