Hold Amara Raja Batt; target of Rs 925: ICICIDirect

ICICIDirect's research report on Amara Raja BattAmara Raja Batteries’ (ARBL) revenues grew 14.9% YoY to | 1,225 crore vs. our estimate of | 1,185 crore. The growth was led by both automotive (replacement & OEMs) and industrial battery segment. The quarter was mainly driven by strong volumes of 4-W batteries in the replacement segment and higher demand from the telecom sector (primarily due to data growth) in the industrial space EBITDA margins were at 18.7% (up 178 bps YoY and 148 bps) mainly due to gross margin expansion (of 366 bps YoY & 246 bps QoQ). Part of this benefit was offset by higher employee & other expense PAT grew 33.1% YoY to | 136 crore vs. estimate of | 126 crore ARBL is likely to continue its growth momentum. However, margins may get softer assuming higher lead prices, going ahead. Valuations also look stretched ARBL’s performance continues to be impressive even as the industry leader struggles with consistency in profitability. It posted a consistent performance, strong return ratios (~23% RoE, ~31% RoCE), good earnings visibility & a strong balance sheet (net debt negative). However, ARBL is trading at huge premium (>30% compared to EIL). Hence, we have HOLD rating on the stock with a TP of | 925, valuing at 22x FY18E.

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