Accumulate Amara Raja; target of Rs 960: Geojit BNP Paribas

Amara Raja Batteries Ltd (ARBL) is India’s second largest Lead-acid battery manufacturer. Its segment includes automotive and industrial lead acid batteries, with market leadership in Telecom and UPS segment.  We expect the Automotive demand to strengthen during FY17E supported by better monsoon and implementation of seventh pay commission. New capacity addition and newer verticals like Home UPS, Solar and Motive power will improve its earning. FY16 revenue grew by 11.4% YoY which was marginally below our estimates. Positively, EBITDA margin improved by 60bps YoY to 17.4%.  Demand from OEMs (Original equipment manufacturers), Industrial and replacement sales witnessed an improvement in Q4FY16. We lower our FY17E revenue estimate by 6% but revise upwards our EBITDA margin estimate by 20bps to 17.7%.

We expect revenue & PBT will grow by 30% & 19% CAGR over FY16-FY18E driven by healthy order book & cost control. Sound balance sheet and the earnings visibility keep KNR in premium valuation. We value standalone business at a PE of 11x FY18E earnings and BOT project at 1x P/B to arrive at SOTP price target of Rs642 and change our rating from BUY to Accumulate. For all recommendations, click hereDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.