Accumulate Amara Raja Batteries; target of Rs 800: Emkay

Emkay's research report on Amara Raja Batteries

Amara Raja Batteries reported strong performance for Q2 with 15% beat at the operating level, driven by a strong 32% YoY revenue growth

Management indicates strong ‘H1FY15’ volume growth in all product segments: Telecom/UPS segment grew 29%/20%; Two-wheeler OEM/aftermarket grew 360%/34%; Four-wheeler OEM/aftermarket volumes grew 6%/15% YoY

EBITDA Margins for the quarter came in at 17.4% (-20 bps YoY, +30 bps QoQ) – higher than our estimates of 17.0%

We expect a strong 22% Revenue/PAT CAGR over FY14-FY17 and expect the company to gain market share across segments.

"We have raised our FY15/FY16E EPS by 3% each on higher revenues growth estimate, driven by entry into the inverter battery space. We raise our TP to Rs 800 as we roll-forward to FY17 estimates and as we raise our target multiple to 20x (vs 18x earlier) driven by (a) expectation of a 22% earnings CAGR FY14-17 (b) continued gain in market share across segments (c) strong ~27% ROE. The 20x multiple is also justified by our DCF analysis. Retain our positive stance but downgrade to ACCUMULATE from BUY on richer valuations after the recent run-up. The stock is currently trading at 25x/19x FY16/FY17E EPS", says Emkay Global Financial Services research.

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