Exide Industries Limited (500086) Earnings Call Transcript & Summary

Ladies and gentlemen, a very good afternoon, and welcome to the Q1 FY '27 Earnings Call of Exide Industries Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aditya Jhawar from Investec Capital. Thank you, and over to you, sir.

Yes. Thank you. Good afternoon, everyone. From Exide Industries, we have with us MD and CEO, Mr. Avik Roy; Director of Finance and CFO, Mr. Manoj Kumar Agarwal; President, Legal and Corporate Affairs, Company Secretary, Mr. Jitendra Kumar; and Prashant Saraswat, Head of Investor Relations. Before we proceed, there's a disclaimer for the call. A few statements made by the company's management in the call may be forward-looking in nature, and we request you to refer to the disclaimer in the earnings presentation for further details. We will start the call with a brief opening remarks from the management, followed by Q&A session. I would now like to invite Mr. Avik Roy for opening remarks. Over to you, sir.

Thank you, Aditya. Good afternoon, ladies and gentlemen, and a warm welcome to you all to the Exide earnings call. Let me begin with the operating environment, followed by our financial and business performance, and I'll end with the progress of our advanced chemistry giga factory. India's demand environment remained supportive during the last quarter. The improvement in affordability and consumer sentiment following GST rationalization, which happened in second half of last year, continued to support the automotive and other consumer demand. Sentiment in both rural and urban markets remained positive and the replacement market demand stayed robust. On the cost side, the environment remains challenging. Input costs remained elevated during the quarter, largely reflecting disruptions in West Asia and adverse currency rate [indiscernible] movement. While lead LME prices in USD terms remained largely range bound, adverse movement in the rupee against U.S. dollar continue to put pressure on input costs. The company has taken calibrated price adjustments to partially offset the impact while continuing to keep a close watch on the evolving commodity and currency environment. Against this backdrop, the company delivered a strong performance during quarter 1 '27. All major businesses recorded double-digit growth, led by 2-wheeler and 4-wheeler OEM, home UPS, solar, 2-wheeler and 4-wheeler replacement business, industrial infrastructure ex telecom and even exports. This resulted in a stand-alone revenue growth of 17.6% during the quarter. EBITDA stood at INR 655 crores, up 19.5% year-on-year, with EBITDA margin at 12.4%. The margin expanded by 20 basis points on a year-on-year basis and by around 70 basis points on a sequential quarter. This margin expansion despite cost and currency headwinds was driven by higher revenues, cost control through our cost excellence program and a very efficient supply chain. The balance sheet remains strong. We continue to be debt-free and generate healthy operating cash flows. As I mentioned, Q1 '27 was a broad-based growth across our business segments. Automotive OEM business marked its third consecutive quarter of 25% growth on a year-on-year basis. Of course, it is on a low base of last year. This reflects sustained momentum in automotive OEM demand and our strong position across key vehicle platforms. Home inverters and solar also delivered growth of over 20% year-on-year, aided by a strong summer season demand and focused market initiatives. Solar achieved its highest ever quarterly revenue of INR 400 crores plus. Industrial Infrastructure, excluding telecom, maintained its double-digit growth trajectory supported by industrial UPS and traction business. However, government tenders remained muted during the quarter, though we expect it to pick up in the second half. Exports business on a low base after 5 consecutive quarters of decline, grew by 20% plus on revenues. We continue to closely monitor the evolving global macro environment though. A little update on our lithium ion giga factory. At the Bangalore giga factory, equipment across all 4 production lines has now been delivered and installed and the utility is fully operational. The milestone I would like to highlight is that our first NCM cylindrical line commenced customer sample deliveries during the quarter. These are the first locally manufactured cells out of the facility. The LFP prismatic line has also started sample supplies for 3-wheeler and telecom applications. We have also meanwhile completed key certifications and testing requirements, including multiple BIS standards registrations. We expect revenue contribution from the Bangalore plant to commence during FY '27 shortly. Localization runs through all of this. What we are building is a genuinely Indian advanced chemistry cell platform, multiple chemistries, multiple form factors, strategic sourcing partnerships for raw materials, automation-led manufacturing and a global technology partnership. Our cumulative investment in form of equity in our subsidiary, Exide Energy stood at INR 4,902 crores as on 31st July, including a INR 100 crore investment made in the month of July. Thank you very much. And with this, I would like to close my opening remarks. I will give it back to the moderator, please.

[Operator Instructions] The first question is from the line of Vibhav Zutshi from JPMorgan.

Congratulations on a strong quarter. My first question is on the core business. Could you just tell the split between volume versus pricing growth in this quarter and if there was any new contract win which added to the revenue?

