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Research
Amara Raja Batteries - Firing on all cylinders - Standard Chartered Securities
Posted On : 2013-08-21 21:39:57( TIMEZONE : IST )
OUTPERFORM, AMRJ IN, CMP INR 255.05, Price Target INR 335.0
- IER launches an ACT call on Amara Raja with a conviction OP rating and a revised PT of INR 335 (from INR 325).
- Catalyst #1: Strong revenue growth in adverse macro-conditions, led by solid replacement demand and deliveries to two-wheeler (2W) OEMs.
- Catalyst #2: Pricing discipline improves earnings visibility, helping allay fears of cost pressures from adverse currency movement. Coupled with new capacity in 2H, it may lead to upside risk to IER's higher-than-consensus earnings estimates.
- The stock looks attractively valued at 10x FY15E PER (25% earnings CAGR over FY13-15E) and 2.5x BV (ROE of 28%).
Growth pillars in place despite adverse macro: IER expects AMRJ's revenue momentum to continue, led by strong replacement demand in autos and telecoms, and new deliveries to 2W OEMs. The full impact should be seen in the next two to three quarters, with ramp-up of supplies to 2Ws and new capacity from 2HFY14. IER forecasts 22% revenue CAGR in FY13-15E (1QFY14: robust growth of 29% y/y).
Industry pricing discipline returns: Industry pricing discipline is evident with two price hikes by both Exide and Amara in the last six months, which improves margin visibility – IER factors in 110bps margin expansion to 15.7% in FY14E. This should, in turn, drive an earnings CAGR of 25% over FY13-15E.
Repeat of 1Q results outperformance on the cards: Led by the two price hikes in the past six months, AMRJ should again post EBITDA margins of c.16% in 2Q. This is likely to drive a consensus earnings upgrade. IER's FY15E earnings forecast is 10% above consensus. However, even their earnings may face upside risk if AMRJ is able to maintain earnings growth at 1Q levels.
Valuations attractive; reiterate Outperform: AMRJ looks attractively valued at 10x FY15E (25% earnings CAGR over FY13- 15E), and 2.5x FY15E BV (ROE: 28%) when compared to its peers. IER maintains Outperform and revises its PT to INR 335 (INR 325 earlier), valued at 13x FY15E earnings (at its average one-year forward PE). IER's bull-case analysis suggests a potential PT of INR 380/share.
