October 30, 2015 / 15:57 IST
> Amara Raja Batteries’ (ARBL) revenues were at Rs 1158 crore (up 8.7% YoY), primarily led by growth in the automotive (both replacement & OEM’s) battery segment. Industrial battery business registered moderate growth due to challenging & competitive market conditions
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> EBITDA margins were at 17.2% (down 24 bps YoY) mainly after gross margins expansion (of 191 bps YoY) was offset by higher employee & other expense. During Q2FY16, average lead prices were down 15.6% YoY to Rs 112/kg)
> PAT grew 22.2% YoY to Rs 122.6 crore vs. estimate of Rs 125.6 crore
> We have revised our revenue estimate lower considering subdued OEM and industrial demand in addition to replacement demand being likely to grow at a slower pace, going forward. However, strong margin expansion may continue, boosting profitability.
Quality play commands richer valuations
ARBL’s performance has continued to be impressive even as the industry leader struggles with consistency in profitability. It has posted consistent performance; strong return ratios (~26% RoE, ~34% RoCE), good earnings visibility and a strong balance sheet (net debt negative). The stock in the past has corrected >15%. Hence, we recommend BUY rating on the stock (earlier HOLD) with a TP of Rs 1000, valuing at 25x FY17E.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. 
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