Exide Inds.

Exide Industries reported a modest 1.3% growth for H1 FY26, with 88% of its business growing at 7%. However, Q2 FY26 saw a 2.1% degrowth, following a 5% growth in Q1. This Q2 decline was primarily attributed to destocking by distributors and retailers after the GST rate cuts were announced on August 15th, which reduced battery rates from 28% to 18% and solar combo packs from 12% to 5%. The company consciously took production cuts in August and September to manage inventory, impacting profitability.

Operating profitability in Q2 was impacted by continuous pressure from input material costs, which the company has not yet fully passed on to the market. While price corrections were made in Q1, further actions were paused post-GST cuts to pass benefits to consumers. Management indicated that they might consider further price corrections in Q4. Despite these pressures, the company aims to demonstrate core business margins of 12% to 13% in the coming quarters, provided lead prices remain stable. Operational improvement initiatives, including the shift to Punched Grid Technology for motorcycle batteries by December, are expected to yield cost savings and quality benefits.

The lithium-ion cell manufacturing project, Exide Energy, has seen total equity investments of INR3,947 crores to date, with INR580 crores invested in H1 FY26 and an additional INR65 crores in October. Production is expected to commence towards the end of FY26, starting with the NCM line for 2-wheeler applications, followed by the prismatic LFP line for stationary applications. The company is engaging with various OEMs for offtake and expects initial utilization of Line 1 to be around 25%, potentially increasing with partial commissioning of Line 3. Steady-state margins for the Li-ion business are targeted to be similar to current lead-acid margins.

The solar business, which grew 35% in Q1, experienced a -5% degrowth in Q2 due to the extended monsoon and GST rate cut announcements. However, with the GST rate on solar combo packs reduced to 5% and incentives from the PM Surya Ghar Yojana, the company anticipates a strong rebound in Q3. Exide's solar franchise, which reached INR800 crores last year, plans to cross INR1,000 crores this year and target INR1,500 crores within 2-3 years, leveraging its extensive channel network. For solar applications, lead-acid batteries remain preferred over lithium-ion due to less emphasis on footprint and fast charging.

Despite the Q2 slowdown, October retail data showed positive trends, with passenger vehicle growth at 11% (compared to 4% in H1) and 2-wheeler retail sales up 52%. Management expects a robust H2 for automotive OEM growth and a boom in aftermarket demand in two years. Conversely, the export business faced challenges for the second consecutive quarter due to tariff uncertainties and geopolitical tensions, with an uptick only expected from Q4 FY26 and a steady state by Q1 next year. The company is actively exploring new geographies and portfolios to reduce dependence on existing markets.

Exide Industries maintains a very strong balance sheet with zero debt and robust cash flow generation. Through efficient working capital management, the company generated incremental cash flow of INR500 crores+ and increased its cash position by INR500 crores+ between March and September. This strong liquidity position provides a solid foundation for ongoing investments and operational stability.