Accumulate Amara Raja Batteries; target of Rs 785: Dolat Capital

Dolat Capital's research report on Amara Raja Batteries

The theme of ‘Progress on’, in AMRJ’s FY20 annual report, accurately throws light on various initiatives such as expanding product offering and capacity, further strengthen its existing and new distribution partnerships as well as widening its overall OEM customer base. Despite management’s subdued take on the OEM segment (4w mainly), sharp expected pickup in replacement market and telecom segment to keep its growth momentum intact in FY21. Furthermore, capacity expansion and new business wins in the 2W space would be key tailwind for AMRJ. Company has gained market share in the replacement segment in 2W, 4W, as well as the Telecom segment, driven by leveraging channel expansion strategy and product innovation. Additionally, management continues to constantly explore and analyze newer technologies (advanced stamp grid technology) to enhance long term business prospects, simultaneously whilst strengthening its leadership in lead acid space.

Outlook

At CMP, the stock is trading at 17.4x FY22E EPS (vs 5-year historical mean of 25). We roll forward our valuation from FY22E to FY23E, and raise TP to Rs 785 (18x FY23E EPS).

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