Hold Amara Raja Batteries; target of Rs 550: Emkay Global Financial

Emkay Global Financial's research report on Amara Raja Batteries

AMRJ’s Q2FY23 EBITDA grew by 34% YoY (3-yr CAGR: 7%) to Rs3.6bn, coming in 21% above our estimates as benefits from easing commodity prices and product price increases were higher than our expectations. Revenue increased by 19% (3-yr CAGR: 17%) to Rs27bn, standing at a 5% beat due to higher than estimated growth in the auto segment. Factoring-in better revenue & margin assumptions, we increase our FY23- 25E EPS by 2-8%. Despite losing out in the PLI-ACC scheme, AMRJ plans to commence construction work on lithium-ion cell manufacturing facility and production may commence after two years.

Outlook

However, as we do not see any near-term triggers, we retain HOLD with TP of Rs550/share, based on 11x Dec-24E EPS (Sep-24E earlier). Key downside risks: Lower-than-expected demand in key geographies, increased competitive intensity, and adverse movement in commodity prices/currency rates.