The results paint a concerning picture for the battery major, with revenue contraction accompanied by severe margin compression. Net sales for Q3 FY26 declined 7.04% sequentially to ₹4,364.51 crores, whilst year-on-year growth remained anaemic at negative 1.92%. More worryingly, operating margins excluding other income contracted sharply to 8.97% from 11.47% in the previous quarter, representing a deterioration of 250 basis points.
The stock has reacted negatively to the mounting operational challenges, trading at ₹321.40 as of January 30, 2026, down 25.40% from its 52-week high of ₹430.85. The counter has underperformed both the broader market and its sectoral peers, with a one-year return of negative 10.75% against the Sensex's positive 7.18%, resulting in a negative alpha of 17.93 percentage points.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Sep'25 | 4,364.51 | -7.04% | 171.94 | -37.02% | 8.97% | 3.98% |
| Jun'25 | 4,695.12 | +8.30% | 272.99 | +46.09% | 11.47% | 5.85% |
| Mar'25 | 4,335.42 | +7.93% | 186.87 | +19.17% | 9.87% | 4.33% |
| Dec'24 | 4,016.72 | -9.74% | 156.81 | -32.20% | 10.57% | 3.94% |
| Sep'24 | 4,450.00 | +0.32% | 231.28 | +5.10% | 10.61% | 5.24% |
| Jun'24 | 4,435.71 | +6.30% | 220.06 | +19.12% | 10.67% | 4.98% |
| Mar'24 | 4,172.90 | — | 184.74 | — | 10.74% | 4.45% |
Financial Performance: Margin Erosion Intensifies
The Q3 FY26 results reveal troubling trends across multiple financial parameters. Revenue declined 7.04% sequentially to ₹4,364.51 crores, breaking the momentum from Q2 FY26's robust 8.30% quarter-on-quarter growth. On a year-on-year basis, sales contracted 1.92%, indicating weak demand conditions in the automotive battery segment.
The margin compression story is particularly concerning. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) fell to ₹391.42 crores in Q3 FY26 from ₹538.34 crores in the previous quarter, translating to a margin of just 8.97% compared to 11.47% in Q2 FY26. This represents a sharp deterioration of 250 basis points sequentially and 164 basis points year-on-year.
Profit after tax margins followed a similar trajectory, contracting to 3.98% from 5.85% in the preceding quarter. The consolidated net profit of ₹171.94 crores marked the second-lowest quarterly profit in the past seven quarters, surpassing only the December 2024 quarter's ₹156.81 crores. Employee costs remained relatively stable at ₹342.25 crores, but the inability to maintain pricing power or operational efficiency amid revenue pressure has severely impacted profitability.
The tax rate for Q3 FY26 stood at 31.46%, marginally higher than the preceding quarter's 28.66%, further squeezing post-tax profitability. Interest costs rose to ₹39.74 crores from ₹32.40 crores, reflecting the company's increased debt burden with long-term debt rising to ₹943.07 crores in FY25 from ₹221.54 crores in FY24.
Operational Challenges: Weak Capital Efficiency
Exide Industries' operational metrics reveal deeper structural concerns beyond cyclical headwinds. The company's return on capital employed (ROCE) has deteriorated significantly, falling to just 7.64% in the latest period from an average of 10.50% over recent years. This represents one of the weakest capital efficiency readings in the company's recent history, suggesting that the business is struggling to generate adequate returns on the capital deployed.
Return on equity (ROE) also presents a concerning picture at 5.36% for the latest period, substantially below the five-year average of 14.14%. This dramatic compression in ROE indicates that shareholder capital is being utilised far less effectively than in previous years, raising questions about the sustainability of the company's competitive positioning and operational strategy.
⚠️ Critical Concern: Capital Efficiency Collapse
ROCE has plunged to 7.64% from an average of 10.50%, whilst ROE stands at just 5.36% versus the historical average of 14.14%. These weak returns on capital suggest the company is struggling to generate adequate profitability from its asset base, signalling potential structural challenges in the business model or competitive environment.
The balance sheet shows increased leverage with long-term debt rising substantially to ₹943.07 crores in FY25 from ₹221.54 crores in FY24, though the debt-to-equity ratio remains manageable at 0.06. The company's EBIT-to-interest coverage ratio averages a healthy 10.99 times, providing adequate cushion for debt servicing. However, the combination of rising debt and weakening profitability creates a concerning trajectory that warrants close monitoring.
Working capital management has also deteriorated, with cash flow from operations declining and the company reporting negative changes in working capital of ₹180 crores in FY25 compared to a positive ₹86 crores in FY24. The closing cash position fell to ₹176 crores from ₹314 crores, indicating tighter liquidity conditions.
