Neutral Amara Raja; target of Rs 1030: Motilal Oswal

Motilal Oswal's research report on Amara Raja

We met with the management team of Amara Raja to get an update on the business. In the lead-acid business, 1) OE demand has picked up after GST rate cuts, while replacement is yet to pick up; 2) lead costs, excl. currency depreciation, remain stable QoQ; 3) the tubular battery plant can drive 300-400bp margin improvement for that segment; 4) the recycling plant can help save costs by 30-40bp; 5) power cost is likely to remain elevated for one more quarter before stabilizing. In the New Energy business, 1) the combined investment for the first gigafactory (2GWh), the R&D plant and the customer qualification plant stands at INR25b (invested INR12b so far and will invest the balance in the next 12 months); 2) based on their progress, Amara would decide on further funding avenues for the entire project cost of about INR60-70b for 16GWh capacity; 3) this business can deliver 10-11% EBITDA margin at a scale of about 10 GWhr; 4) apart from Ather Energy, which has partnered with Amara for its cell requirements, Amara is currently working on few other RFQs.

Outlook

While the market is optimistic about Amara’s li-ion initiative, we are cautious about its potential returns. We maintain a Neutral rating with a TP of INR1,030, based on 18x Jun’27E EPS.

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