Amara Raja Batteries - 3QFY2013 Result Review - Angel Broking

Amara Raja Batteries (AMRJ) reported strong results for 3QFY2013 with top-line and bottom-line performance beating our estimates yet again. AMRJ has announced a capital expenditure plan of Rs.750cr over the next two years to ease the capacity constraints that it is facing currently. We expect the company to sustain its growth momentum going ahead, led by widening reach, strong product offerings and increasing capacity. Further, price hike of ~4% in the replacement segment should enable the company to offset the impact of the recent surge in lead prices. We revise our revenue and earnings estimates upwards to factor in the strong operating performance during the quarter. Nevertheless, due to limited upside from the current levels we recommend an Accumulate rating on the stock.

3QFY2013 performance beats estimates: For 3QFY2013, AMRJ posted a robust top-line growth of 23.8% yoy (5.6% qoq) to Rs.759cr led by strong double digit revenue growth in the automotive replacement (four-wheeler as well as two-wheeler) and industrial (telecom and UPS) battery segments. However, depressed OEM demand and capacity constraints for four-wheeler batteries capped further growth in the top-line. On the operating front, margins remained stable on a sequential basis and stood at 16% as raw-material expense for the company remained stable despite increase in lead prices. On a yoy basis though, margins declined 130bp mainly on account of 200bp increase in other expenditure as a percentage of sales which could possibly be on account of higher power and advertising expenses. Led by strong operating performance and higher other income, net profit registered a strong 22.7% yoy (flat qoq) growth to Rs.81cr.

Outlook and valuation: Due to the strong operating performance over the last seven quarters, AMRJ has closed the valuation gap to the market leader - Exide; both the companies are now trading at similar PE multiples (one year forward basis). We expect the company to sustain its performance going ahead and estimate AMRJ to post a strong revenue CAGR of ~21% over FY2012-14E, leading to an ~30% CAGR in its net profit, aided by sustained growth in the automotive and industrial battery volumes. At Rs.308, AMRJ is trading at 14.3x FY2014E earnings. We recommend an Accumulate rating on the stock with a target price of Rs.323, valuing the stock at 15x (in-line with Exide) FY2014E EPS.

Source : Equity Bulls

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