Analyst Corner| Exide Industries: Maintain ‘buy’ with TP of Rs 235

The said consideration would be paid through a) 87m shares in HDFC Life at a price of Rs 685/sh and b) the balance in the form of cash of Rs 7.26b.

Exide Life Insurance’s worth has been unlocked, and it was sold for Rs 66.9 billion: EXID has reached an agreement with HDFC Life Insurance to sell its whole stake in Exide Life Insurance for Rs 66.9 billion. The payment as mentioned above will be paid in two ways: a) 87 million HDFC Life shares for Rs 685 per share, and b) Rs 7.26 billion in cash. EXID has put in Rs 16.8 billion, with its first stock purchased in July 2005. n The sale price is significantly more than the value we assigned to this stake.

Our fair value estimate was Rs 35.4 billion, to which we applied a 40% Holdco discount, resulting in a fair value of Rs 24 per share for our SOTP. According to our calculations, this deal unlocks Rs 60 billion or Rs 70 per share after taxes for EXID. While this transaction opens the entire worth of the company’s non-core insurance business, management has not disclosed how it expects to use the money.

Our opinion: With over Rs 60 billion worth of stake in HDFC Life now at its disposal, this stake sale significantly strengthens EXID’s balance sheet. This monetization of the Insurance business could not have come at a better time, with EXID likely looking to engage in lithium-ion cell manufacture under the PLI program. The leading company is subject to technological competition from newer chemistry, with the 2W/3W Battery sector being the most vulnerable.