Exide's Strategic Dilemma: Balancing Legacy and Future
Exide Industries Ltd finds itself navigating turbulent waters as the company attempts to revitalize its struggling lead-acid battery business while simultaneously building a massive lithium-ion manufacturing capability. The battery maker's strategic pivot comes at a challenging time, with investors showing clear skepticism—the stock has declined by 10% in calendar year 2025 so far, reflecting market concerns about the company's dual-track approach.
Quarterly Performance Reveals Core Business Strain
The September quarter (Q2FY26) results highlighted the extent of Exide's current challenges. Revenue declined by 2% year-on-year to ₹4,178 crore, primarily due to channel destocking across multiple segments including auto replacement, UPS, and solar applications following GST cuts. A prolonged monsoon season further exacerbated the situation by weakening home-UPS demand.
The company's operating margin contracted significantly, slipping 180 basis points to 9.4% in Q2FY26. This margin compression resulted from multiple factors: weak revenue performance, elevated input costs, and provisions for extended producer responsibility (EPR). Exide has maintained its margin guidance of 12-13% for the second half of FY26, but achieving this target appears increasingly challenging and will depend heavily on successful inventory restocking and planned price increases in the fourth quarter.
The competitive landscape reveals an even starker picture. Rival Amara Raja Energy & Mobility Ltd demonstrated stronger performance with revenue growth of 8% year-on-year. While Amara Raja's margins also declined by 200 basis points year-on-year to 12%, they actually improved sequentially by 40 basis points. Furthermore, Amara Raja managed to reduce its raw material costs, with the raw material-to-sales ratio falling 330 basis points to 67.2%.
The Lithium-Ion Gambit: Exide's Future Hope
The centerpiece of Exide's transformation strategy is its ambitious lithium-ion cell manufacturing project. The company is progressing with Phase 1 of its 6GWh cell plant in partnership with SVOLT, with trial runs nearing completion and commercial production scheduled to begin by the end of FY26. Phase 2 will add another 6GWh capacity, bringing the total planned investment to approximately ₹6,500 crore.
To date, Exide has already invested ₹3,950 crore in this venture. The company has secured early customer commitments from automotive manufacturers including Hyundai, Kia, and Atul Auto, providing initial demand visibility as Exide attempts to establish itself in both mobility and energy storage applications.
However, the lithium-ion battery market presents significant challenges. The competitive intensity is substantial, with major players including Reliance Industries, Ola Electric, Suzuki, Tata Sons, Jindal Group, ACME, and steady imports from Chinese manufacturers all vying for market share. This crowded field is expected to maintain intense pricing pressure across the industry.
Adding to the challenge, Exide has not received Production Linked Incentive (PLI) support for its lithium-ion venture, raising the execution and cost discipline requirements. Analyst projections indicate that utilization rates in FY27 may reach only 25-30%, suggesting a gradual scaling process. Given that lithium-ion batteries typically operate with lower margins than traditional lead-acid batteries, this new business segment could potentially dilute Exide's long-term return ratios.
Analyst Outlook and Market Response
The weak Q2 performance has prompted financial analysts to revise their earnings estimates for Exide. Motilal Oswal Financial Services has reduced its FY26 earnings per share estimate by 9% and its FY27 estimate by 3%. According to Bloomberg data, the stock currently trades at approximately 19 times FY27 price-to-earnings ratio.
Nomura Global Markets Research has highlighted additional risks, including rapid technology evolution in battery systems and potential restrictions on sourcing from China-linked supply chains. These factors could further complicate Exide's lithium-ion business development timeline and cost structure.
With the core lead-acid business experiencing margin pressure and the lithium-ion venture unlikely to contribute meaningfully for several years, Exide's current valuation appears reasonable but not compelling to many investors. The company's ability to successfully navigate this transition period—maintaining its traditional business while building a new technological capability—will determine its long-term competitive position in India's rapidly evolving energy storage market.
Exide management remains optimistic about a rebound in the second half of FY26, anticipating that distributor inventory rebuilding and improving original equipment manufacturer (OEM) demand will support recovery. However, the company faces the delicate balancing act of managing short-term profitability while making substantial long-term investments in its lithium-ion future.
