Buy Amara Raja Batteries; target of Rs 908: Cholamandalam Securities

Cholamandalam Securities' research report on Amara Raja Batteries

Amara Raja Batteries Ltd (ARBL), a Joint Venture between Amara Raja Group & Johnson Controls, each holding 26% stake, is the second largest battery manufacturer in India. It is the largest manufacturer of standby valve regulated lead acid (VRLA) batteries in the Indian Ocean Rim region and manufactures automotive batteries for all vehicle segments. With a production capacity of 18mn units (Automotive: 19 mn & Industrial (MVRLA) - 3.6 mn), ARBL has built a strong pan-India distribution network of 30,000 retailers and 274 franchisees (Amaron network) & 900 retailers (Powerzone network).

Outlook

At CMP, the stock is trading at 22.6X FY19E. We maintain a BUY rating on the stock with a target price of INR 908 assigning 26X FY19E. Risks: Uptrend in lead prices would negatively impact margins.

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