Amara Raja Batteries - 4QFY2013 Result Update - Angel Broking

For 4QFY2013, Amara Raja Batteries (AMRJ) posted lower-than-expected results on the bottom-line front despite a strong growth in the top-line. The performance was impacted due to operating margin pressures (due to increase in lead prices and higher share of traded goods) and also on account of higher depreciation and tax expense. AMRJ has announced an ambitious capital expenditure plan of Rs. 760cr to ease the capacity constraints across the product segments 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. While we broadly maintain our revenue estimates for FY2014/15, we revise our earnings estimates downwards slightly by 6.7%/6.4% to factor in the cost pressures going ahead. We maintain our Buy rating on the stock.

Poor 4QFY2013 performance: For 4QFY2013, the top-line posted a robust growth of 19.4% yoy (5.7% qoq) to Rs. 804cr, broadly in-line with our estimates. We believe this was driven by a strong volume growth in the four-wheeler and two-wheeler replacement battery segments. The industrial battery segment too registered a strong revenue growth largely on account of the replacement demand in the telecom battery segment. The EBITDA margins deteriorated by 209bp on a sequential basis to 13.9%, against our expectations of 14.5%, due to increase in lead prices leading to a 272bp increase in raw-material expenditure as a percentage of sales. Additionally, higher contribution of traded goods (due to capacity constraints) which garners lower margins also impacted the performance. Led by a weak operating performance, impairment charge of Rs. 8cr and an additional depreciation expense of Rs. 5cr, net profit declined 26.6% qoq to Rs. 59cr, which was lower than our estimates of Rs. 76cr.

Outlook and valuation: Due to the strong operating performance over the last few quarters, AMRJ has narrowed the valuation gap to the market leader, Exide from 35-40% to ~10% currently (one year forward basis). We expect the company to sustain its performance going ahead and estimate it to post a revenue and net profit CAGR of ~15% and ~10% over FY2013-15E respectively, aided by sustained growth in the automotive and industrial battery volumes. The stock has corrected ~15% after the lower-than-expected 4QFY2013 results. At Rs. 248, AMRJ is trading at 12.2x FY2015E earnings. We maintain our Buy rating on the stock with a target price of Rs. 285.

Source : Equity Bulls

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