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Last Updated : Aug 09, 2020 09:17 PM IST | Source: Moneycontrol.com

Accumulate Amara Raja Batteries; target of Rs 817: Dolat Capital

Dolat Capital recommended accumulate rating on Amara Raja Batteries with a target price of Rs 817 in its research report dated August 09, 2020.

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Dolat Capital's research report on Amara Raja Batteries


Amara Raja demonstrated a decent performance in Q1FY21 amid a challenging environment. Net revenue declined 37% YoY to Rs.11.5bn due to weak demand from auto OEMs impacted by countrywide lockdown, partially offset by better than anticipated Auto replacement demand. Industrial division was supported by traction in UPS and Telecom sector. EBITDA was Rs.1.52bn (-45% YoY) with margin at 13.2% (-214bps YoY), due to negative operating leverage partially offset by better product mix. We maintain a positive view on Amara Raja due to: 1) increase in production capacity that will help to gain market share in OEM segment (new business orders in 2W from RE and HMSI); 2) sharp demand recovery in the automotive replacement market; 3) low channel inventory is expected to support both, dispatches and pricing and 4) strong prospects for industrial batteries owing to increasing demand for UPS and telecom batteries. Management expects sharp uptick in telecom revenue with rapid increase in data usage, focus to improve rural coverage and launch of 5G, which can increase the power requirement for the towers. In addition, fall in import of industrial batteries is also positive for organized batteries players. Although production/supply-side constraints are a near term challenge, we expect improvement in capacity utilization, stable lead prices, firm pricing environment and favorable product mix would lead to revival in EBITDA margins starting from 2HFY21. Moreover, demand recovery in OEMs and Industrial segments shall also benefit bottom-line.



Outlook


At CMP, the stock trades at 17.5/16x FY22/23E EPS (vs 5-year historical mean of 25), we value the stock Rs.817 (18x FY23E EPS) and maintain our Accumulate rating.


For all recommendations report, click here


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First Published on Aug 9, 2020 09:17 pm
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