The core business, I think the volume growth was also double digit on the segment level, I'm saying, in most of the segments, on major segments, I would say. We had a benefit of year-on-year price correction on the top line, but that will enhance the growth numbers. But volume numbers, I can give you some examples of, let's say, 4-wheeler replacement was at 10%. 4-wheeler OEM was at 21%. 2-wheeler OEM was 20%. Solar was about 12% to 14%. So some of the major segments I highlighted where even the volume growth are also very strong in mid-double digit. And there was no contract signed. I did not get your second question. Was it regarding the new core business?

Yes, if there was any new contract signing, which contributed to the growth in top line?

No, no, nothing. This is business as usual.

Okay. Great. So just fair to say that even in 2Q as the base is quite favorable, doing 15%, 16% revenue growth for full year looks fairly achievable, right?

For the full year, I will not be able to give you a guidance, Vhibav, because for 2 reasons. One is everything is not visible at this moment how the market will look like. But you have to also understand the base level for automotive OEM for H1 was very low. But actually, post GST rationalization, the automotive industry boomed from last Q3 from October onwards. So we'll have a base effect in second half of this year in percentage terms. But in absolute volumes, they are still at a very high level. I think passenger vehicle has gone from 1.2 million to 1.4 million level. So I think in absolute value terms, it's still at elevated level. But in percentage terms, automotive OEM might go down because of the high base of last year's quarter 3, quarter 4. So that's the question to the full year outlook. You have to also understand that quarter 1 is generally the strongest quarter for excise historically because this is the inverter battery season. peak summer -- this time, a peak summer helped us to ride on the demand of inverter batteries. And if you recall, we have said this in past that last year, we had an early monsoon onset in the Q1. So we did not have that support from the inverter batteries last year. So that has also helped in the Q1 performance. But going forward, inverter battery is seasonal. So it will also have its cycles. But yes, to answer, last year, our quarter 2 level, the base was low. So we should be getting advantage out of that in percentage terms.

Got it. That's super helpful. Now second question is on the lithium-ion business. Firstly, can you -- now that you have started the sampling, can you just tell how the yields are looking like? And any learnings out of commencing such a big giga factory...

Yes. I think things are improving. It's a very complex start-up business with the new startup of factory. Every process parameter has to be measured with benchmark. And we got a pretty strong learning curve and helped by our technology partners, both on the NMC side as well as on the LFP side. It's ongoing. yields are improving, but the real yield will be visible when you run the plant at 3-shift operation. At sample level, it's very difficult to really test the full yield. I mean we have other numbers, but we don't want to declare it because we know that things are improving. Unless we run it on 3 shifts, that is -- we should not be able to know what is the full-scale line yield.

Got it. And just a follow-up on this, when you say revenue will start to come in very shortly, any volume commitments that have come in from the 2-wheelers, 3-wheelers and some of the other applications so far?

I can tell you that at least we are starting with 2 lines, NMC and LFP. I think we can fairly quickly load these 2 lines provided our yields improve. Demand will not be an issue because the kind of products we are making, I said this before also, we are already -- this market already exists. 2-wheeler packs are coming with imported cells. So 2-wheeler market already exists, and it is growing by and. Secondly, Line 3, we will be utilizing for largely 3-wheelers, telecom and other stationary storage. These markets already exist. Only thing the imported cell will be replaced with Indian cell. So we don't see a demand side issue at all because it's just a switchover.

The next question is from the line of Mukesh Sara from Avendus Spark.

My first question is regarding the PLI. I do understand that the government has opened up 10 gigawatt hour for reapplication for the PLI. So just understanding if is pursuing this...

Well, we are not supposed to tell you our strategy at this moment, Mukesh. But yes, this is interesting. At least it's a good signal from the government that the government is encouraging local manufacturing and we are serious players studying all the fine prints of the conditions and then we'll take a call. But in the first phase, as you know, we have set up 6 gigawatt hour without any PLI...

Understood. My second question is regarding the comment that you just made that obviously, right now, most of the EV auto industry are using imported cells and the market is ready for you. But how does the pricing work? I mean, despite the VA that is now there for the Chinese imports, how will the pricing work when you supply these cells? Because obviously, you're just starting off this facility, the yields will be lower, utilization rates will be lower. So I'm just trying to understand the margins that you will be able to sell at the beginning of the in the initial phase.

