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Amara Raja Batteries Ltd Research Report - 04th Feb 2016

Auto Ancillary | Published on Feb 04th 2016


Results ahead of estimates: Amara Raja Batteries Ltd (ARBL)’s 3QFY2016 results have come in ahead of our estimates, driven by a strong operating performance. On the expected lines, the company’s top-line grew by a healthy 16% yoy to Rs1,225cr. The Automotive segment, forming about 55% of revenues, grew in double digits on back of market share gains in both the OEM as well as the replacement segment. The Industrial segment also reported a double-digit growth, led by the telecom sub-segment (telecom forms about 50% of the overall Industrial segment’s revenues). Given soft lead prices and a better product mix, the company’s margins improved by 240bp yoy to 18.7%, coming in higher than our estimate of 17.4%. The margins for the quarter are the highest ever in the last six years. Given the robust operating performance, the net profit at Rs136cr, came in ahead of our estimate of Rs126cr. Outlook and Valuation: ARBL is likely to continue gaining market share in the automotive battery segment. The strategy followed by automotive OEMs of sourcing from multiple vendors as against having a single vendor is likely to benefit ARBL. Further, with the company’s strengthening distribution network in the Western and Eastern markets, we expect replacement sales to grow in strong double digits, going forward. We also expect the Industrial segment growth to be in healthy double digits over FY2017-2018, given that the telecom players are resorting to aggressive network expansion, and also with ARBL entering tubular battery manufacturing. We expect ARBL to record a healthy top-line CAGR of 17% over FY2015 to FY2017. Also, given the softness in lead prices, margins are expected to remain at elevated levels. We expect ARBL to clock 24% earnings CAGR over the next two years. We maintain our positive view on the stock and reiterate our Buy rating on the stock with a target price of Rs1,039 (based on 28x FY2017 earnings).

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CMP 863
Target Price 1,039
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others11.0
Grand Total100.0

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