Expect 15% operating margins for FY12: Amara Raja Batteries

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Expect 15% operating margins for FY12: Amara Raja Batteries

Despite the difficult economic scenario, Amara Raja Batteries hopes to end the current fiscal with operating margins of 15%, says managing director Jaydev Galla.

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Despite the difficult economic scenario, Amara Raja Batteries hopes to end the current fiscal with operating margins of 15%, says managing director Jaydev Galla. "We have been able to get premium prices and we have been able to get increased market share, so we are looking at ending the year with about 30% revenue growth and about 15% EBITDA margin," he added.

Amara Raja posted stellar third quarter numbers, with revenue growing 44% over the previous year. Net profit also saw a jump of 67% to Rs 65.9 crore, taking operating margins to 17.3% from 16% YoY.

Galla says that the slippage in margins is due to the price cuts some of the competition has taken. "I think we will have to react to what's happening in the market, but not as aggressively as they have," he said.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: Just walk us through what you think will drive growth over the next couple of quarters in terms of the segments that you are in and whether or not these margins are sustainable for you?

A: This year has been a very good year for us where we have increased our market share considerably in the all the segments that we operate in. On the industrial side, that we supply batteries for telecom infrastructure as well as the UPS segment where we supply batteries for back up power systems. In both these areas we have increased market leadership to about 45% market share and in UPS segment we are now at about 32% market share.

I would say that the reason for this is the market; the customer base is finally recognizing the technology advantage that we have over the competition. The product performance over the years has proven that and that recognition is finally setting in. So I would say that we have been able to get premium prices, we have been able to get increased market share and the product performance justifies it all.

Q: Have you been able to increase market share in the automotive segment as well? Can you take us through the performance?

A: Well in OEM we have maintained our market share of about 25% that wouldn't be an increase over the previous years; we have been maintaining that for various reasons. In the after market we have increased our market share and we are now about 18%, which includes the unorganized sector as well.

Q: Margins at 17% plus are higher than analyst expectations this time. Do you think it's sustainable for 17% plus?

A: This year we will probably end up around 15% is our forecast for the year. So we are looking at ending the year with about 30% revenue growth and about 15% EBITDA margin.

Q: Is that on account of price cuts that some of your peers as well have undertaken the slippage in margins?

A: Yes that's right. I think we will have to react to what's happening in the market, but not as aggressively as they have.

Q: So by how much do you think you will have to bring prices down by and how soon?

A: I wouldn't be able to share that information with you right now because I wouldn't want to alert the competition on that. But certainly we are looking at it and we will have to respond it appropriately.

Q: How much have lead prices come off now and how much of a boosting impact is it having on your margins at this point?

A: The current LME price is at about USD 2200 per metric ton; we expect that to be around that level for the rest of the year plus or minus 5%.

We are actually looking at an average for the year at around USD 2400. For Q3 the average was around USD 2350, so we see lead prices coming down. I don't expect we are going to have to do much on the price, but we are looking at it. I would not want to say more than that at this moment.