The 9.6% growth in ARBL’s Q3FY17 revenue indicates
that note ban has not severely impacted its revenues. The sharp rise in the lead
prices (25% yoy in Q3FY17 and 28% yoy in January-2017) however concerns us
in the near term and we expect company to pass these prices to its customers. In
view of near tern slower growth due to demonetisation, we introduce FY19E
financials. We expect FY18E/FY19E revenues to grow by 15%/18% respectively to
Rs6,100 /Rs7,198cr. Accordingly we also forecast EBITDA margins of 16.3% in
FY18E and 17.1% in FY19E. The FY18E RoE is likely to be 19.3% which will
improve in FY19E to 20.6%. This is lower than the company’s average RoE of
~25% in the last five years. In view of this, we value the stock at 23.0x of FY19E EPS
of 43.9 (13% discount to its 3 with a price target of ₹1,009 with a ‘Buy’ rating.
