Angel Broking neutral on Amara Raja Batteries

Angel Broking's report on Amara Raja Batteries

Amara Raja Batteries Ltd (ARBL)’s 1QFY2016 results have come in in line with our estimates. Amara Raja Batteries continues to outpace the market leader Exide Industries. For the quarter, ARBL’s revenues, expectedly grew by 11% yoy to `1,145cr. Market share gains in the automotive OEM segment and robust aftermarket sales continue to boost the company’s top-line. The company’s operating margin improved by 110bp yoy to 18.2% (in line with our estimate of 18.6%) on account of soft raw material (lead) prices. Given the robust operating performance, the net profit, at `124cr, grew strongly by 17% yoy, meeting our expectations.

Outlook and Valuation: ARBL is likely to continue gaining market share in the battery segment. The strategy followed by automotive OEMs of sourcing from multiple vendors as against having a single vendor is likely to benefit ARBL. ARBL has already received approval from new OE customers (recently got approval  from Bajaj Auto, Royal Enfield and M&M) which is likely to result into increased revenues. We expect ARBL to record a healthy top-line CAGR of 21% over FY2015 to FY2017. Also given the softness in lead prices, the margins are expected to remain at elevated levels. We expect ARBL to clock 27% earnings CAGR over the next two years. However, ARBL is trading at an expensive valuation of 33.4x and 26.5x its estimated FY2016 and FY2017 earnings respectively, factoring in most of the positives. Hence, we have a Neutral rating on the stock, says Angel Broking research report.For all recommendations, click here Disclaimer: 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.

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