So Mukesh, I will maintain my earlier position on this, that this is too early for me to comment on margins. On the pricing side, I can tell you -- so far, the export PAT of China has been reduced from 9% to 6% by 3%. But this will go away from 1st of January. So actually, this whole 9% right now, it is 6%, but it was 9% earlier. So this will go away from 1st of January. So that time, we will see the impact on the imported cell landed cost given the currency situation. So today, everything has not extended. The entire rebate has not been taken off. It's still there. So from 1st of January or let's say, yes, 1st of January '27, we will be able to see the impact on its import landed cost. Other thing which has happened meanwhile, which I'm sure you guys are tracking is that post this crude oil crisis of Middle East, the EV production of Chinese factories have gone up crazily. Every EV production factory is loaded. So also the battery manufacturers, they are fully loaded to serve the domestic demand. In this environment, of course, they will have less appetite to dump prices or dump the volumes in export countries in the domestic -- the overcapacities that were there last year, now they are almost fully utilized because of this demand. So these 2 drivers we watch closely should work in our favor, and we'll monitor it closely.

Got it. Just lastly, you had mentioned about the summer season this time being better and the inverter volumes being significantly better. So of our overall revenue, how much would inverter be now for us, the home inverter business, which is having some seasonality?

Yes, it will anywhere range between 15% to 25% based on the season.

The next question is from the line of Abityaawar from Investec Capital.

Sir, couple of questions. Number one, sir, how are you seeing the import duty of lithium-ion cell changing? If you can remind us that what is the import duty right now for the cells? Is it at 5 and 20 that structure the earlier structure? And in your assessment, how it will change in the next couple of years?

So right now, you're right, the cell is still at 5%. But going forward, and this also I have maintained for quite some time, we need about 2, 3 more players, serious players. Today, the whole demand of the electric vehicle battery is around 20 to 25 gigawatt hour in India. And today, we have a local cell capacity of, let's say, and very few small guys. So the domestic capacity is not going to fulfill the demand of the auto OEM. So they have to depend on import. But at some point of time, if 2, 3 people significantly ramp up their plans, the quicker the better. If you have about, let's say, 15 gigawatt to 18 gigawatt around local cell capacity, I'm sure the government will take this case of approved list of cell manufacturers or something like that, like they are planning for solar. Similar kind of initiatives we expect from the government. And whatever conversations we are having with them, the only question is that, so if you localize -- if we put that barrier, then the automotive industry will really have to cut down production or increase the prices of the EV, et cetera, et cetera, which is understandable. So therefore, I think a big driver will be some 2, 3 people like us also immediately come on board.

Okay. Fair enough. Sir, second question is on the 2-wheeler batteries. So you mentioned that FY '27, there will be a commercial production. So how many OEMs we are engaging? And for how many OEMs do you expect the commercial production to start in this financial year, sir?

We are talking to all the major OEMs, legacy as well as new. About 3 OEMs, I can tell you. And all these 3 contribute to about, let's say, 80% of the EV volume of the country. So in all the 3 places, we are in the homologation process. And of course, we'll not get 100% volume to start with. We will be another supplier possibly. But these customers still cover about 80% to 85% of the Indian market in terms of share of the EV market. So even if they give us a share a portion of their demand, I think we'll be...

That's very good to know, sir. Final question, sir, on the 4-wheeler side, what kind of engagement you're having with customers? Are they are inclined towards sourcing only the cell from you and doing that assembly in-house? And also, are we working on a hybrid battery for 4-wheelers. So just a little bit of a couple of minutes on our traction with the 4-wheeler OEMs.

So as you know, we have 2 lines of LFP. One -- the first one we are using now for 3-wheeler and telecom and stationary. The fourth line, which is under installation, under commissioning, I would say, would have 4-wheeler OEM products. The products which we are manufacturing will go to 4-wheeler OEMs. But now that the plant is ready and it is making samples, now we see a major interest from many of the 4-wheeler OEMs -- they are coming to our factories and have started conversation. on what kind of readiness we have and what kind of sales we will be producing on the line so that it also matches their future product platform. So far, we did not see much of the interest from the 4-wheelers. So far, mostly the 2-wheeler guys were coming. But now once we are ready and they also feel that there is a need to have a backup supply because with all these restrictions from -- and the cost inflation of imports, they are talking to us. We are talking to at least I cannot name, but at least 1, 2 major 4-wheeler OEMs of the country. For that, the first line needs to be commissioned, which will be close to, let's say, end of this year, fiscal year. And then we'll make announcements whenever it comes.

The next question is from the line of Vijay Kumar Pande from Axis Capital.

Congratulations for a great set of numbers. Initially on the core business, I wanted to understand about the price hikes we have taken in Q1 and any other price hikes that we likely to take in the Q2? And how much of it is reflected in the Q1 numbers, the price...

So I can tell you on Q1 on year-on-year basis, the price correction would be in the range of 4% to 6% across categories. There are multiple segments. So there are multiple categories. It is not uniform across. But around 4% to 6% in various categories, we took price increases.

