Accumulate Amara Raja Batteries; target Rs 417: P Lilladher

“Amara Raja Batteries (AMRJ) reported 32.2% YoY growth in its top-line at Rs6.9bn (PLe: Rs6.1bn), 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 ~3.2%, primarily due to a strong traction in the aftermarket sales. On account of better product mix and robust top-line, EBITDA grew by a whopping 75.6% YoY at Rs1.2bn. On a sequential basis, other expenses declined by Rs255m, mainly on account of one-time warranty claims (~Rs160m) for FY12 provided during Q4FY12 and tight control over promotional expenditure. As a result, other expenses declined by 320bps QoQ, thereby, resulting in a 300bps improvement in EBITDA margins at 17.2%, highest in last 11 quarters. Led by robust operational performance and higher other income, PAT grew by 94.2% YoY to Rs757m (PLe: Rs558m).

In order to cater to the higher demand in the UPS segment and augment its capacity in the automotive four-wheeler segment (current utilisation @90%), the company has earmarked a capex of Rs2.3bn in FY13E as against Rs1.9bn guided earlier. With strong cash flows, we expect the company to fund its capex via internal accruals. Management is confident of a double-digit growth in the automotive replacement market in FY13E based on robust automobile sales in FY10. AMRJ is expanding its capacity in the four-wheeler automotive segment from 5.6m units to 6.0m units in FY13E.

We have been recommending AMRJ since past one year as our top-pick in the auto ancillary space. Given the strong set of numbers and improving business outlook, we reiterate our positive stance on the stock. We expect revenues to grow at a CAGR of 15.1% and net profit to grow at a CAGR of 22.2% for FY12-FY14E period. The stock is currently trading at 11.2x its FY13E EPS and 9.6x FY14E EPS, which in our view is attractive.

We maintain our 'Accumulate' rating on the stock. Our revised Target Price of Rs 417 is based on 11.0x FY14E EPS (~26% discount to 15x FY14E earnings target multiple for Exide). We expect the historical valuation discount of AMRJ (~35%) to Exide to narrow, given the consistent performance by the company,” says Prabhudas Lilladher research report.

Public holding more than 90% in Indian cos

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