Industry Context: Automotive Headwinds Persist
Exide Industries operates in the challenging auto components sector, which has faced multiple headwinds including raw material inflation, supply chain disruptions, and shifting dynamics in the automotive industry with the transition towards electric vehicles. The company's traditional strength in lead-acid batteries for internal combustion engine vehicles faces long-term structural challenges as the industry pivots towards electrification.
The broader auto components sector has underperformed the market, with the sector delivering a negative 1.62% return over the past year. Exide has underperformed even this weak sectoral benchmark by 9.13 percentage points, indicating company-specific challenges beyond broader industry trends. The competitive intensity in the battery segment has intensified, with pricing pressure and margin compression affecting most players.
Market Position Under Pressure
Whilst Exide Industries remains the largest company in the auto components sector with a market capitalisation of ₹27,319 crores, its leadership position is being challenged by margin pressures and weak volume growth. The company's five-year sales growth of just 5.12% annually and EBIT growth of 7.92% lag behind industry expectations, reflecting the structural challenges facing traditional battery manufacturers.
The company's investments in new-age battery technologies and electric vehicle infrastructure will be critical to maintaining relevance in the evolving automotive landscape. However, these investments require significant capital allocation and may pressure near-term profitability further before delivering returns.
Peer Comparison: Valuation Discount Reflects Concerns
A comparative analysis of Exide Industries against its peer group in the auto components sector reveals a mixed picture. The company trades at a price-to-earnings ratio of 34.56 times, below the peer average of approximately 51 times, suggesting the market has already discounted some of the operational challenges.
| Company | P/E (TTM) | Price/Book | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Exide Industries | 34.56 | 1.85 | 14.14 | 0.62 | 0.06 |
| Schaeffler India | 53.66 | 10.52 | 18.67 | 0.77 | -0.25 |
| Tube Investments | 71.32 | 5.97 | 17.76 | 0.15 | -0.23 |
| Endurance Technologies | 38.03 | 5.31 | 13.95 | 0.42 | 0.00 |
| Sona BLW Precision | 47.06 | 5.37 | 14.59 | 0.65 | -0.06 |
| Motherson Wiring | 45.56 | 15.17 | 39.46 | 0.79 | 0.10 |
Exide's return on equity of 14.14% (average) lags most peers, with Motherson Wiring delivering a stellar 39.46% and Schaeffler India achieving 18.67%. This profitability gap explains the valuation discount, with Exide's price-to-book ratio of 1.85 times significantly lower than peers like Motherson Wiring (15.17x) and Schaeffler India (10.52x).
The company's debt-to-equity ratio of 0.06 remains amongst the lowest in the peer group, indicating conservative leverage. However, this balance sheet strength has not translated into superior operational performance or shareholder returns, raising questions about capital allocation efficiency.
Valuation Analysis: Premium Unjustified Given Fundamentals
Despite the operational challenges and deteriorating financial metrics, Exide Industries continues to trade at what appears to be an expensive valuation relative to its earnings trajectory. The stock's price-to-earnings ratio of 34.56 times exceeds the industry average of 29 times, representing a premium that seems difficult to justify given the company's weak growth profile and margin pressures.
The valuation assessment has consistently flagged the stock as "Very Expensive" since early 2025, with brief interludes of "Expensive" ratings. The current enterprise value-to-EBITDA multiple of 15.76 times and EV-to-EBIT of 23.63 times appear rich for a business delivering single-digit sales growth and contracting margins.
The price-to-book ratio of 1.85 times, whilst lower than many peers, still represents a premium to book value that may not be warranted given the weak return on equity of 5.36%. A more appropriate valuation would likely be closer to or below book value until the company demonstrates a credible path to improving capital efficiency and profitability.
The dividend yield of 0.62% provides minimal income support, with the company paying ₹2 per share. The payout ratio of 19.39% suggests room for higher dividends, but the weak cash generation and profitability trends may constrain the company's ability to increase distributions meaningfully.
Stock Performance: Sustained Underperformance
Exide Industries' stock has delivered disappointing returns across most timeframes, significantly underperforming both the broader market and its sectoral peers. The counter has declined 10.75% over the past year against the Sensex's gain of 7.18%, resulting in a negative alpha of 17.93 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -1.17% | +0.90% | -2.07% |
| 1 Month | -10.17% | -2.84% | -7.33% |
| 3 Months | -16.12% | -2.53% | -13.59% |
| 6 Months | -17.81% | +0.97% | -18.78% |
| YTD | -11.29% | -3.46% | -7.83% |
| 1 Year | -10.75% | +7.18% | -17.93% |
| 3 Years | +82.15% | +38.27% | +43.88% |
The near-term performance has been particularly weak, with the stock declining 16.12% over three months and 17.81% over six months, substantially underperforming the market across these periods. Year-to-date, the stock is down 11.29%, extending the negative momentum into 2026.
