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Jan 30, 2013, 05.55 PM IST | Source: Moneycontrol.com

Accumulate Amara Raja Batteries; target Rs 326: P Lilladher

Prabhudas Lilladher is bullish on Amara Raja Batteries (AMRJ) and has recommended accumulate rating on the stock with a target price of Rs 326 in its January 28, 2013 research report.

Prabhudas Lilladher is bullish on Amara Raja Batteries (AMRJ) and has recommended accumulate rating on the stock with a target price of Rs 326 in its January 28, 2013 research report.

"Amara Raja Batteries (AMRJ) reported 23.7% YoY growth in its top-line at Rs7.6bn (PLe: Rs7.4bn), mainly led by strong sales in the UPS segment and strong traction in the automotive replacement market. On a sequential basis, top-line improved by ~5.6%, primarily due to a strong traction in the aftermarket sales. EBITDA margins declined by only 40bps QoQ on account of higher cost of lead to 16.0%. On a YoY basis, other expenses increased by 42.7%, mainly on account of escalating conversion and distribution costs, primarily owing to power shortage. As a result, other expenses increased by 190bps YoY, thereby, leading to a 130bps decline in EBITDA margins to 16.0% (PLe: 15.7%). As a result,, EBITDA grew by 14.5% YoY at Rs1.22bn, ahead of our estimate of Rs1.17bn. Led by higher other income and lower tax rate, PAT grew by 22.6% YoY to Rs808m (PLe: Rs738m).

In order to cater to higher demand in the large VRLA segment and augment its capacity in the automotive four-wheeler segment (current utilisation @90%), the company had earmarked a capex of Rs4.4bn spread over the next 12-18 months. This investment is in addition to the already approved capex of Rs3.04bn which is earmarked for expanding capacities in the medium VLRA (UPS segment) and the automotive 4-wheeler segment. With strong cash flows, we expect the company to fund its capex via internal accruals. This is a positive as it reflects the company's confidence in its growth prospects.

The stock is currently trading at 14.3x its FY14E EPS and 12.4x FY15E EPS, which in our view is attractive. Currently, the stock is trading at a ~10% premium to Exide, which is justified, given its seventh consecutive quarter of outperformance over Exide. However, given the outperformance of last one year (stock has gone up 3x from Rs100 to Rs300), we see limited upside from the current levels. Maintain 'Accumulate' with a target price of Rs 326 based on 15.5x FY14E EPS (~10% premium to our FY14E target multiple for Exide)," says Prabhudas Lilladher research report.

Non-Institutions holding more than 90% in Indian cos

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