Buy Amara Raja Energy & Mobility; target of Rs 1,967: Sharekhan

Sharekhan's research report on Amara Raja Energy & Mobility

Amara through its wholly owned subsidiary Amara Raja Advanced Cell Technologies Pvt. Ltd (ARACT) has signed a technical licensing agreement Gotion’s (Gotion High-Tech Co Ltd) subsidiary GIB EnergyX Slovakia. Under the licensing arrangement ARACT will get LFP technology for lithium-ion cells manufacturing. Along with that, the company will get access to cell technology IP, support in establishing Gigafactory facilities and an opportunity to integration with Gotion’s global supply chain network for critical battery materials and customer technical support for solution deployment. Recently Amara has increased its stake in Norway-based InoBat to 9.32%, which is engaged in research, development, and production of batteries for EVs. In parallel to Amara, Gotion also holds a stake in InoBat AS. Gotion High-tech and InoBat, in a JV, have signed an investment agreement with the Government of Slovakia for the development of the first LFP battery gigafactory in the country.

Outlook

Gotion, a global leader in battery solutions, would support Amara in acquiring Li-ion cell technology, crucial for setting up its Gigafactory projects. Amara’s new energy segment, which already caters to the two-wheeler, three-wheeler, and telecom sectors, will benefit from mastering LFP technology, facilitating its entry into the EV battery market for electric passenger vehicles (PVs), in our view. Recently Amara has increased its stake in Norway based InoBat to 9.32%. In its lead acid battery business, growth in the replacement market is expected to support operating performance. Going forward, commencement of tubular battery capacity, reduction in trading revenue and full benefit of amalgamation of plastics business to support profitability. The benefit of amalgamation of the plastics business would enhance on commencement of the tubular battery capacity. Tubular battery capacity is expected to commence by FY25-end. We believe that lead acid batteries to remain in demand for the next few years in the replacement market, while Li-ion battery segment would expand from current levels. As Amara is trading at 19% discount to Exide We believe that a higher visibility for its Li-ion cell business would narrow valuation gap in the coming period and hence, we maintain a Buy on the stock with a revised PT of Rs 1967 on account of expectation of healthy traction in replacement segment and an opportunity to play in the Li-ion cell business.