ICICI Direct recommended hold rating on Amara Raja Batteries with a target price of Rs 835 in its research report dated November 12, 2018.
ICICI Direct's research report on Amara Raja Batteries
Amara Raja Batteries’ (ARBL) revenues grew 22.8% YoY to Rs 1,753 crore vs. our estimate of Rs 1,691 crore. Overall volume & price mix was at ~16% & ~7%, respectively. According to the management, its 2-W & 4-W business grew ~13% YoY & ~19% YoY, respectively, while the industrial segment grew ~35% YoY led by telecom, UPS & Railways. The growth in telecom is attributable to low base of last year and is getting stabilised now. Further, exports grew ~40% YoY to ~Rs 150 crore mainly due to higher offtake from Malaysia EBITDA margins contracted 318 bps YoY but expanded 111 bps QoQ to 13.5% vs. our estimate of 14.7%. On a YoY basis, margins were impacted by higher raw material cost (despite average lead price down 2.2% YoY to Rs 148/kg) as its gross margin contracted 309 bps YoY. Further, its cost of sourcing sulphuric acid has increased post closure of the Sterlite plant. The employee cost also surged post higher gratuity cost of Rs 7 crore in Q2FY19. PAT declined 5.5% YoY to Rs 120 crore vs. expectation of Rs 131 crore.
Hence, we maintain our HOLD rating on the stock with a target price of Rs 835, valuing at 21x FY20E EPS of Rs 39.8/share.
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