Accumulate Amara Raja Batteries - Prabhudas Lilladher

Automotive replacement segment likely to grow @ 15-16%: Management is confident of a double-digit growth in the automotive replacement market in FY13E based on robust automobile sales in FY10. AMRJ is expanding its capacity in the four-wheeler automotive segment from 5.6m units to 6.0m units in FY13E.

UPS segment volumes to grow at 15%: AMRJ has gained its market share (which stands at ~33% currently) in this segment at the cost of the importers in the unorganised market. It is expanding its capacity from 1.8m to 3.0m units in FY13E and expects the segment to grow by 15-16%.

Telecom vertical to grow at 6-8% CAGR over the next three years: Overall, the Telecom Operators and Service Providers have shifted to oneon-one negotiations with reliable vendors as against the earlier followed norm of reverse auction mechanism, where the lowest bidders used to get the orders. Currently, it enjoys ~46% market share in the Telecom segment. Management has guided a 6-8% CAGR in volume terms in the telecom vertical.

Reiterate our preference for Amara Raja over Exide; remains our top pick: We have been recommending AMRJ since past one year as our toppick in the auto ancillary space. Given the strong set of numbers and improving business outlook, we reiterate our positive stance on the stock. We expect revenues to grow at a CAGR of 17.9% and net profit to grow at a CAGR of 29.4% for FY12-FY14E period. The stock is currently trading at 12.8x its FY13E EPS and 10.6x FY14E EPS, which in our view is attractive.

Re-rating on the cards; Maintain Accumulate: With the sixth consecutive quarter of outperformance of Amara Raja over Exide, we believe the valuation discount between the two could narrow. We expect the historical valuation discount of AMRJ (~30%) to Exide to narrow, given the consistent performance by the company. Our Target Price of Rs294 is based on 14.0x FY14E EPS (~13% discount to 16.0x FY14E earnings' target multiple for Exide).

Source : Equity Bulls

Keywords