What was your second question, please? No, this was the first question. Any further price increases we're planning to take on...

We will take a call as it comes. At this moment, we have not made a decision for quarter 2. But we are closely monitoring. As you know, in the past also, we have not taken corrections in one shot. We have taken as and when the input costs went up a dynamic basis step taken. So we will probably do the same in quarter 2 also. At this moment, we are watching.

Okay. Secondly, sir, in the case of lithium-ion batteries, so we would like to get an understanding about the potential revenue potential down the line to the lithium battery -- lithium-ion battery plant what could be the revenue potential from there? Just want to understand the potential from there 3 years down the line or 5 years down the...

So I can only say that in rupee terms, it's very difficult to say because it depends on commodity prices and et cetera, et cetera. But 6 gigawatt is our capacity of Phase 1. And very soon -- and we have a provision of going to 12 gigawatt in the next few years when the demand picks up. So you put a number around that gigawatt hour and that should be our revenue depending on the commodity prices of that.

The next question is from the line of from Invest...

On the lithium side, can you please help us refresh the amount of subsidies that we will be receiving over the next, say, few years?

No, this amount is not in public domain, I'm sorry. But very soon, the rule is the moment you officially declare your start of production, we are entitled to apply for it. So we will be doing it shortly. If we make a public disclosure, probably we'll get to know. But as of now, this number is not in public domain, I'm sorry. But as I said, the milestone is that we'll have to declare the start of production officially and then apply for it, submit the...

Okay. Okay. Also on the tech side, you mentioned that you're working on NMC as well as LFP. Are we also working on sodium ion? Like is there a tech partnership there as well?

Not at this moment, not at this moment. This is big enough for us. Lithium -- India has to learn lithium first before going to sodium. Still in India, there is 0 knowledge of lithium. So I think we have to master this first, and we are finishing our learning curve, then we'll think of any other chemistry.

The next question is from the line of Pramod from InCred Capital.

So the first question is some of your OEMs are announcing big CapEx for capacity expansion for convention vehicles. So with regard to that, how are you placed on lead acid capacity and what are your CapEx and capacity expansion plans?

So that's a very good question and very relevant question. You are right. And this is what also is a nice problem to have. But we -- as a part of our capital allocation strategy, every year, we keep INR 500 crores, around INR 500 crores for our lead acid business, sometimes for manufacturing technology, sometimes for automation and sometimes for capacity expansion. The good part of lead acid manufacturing is that you don't have to always invest in a complete line because every machine along the lines have different capacity. So you have to only work on the bottlenec. So we are investing on those bottlenecks and our utilization is very healthy on the SLI. And we are aware that not only new vehicles, but all the current automotive production, which has gone out in the last 3 quarters, let's say, these are all going to result in a replacement market 2.5 to 3 years from now. So we are mindful of that, that it is not going only the automotive OEM volumes, but also the replacement volume will come after 2.5 to 3 months. So we are investing on those lines, particularly in 4-wheeler because in 2-wheeler, we still have sufficient headroom. And all other batteries we are -- so -- but we are seriously investing in debottlenecking most of our factories. Good thing is that we have total 4wheaty.very factory, we have headroom for brownfield expansion. So we are exploring that.

Second one is with regard to the lithium ion. What are your plans for BSS type of cells you want to produce? How much of capacity you want to divert in that direction? Is that a much easier segment to cater to or it's much tougher considering the long life of the product required...

No, no, it's not actually the duty is different. The application is different. We have a format LFP format. And for BSS, you need the large format cells. So I will not be able to give you the exact, but it is 300 plus, which is the most popular rating for BS -- so that is in the pipeline, that technology being transferred and the line is getting commissioned. So that's our next step after we commission Line 1 and Line 3, Line 4, the second LFP line will be our next target. So we have a product under the product which we license from our partners, this is one of the products.

And are the approvals much easier to come through there as compared to the conventional OEM supplies? Or how do you see that segment for you to tap?

I think this will have a lower start-up time unlike the OEMs because OEM homologation time is very long. This is a project-based tender-based project. I think the gestation period will be low in terms of validation and homologation, which is not required here. But anyway, trials we have to do in any case, field trials we have to do. Good that there are enough opportunities here where to promote local manufacturer customer, if he is a government customer even, you can always say that x percentage of the volume has to come locally for field trials, et cetera. We'll get some support on the tender this thing also. But tenders also kind of -- you must know -- all of you must know, and I'm sure you have tracked it. BSS is also kind of getting overhyped now. People do not actually differentiate between what is and what is the peripheral -- so a lot of people are making containers and fabricated tank technology of battery racks and has to be developed. The electronic and software portion also needs to be developed locally.

The next question is from the line of Raghu...