The September quarter results mark a concerning inflection point for the Kolkata-based battery manufacturer, with sequential profit declining 37.02% from Q1 FY26's ₹272.99 crores. Revenue also retreated 7.04% quarter-on-quarter to ₹4,364.51 crores, reflecting seasonal weakness and demand headwinds in the automotive replacement market. The company's stock has underperformed significantly, declining 8.86% over the past year against the Sensex's 9.00% gain, currently trading at ₹381.20 as of November 14, 2025.
Financial Performance: Margin Erosion Steals the Spotlight
The most alarming aspect of Exide Industries' Q2 FY26 performance was the sharp contraction in operating profitability. Operating profit before depreciation, interest, and tax (excluding other income) plummeted to ₹391.42 crores, marking the lowest level in eight quarters. The corresponding operating margin of 8.97% represents a significant deterioration from 10.61% in Q2 FY25 and 11.47% in the preceding quarter.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | YoY Growth | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Sep'25 | 4,364.51 | -7.04% | 171.94 | -25.66% | 8.97% | 3.98% |
| Jun'25 | 4,695.12 | +8.30% | 272.99 | +24.05% | 11.47% | 5.85% |
| Mar'25 | 4,335.42 | +7.93% | 186.87 | +1.15% | 9.87% | 4.33% |
| Dec'24 | 4,016.72 | -9.74% | 156.81 | — | 10.57% | 3.94% |
| Sep'24 | 4,450.00 | +0.32% | 231.28 | — | 10.61% | 5.24% |
| Jun'24 | 4,435.71 | +6.30% | 220.06 | — | 10.67% | 4.98% |
| Mar'24 | 4,172.90 | — | 184.74 | — | 10.74% | 4.45% |
Revenue performance was equally lacklustre, with net sales declining 1.92% year-on-year to ₹4,364.51 crores in Q2 FY26. The sequential 7.04% decline from Q1 FY26's ₹4,695.12 crores suggests seasonal weakness in the automotive replacement segment, though the magnitude of the decline raises questions about market share dynamics. For the half-year period H1 FY26, the company reported combined sales of ₹9,059.63 crores, representing modest growth from the year-ago period but failing to match the momentum seen in previous quarters.
The profit after tax margin compressed sharply to 3.98% in Q2 FY26 from 5.24% in the corresponding quarter last year, a deterioration of 126 basis points. This compression was driven by both operating margin pressure and a higher effective tax rate of 31.46% compared to 29.78% in Q2 FY25. Employee costs remained relatively stable at ₹342.25 crores, though interest expenses rose to ₹39.74 crores from ₹34.02 crores year-on-year, reflecting increased borrowing costs and higher debt levels.
Operational Challenges: Cost Pressures and Competitive Headwinds
The deterioration in Exide Industries' operating performance reflects a confluence of challenges including raw material cost inflation, intensifying competition in the automotive battery segment, and pricing pressures in the replacement market. The company's return on equity (ROE) of 14.49% on an average basis, whilst respectable, has weakened to just 5.71% on a latest twelve-month basis, signalling declining capital efficiency and profitability challenges.
The balance sheet reveals a significant increase in long-term debt to ₹943.07 crores as of March 2025 from ₹221.54 crores a year earlier, pushing the debt-to-equity ratio higher. This elevated leverage, combined with rising interest costs, adds financial pressure at a time when operating profitability is under strain. The company's net debt-to-equity ratio of 0.11 remains manageable on average, but the trajectory warrants monitoring given the margin compression.
Critical Warning: Profitability Under Siege
Q2 FY26 marked the weakest operating performance in eight quarters:
- Operating margin at 8.97% — lowest since March 2024
- Profit before tax (excluding other income) at ₹199.67 crores — multi-quarter low
- PAT declined 18.90% below the previous four-quarter average
- Sequential profit drop of 37.02% despite seasonal patterns
Return on capital employed (ROCE) has similarly weakened to 7.88% on a latest basis from an average of 11.34%, indicating deteriorating returns on the capital base. The five-year sales growth rate of just 5.59% annually underscores the company's struggle to drive top-line momentum in a maturing market. EBIT growth of 10.43% over five years has outpaced sales growth, but recent quarters show this trend reversing as margin pressures mount.
Market Context: Navigating a Challenging Auto Components Landscape
Exide Industries operates in the highly competitive auto components and equipments sector, where it holds the position of the largest player by market capitalisation. However, the company's recent performance suggests it is losing ground to more nimble competitors. Over the past year, Exide has underperformed its sector by 15.26 percentage points, with the stock declining 8.86% whilst the Auto Components & Equipments sector gained 6.40%.
The automotive battery market in India faces structural challenges including the gradual shift towards electric vehicles (which require different battery technologies), intense pricing competition in the replacement segment, and cyclical pressures from the broader automotive industry. Exide's traditional strength in lead-acid batteries for internal combustion engine vehicles positions it on the wrong side of the electric vehicle transition, though the company has been investing in lithium-ion battery capabilities.
