Reduce Amara Raja Batteries; target of Rs 700: ICICI Direct

ICICI Direct's research report on Amara Raja Batteries

Amara Raja Batteries (ARBL) reported steady Q4FY21 results. Net sales rose 33% YoY, 7.3% QoQ to Rs 2,103 crore. As per management commentary, demand during the quarter was strong across all automotive and industrial segments. Margins were at 15.1% (down 50 bps QoQ) amid 130 bps gross margin contraction and increase in other expenses on percentage of sales basis. PAT grew 39% YoY (down 2% QoQ) to Rs 189 crore. ARBL declared a total dividend of Rs 11/share for FY21.

Outlook

We expect 7.4% FY21-23E PAT CAGR for ARBL. While the company currently trades at reasonable valuations, we maintain our REDUCE rating, valuing it at Rs 700 i.e., 16x FY23E EPS (earlier target price Rs 800) on account of (a) expected softening of margin profile and (b) imminent EV threat.

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