Accumulate Amara Raja Batt; target of Rs 256: PLilladher

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Accumulate Amara Raja Batt; target of Rs 256: PLilladher

Prabhudas Lilladher is bullish on Amara Raja Batteries and has recommended accumulate rating on the stock with a target of Rs 256 in its January 16, 2012 research report.

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Prabhudas Lilladher is bullish on Amara Raja Batteries and has recommended accumulate rating on the stock with a target of Rs 256 in its January 16, 2012 research report.

We had a concall with the CFO - Mr. Suresh Kalyan of Amara Raja Batteries (AMRJ) to get an update on their business. The management guided for a double-digit volume growth in FY13E, with an EBITDA margin of 15-16% in FY13E. On the telecom side, AMRJ is likely to receive an order to the tune of 5,000 - 6,000 sets from Bharti Airtel for its African operations in FY13E as against 7,000 sets in FY12E. The following are the key highlights of our interaction:

UPS segment volumes to grow at 15%: UPS segment registered a volume growth of 15%+ amidst very competitive market conditions. AMRJ has gained its market share (which stands at ~33% currently) in this segment at the cost of the importers in the unorganised market. With China levying a 17.5% export tax on lead and lead products and rupee depreciating, it is unviable for the traders to import the UPS batteries. This, together with higher demand in the commercial UPS segment, augurs well for AMRJ.

Telecom vertical to grow at 6-8% CAGR over the next three years: Overall, the Telecom Operators and Service Providers have shifted to one-on-one negotiations with reliable vendors as against the earlier followed norm of reverse auction mechanism, where the lowest bidders used to get the orders. Bharti Airtel is likely to give a similar order to the tune of 5,000 - 6,000 sets for its African operations in FY13E as against 7,000 sets in FY12E. Management has guided a 6-8% CAGR in volume terms in the telecom vertical (~23% of the topline).

Strong balance sheet to support better valuations: AMRJ has maintained a strong balance sheet, with the return ratios in excess of 24% for the past few years. We expect revenues to grow at a CAGR of 18.7% and net profit to grow at a CAGR of 21.8% for FY11-FY13E period. The stock is currently trading at 8.0x its FY13E earnings estimate, which in our view is attractive. We maintain 'Accumulate' on the stock.

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