Sector Dynamics: Headwinds Intensify
The auto components sector is grappling with multiple challenges: raw material cost volatility (particularly lead prices for battery manufacturers), margin pressures from OEM price negotiations, working capital intensity, and technological disruption from the EV transition. Exide's margin compression mirrors broader sector trends, but its magnitude suggests company-specific execution challenges beyond industry-wide headwinds.
Peer Comparison: Valuation Premium Without Performance Justification
When benchmarked against peers in the auto components space, Exide Industries trades at a price-to-earnings ratio of 38.21 times trailing twelve-month earnings, which appears expensive relative to its current growth trajectory and profitability metrics. The company's price-to-book value of 2.33 times is significantly lower than most peers, reflecting concerns about asset quality and return generation.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Exide Industries | 38.21 | 2.33 | 14.49% | 0.11 | 0.52% |
| Uno Minda | 68.99 | 12.11 | 15.47% | 0.40 | 0.06% |
| Bharat Forge | 61.68 | 7.12 | 12.77% | 0.50 | 0.61% |
| Schaeffler India | 59.88 | 11.74 | 18.67% | -0.25 | 0.69% |
| Tube Investments | 94.36 | 7.90 | 17.77% | -0.23 | 0.11% |
| Endurance Tech | 43.29 | 6.04 | 13.95% | 0.00 | 0.37% |
Exide's ROE of 14.49% on an average basis lags several peers, particularly Schaeffler India (18.67%) and Tube Investments (17.77%), despite its lower P/BV multiple. The company does maintain a conservative balance sheet with lower debt-to-equity than most competitors, but this advantage is being eroded by recent borrowing increases. The dividend yield of 0.52% is modest, with the company paying out just 19.39% of earnings, suggesting management is retaining capital for growth investments or debt reduction.
Valuation Analysis: Premium Pricing for Deteriorating Fundamentals
At current levels of ₹381.20, Exide Industries trades at what can only be described as demanding valuations given its recent performance trajectory. The stock commands a P/E ratio of 38.21 times, above the sector average of 34 times, despite delivering negative earnings growth and margin compression. The enterprise value-to-EBITDA multiple of 18.20 times and EV-to-sales ratio of 1.94 times appear stretched relative to the company's 5.59% five-year sales CAGR.
The valuation assessment has been downgraded to "Very Expensive" by most metrics, with the stock having oscillated between "Expensive" and "Very Expensive" grades over the past year. This premium pricing appears unjustified given the negative financial trend, deteriorating margins, and weak growth outlook. The stock trades 19.36% below its 52-week high of ₹472.70 but remains 16.24% above its 52-week low of ₹327.95, suggesting limited downside protection at current levels.
Shareholding Pattern: Institutional Confidence Waning
The shareholding pattern reveals a concerning trend of institutional divestment over recent quarters. Foreign institutional investors (FIIs) have reduced their stake from 12.31% in September 2024 to 10.88% in September 2025, a cumulative decline of 143 basis points. More significantly, mutual funds have cut their holdings from 12.59% to 9.77% over the same period, a reduction of 282 basis points that signals waning confidence from domestic institutional investors.
| Quarter | Promoter | FII | Mutual Funds | Insurance | Other DII |
|---|---|---|---|---|---|
| Sep'25 | 45.99% | 10.88% | 9.77% | 8.33% | 0.36% |
| Jun'25 | 45.99% | 11.47% | 10.30% | 6.79% | 0.31% |
| Mar'25 | 45.99% | 11.60% | 11.11% | 5.72% | 0.32% |
| Dec'24 | 45.99% | 11.72% | 12.37% | 4.92% | 0.35% |
| Sep'24 | 45.99% | 12.31% | 12.59% | 5.12% | 0.26% |
The one bright spot in the shareholding pattern is the steady increase in insurance company holdings, which have risen from 5.12% to 8.33% over the past year, an addition of 321 basis points. This suggests that long-term institutional investors see value in the franchise, though their buying has been insufficient to offset FII and mutual fund selling. Promoter holding remains stable at 45.99% with no pledging, providing some stability to the ownership structure.
