Buy Amara Raja Batteries; target of Rs 954: Edelweiss

Edelweiss' research report onAmara Raja Batteries

Amara Raja Batteries’ (AMRJ) Q4FY17 revenue grew 17% YoY, in line with estimate and FY17 revenue jumped 15% led by industry-leading growth in automotive business. However, gross margin plunged 580bps YoY due to surge in lead prices (30% YoY), leading to EBITDA falling 4% (5% below estimate). Management is addressing rise in lead prices through pricing in Q1FY18.

Outlook

Riding sustained gains in replacement segment from unorganised players further bolstered by GST (positive for sector), deeper OEM penetration and strong scale up in home UPS batteries (strong opportunity in e-rickshaws, solar and motive segments), we maintain ‘BUY’ with target price of INR 954. At CMP, the stock is trading at 25.7x FY18E and 22x FY19E EPS.

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