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Amara Raja Batteries 3QFY2012 performance highlights and results update

Contributed by Angel Broking

Amara Raja Batteries (AMRJ) reported a strong performance for 3QFY2012, driven by double-digit volume growth in the industrial (telecom and UPS) and automotive (led by replacement demand) battery segments. We revise our earnings estimates upwards for FY2012/13E by 17.5%/14.2% due to upward revision in the top line and operating margin. Due to the recent run-up in the stock price (~35% in the past month), we recommend Accumulate on the stock.

Strong operating performance despite increased competitive activity: AMRJ posted robust 44.1% yoy (9.1% qoq) growth in its top line to Rs.613cr, led by double-digit volume growth in the industrial and automotive battery segments. EBITDA margin witnessed a 130bp yoy (165bp qoq) expansion to 17.3%, led by a 240bp and 110bp yoy contraction in other expenditure and staff cost as a percentage of sales, respectively. Raw-material cost as a percentage of sales, however, increased by 220bp yoy despite a decline in lead prices. Net profit jumped by 66.3% yoy (27.1% qoq) to Rs.66cr, driven by better-than-expected operating performance and a significant increase in other income (Rs.5cr as against Rs.2cr and Rs.1cr in 3QFY2011 and 2QFY2012, respectively). Meanwhile, the company has approved a Rs.190cr capacity expansion plan for setting up a new facility.

Outlook and valuation: We estimate AMRJ’s top line to witness a CAGR of ~24% over FY2011–13E, leading to a ~25% CAGR in its net profit, largely aided by sustained growth in auto and industrial battery volumes. We believe AMRJ is well placed to tap the rising demand from the auto and industrial segments, with its innovative products, competitive pricing, increased capacity and widening reach. AMRJ is trading at 10.2x FY2013E earnings. We recommend Accumulate on AMRJ with a target price of Rs.299.