Stock Performance: Significant Underperformance Across Timeframes
Exide Industries' stock performance has been disappointing across most timeframes, with the share price declining 8.86% over the past year compared to the Sensex's 9.00% gain, resulting in negative alpha of 17.86 percentage points. The year-to-date performance is even worse, with the stock down 8.53% against the Sensex's 8.22% gain, translating to underperformance of 16.75 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 1.06% | 1.62% | -0.56% |
| 1 Month | -2.94% | 3.09% | -6.03% |
| 3 Months | 1.86% | 4.92% | -3.06% |
| 6 Months | -0.42% | 3.97% | -4.39% |
| YTD | -8.53% | 8.22% | -16.75% |
| 1 Year | -8.86% | 9.00% | -17.86% |
| 2 Years | 40.33% | 30.23% | +10.10% |
| 3 Years | 112.55% | 37.22% | +75.33% |
Longer-term returns paint a more favourable picture, with the stock delivering 112.55% returns over three years and 125.10% over five years, significantly outperforming the Sensex. However, this historical outperformance is increasingly irrelevant given the deteriorating fundamental trajectory. The stock's beta of 1.20 indicates higher volatility than the market, with recent price action confirming this elevated risk profile.
Technical indicators have turned decisively negative, with the stock in a "Mildly Bearish" trend since early November 2025. The share price trades below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), a classic bearish configuration suggesting further downside risk. MACD, Bollinger Bands, and on-balance volume indicators all flash bearish signals, with no near-term technical catalysts for a trend reversal.
Investment Thesis: Quality Company Facing Cyclical Headwinds
The investment thesis for Exide Industries rests on the company's market leadership position, established brand equity, and extensive distribution network across India. The company maintains a "Good" quality grade based on its long-term financial track record, conservative balance sheet (historically), and absence of corporate governance concerns. However, these structural strengths are being overshadowed by cyclical margin pressures and strategic challenges related to the electric vehicle transition.
The company's proprietary Mojo score of 48 out of 100 places it firmly in "SELL" territory, downgraded from "HOLD" in late October 2025. This score reflects the combination of expensive valuation, negative financial trend, bearish technical setup, and deteriorating near-term drivers. The score methodology penalises companies exhibiting margin compression, weak growth, and negative momentum—all characteristics currently evident in Exide's performance.
"At 38 times earnings with margins at multi-quarter lows and institutional investors heading for the exits, Exide Industries offers poor risk-reward at current valuations."
Key Strengths & Risk Factors
✓ Key Strengths
- Market leadership in automotive battery segment with established brand equity
- Extensive pan-India distribution network providing competitive moat
- Zero promoter pledging with stable 45.99% promoter holding
- Healthy institutional participation at 29.34% despite recent trimming
- Conservative dividend payout of 19.39% preserving capital for investments
- Strong long-term track record with 112.55% three-year returns
⚠ Key Concerns
- Operating margin at eight-quarter low of 8.97%, down 164 bps year-on-year
- Net profit declined 25.66% YoY to ₹171.94 crores in Q2 FY26
- Weak 5.59% five-year sales CAGR indicating growth challenges
- FII and mutual fund divestment totalling 425 bps over past year
- Expensive valuation at 38.21x P/E with "Very Expensive" grade
- Negative financial trend with deteriorating returns (ROE at 5.71%)
- Rising debt levels with long-term borrowings up to ₹943.07 crores
- Structural headwinds from EV transition threatening core business
Outlook: What to Watch in Coming Quarters
Positive Catalysts
- Margin recovery to double-digit levels signalling cost control success
- Market share gains in replacement segment driving volume growth
- Successful commercialisation of lithium-ion battery capabilities
- Stabilisation of raw material costs, particularly lead prices
- Resumption of institutional buying by FIIs and mutual funds
Red Flags to Monitor
- Further margin compression below 8.5% indicating structural issues
- Continued sequential revenue declines beyond seasonal patterns
- Additional debt increases without corresponding EBITDA growth
- Accelerated FII/MF selling pushing holdings below 18% combined
- Market share losses to competitors in core automotive segment
The path forward for Exide Industries hinges on management's ability to arrest the margin decline and demonstrate a credible strategy for navigating the electric vehicle transition. Investors should closely monitor quarterly margin trends, with any recovery above 10% serving as a positive signal. Conversely, sustained margins below 9% would confirm structural profitability challenges requiring more drastic action. The company's lithium-ion battery investments represent a strategic imperative, but commercial success remains unproven and years away from material revenue contribution.
The Verdict: Avoid Until Margin Stabilisation Evident
Score: 48/100
For Fresh Investors: Avoid initiating positions at current valuations. The combination of margin compression, expensive valuation (38x P/E), negative financial trend, and institutional selling creates an unfavourable risk-reward profile. Wait for evidence of margin stabilisation above 10% and valuation correction below 30x P/E before considering entry.
For Existing Holders: Consider reducing exposure on any near-term strength. The deteriorating fundamental trajectory, negative technical setup, and expensive valuation suggest limited upside and meaningful downside risk. Long-term holders may retain core positions given the franchise value, but should prepare for continued volatility and potential further downside to the ₹330-350 range.
Fair Value Estimate: ₹320-340 (16% downside from current levels), implying a more reasonable 28-30x P/E multiple on normalised earnings of ₹11-12 per share.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. The views expressed are those of the author and do not constitute recommendations to buy or sell securities.
