Reduce Amara Raja Batteries; target of Rs 715: ICICI Direct

ICICI Direct recommended reduce rating on Amara Raja Batteries with a target price of Rs 715 in its research report dated November 05, 2020.

Broker Research

November 07, 2020 / 11:53 IST

ICICI Direct's research report on Amara Raja Batteries

Amara Raja Batteries (ARBL) reported healthy Q2FY21 results. Net sales rose 14.2% YoY to Rs 1,936 crore. As per management commentary, growth was attributable to all-round traction across business segments in automotive (OEM, replacement, exports) and industrial operations (telecom, commercial UPS). EBITDA in Q2FY21 was at Rs 340 crore with corresponding margins at 17.6% (up 40 bps YoY) largely tracking lower other expenses. PAT declined 8% YoY to Rs 201 crore, suffering from exceptionally low tax rate in base quarter. PBT for the quarter was up 17% YoY at Rs 271 crore.

Outlook

We introduce FY23E estimates and expect sales, PAT CAGR at 5.9%, 3.4%, respectively, over FY20-23E. We value ARBL at Rs 715 i.e. 17x P/E on FY22E & FY23E average EPS of Rs 42; ~15% discount to its long period averages amid ABRL’s product category susceptible to EV risk. We downgrade the stock from HOLD to REDUCE. Capital efficient business model in terms of RoCE at ~18-20% and positive consistent CFO provide some comfort.

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