Technical indicators paint a bearish picture, with the stock trading below all key moving averages – the 5-day MA (₹324.96), 20-day MA (₹344.62), 50-day MA (₹360.32), 100-day MA (₹378.76), and 200-day MA (₹381.69). The overall technical trend turned bearish on December 17, 2025, at ₹363.60, and has remained under pressure since.
The stock's beta of 1.18 indicates higher volatility than the broader market, with a volatility reading of 23.58% over the past year. This high-beta, negative-return profile places the stock in the "Medium Risk, Low Return" category – an unattractive risk-reward proposition for investors.
Investment Thesis: Multiple Red Flags
The investment thesis for Exide Industries faces significant headwinds across multiple parameters. The proprietary Mojo Score of 48 out of 100 places the stock in "SELL" territory, reflecting the confluence of negative factors affecting the business.
The quality grade remains "Good" based on the company's market leadership position, absence of promoter pledging, and healthy institutional participation of 29.63%. However, this quality rating is increasingly at odds with the deteriorating operational metrics and weak capital efficiency.
The financial trend is classified as "Flat" for Q3 FY26, with the key negative factor being the ROCE at its lowest level of 8.11% on a half-yearly basis. The technical trend remains firmly bearish, with the stock trading in a sustained downtrend since mid-December 2025.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Market Leadership: Largest player in auto components sector with established distribution network and brand recognition
- Balance Sheet Strength: Low debt-to-equity ratio of 0.06 and adequate interest coverage of 10.99 times
- Institutional Confidence: Strong institutional holding of 29.63% indicates continued faith from sophisticated investors
- Zero Promoter Pledging: Clean corporate governance with no pledged shares
- Dividend Track Record: Consistent dividend payments with payout ratio of 19.39%
⚠️ KEY CONCERNS
- Severe Margin Compression: Operating margins fell 250 bps QoQ to 8.97%, indicating significant cost pressures
- Weak Capital Efficiency: ROCE at 7.64% and ROE at 5.36%, both at multi-year lows
- Anaemic Growth: Five-year sales growth of 5.12% and EBIT growth of 7.92% lag industry standards
- Expensive Valuation: P/E of 34.56x appears unjustified given weak fundamentals and growth profile
- Technical Weakness: Bearish trend with stock below all moving averages, down 25.40% from 52-week high
- EV Transition Risk: Traditional lead-acid battery business faces structural headwinds from automotive electrification
- Working Capital Pressure: Negative working capital changes and declining cash position
Outlook: What Lies Ahead
The outlook for Exide Industries remains challenging in the near to medium term, with multiple headwinds converging to pressure both top-line growth and profitability. The company faces the dual challenge of defending its traditional lead-acid battery business whilst investing heavily in new-age technologies for electric vehicles.
POSITIVE CATALYSTS
- • Potential recovery in automotive demand in H2 FY26
- • Success in new product launches for EV segment
- • Margin improvement through cost optimisation initiatives
- • Market share gains in replacement segment
RED FLAGS TO MONITOR
- • Further deterioration in operating margins below 8%
- • Continued decline in ROCE and ROE metrics
- • Increase in debt levels to fund EV investments
- • Market share losses to aggressive competitors
- • Failure to gain traction in EV battery segment
Investors should closely monitor the company's quarterly margin trajectory and capital efficiency metrics. Any further deterioration in ROCE or sustained operating margins below 9% would signal deeper structural issues requiring management intervention. The success of the company's electric vehicle battery initiatives will be critical to long-term value creation, but these investments may continue to pressure near-term profitability.
The Verdict: Avoid Until Turnaround Evidence Emerges
Score: 48/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of deteriorating margins, weak capital efficiency, expensive valuation, and bearish technical setup presents an unfavourable risk-reward profile. Wait for concrete evidence of operational turnaround and margin stabilisation before considering entry.
For Existing Holders: Consider reducing exposure or exiting positions, particularly for those sitting on profits from the 2022-2024 rally. The stock's 82.15% gain over three years provides an opportunity to book profits before further deterioration. Those with longer investment horizons may hold with strict stop-losses below ₹300.
Fair Value Estimate: ₹280-290 (12.65% downside from current levels), based on 1.7x P/BV and normalised earnings trajectory. The stock needs to demonstrate sustained margin improvement and capital efficiency gains to justify higher valuations.
Rationale: The confluence of severe margin compression (operating margins down 250 bps QoQ), collapsing capital efficiency (ROCE at 7.64%, ROE at 5.36%), expensive valuation (P/E of 34.56x despite weak growth), and bearish technical trends makes this an unattractive investment proposition. Whilst the company retains market leadership and balance sheet strength, these positives are insufficient to offset the operational deterioration and structural challenges facing the traditional battery business.
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 herein are subject to change without notice.
