Amara Raja’s (ARENM) 1QFY25 financials were weak, with EBITDA margin contracting ~90bp QoQ to 13.7% (est. 14.8%). The margin contraction was due to a shift in the product mix, with traded goods rising to 23% of revenue (vs. ~12% in 4QFY24), along with some increase in RM costs. On a positive note, the quarter saw healthy volume growth in most segments. We cut FY25E/FY26E EPS by 10%/6% to factor in the increase in commodity prices. While market seems to be upbeat about ARENM’s lithium ion foray, we remain circumspect of the returns from the business. The stock at ~28x/24x FY25/26E EPS appears fairly valued. We, hence, maintain Neutral rating with a revised TP of INR1,390 (based on 20x June-26E EPS).
OutlookWhile the market is optimistic about ARENM’s li-ion initiative, we are cautious about its potential returns. We believe the stock trading at around 28x/24x FY25/26E EPS appears fairly valued. Therefore, we maintain a Neutral rating with a revised target price of INR 1390, based on 20x June-26E EPS.
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