Amara Raja Batteries 3QFY2014 performance highlights and results update
January 28, 2014, Tuesday, 10:57 GMT | 05:57 EST | 16:27 IST | 18:57 SGT
Amara Raja Batteries (AMRJ) reported a strong set of 3QFY2014 results, beating our as well as consensus estimates, led by a robust operating performance. The company’s results have been commendable given that the market leader, Exide Industries (EXID), witnessed a sharp decline in its top-line and deterioration in EBITDA margins during 3QFY2014. AMRJ’s performance for the quarter was driven by a strong double digit growth in the automotive replacement and telecom battery segments and pricing action taken over the past one year. The company recently announced a price cut of ~4% in the four-wheeler replacement segment (in January 2014), following a similar move by EXID, so as to maintain its pricing differential intact. We expect the company to sustain its growth momentum going ahead, led by widening reach, strong product offerings and increasing capacity. We maintain our Accumulate rating on the stock.
Strong performance continues: For 3QFY2014, AMRJ’s top-line surged 13.4% yoy (6.9% qoq) to Rs.863cr, driven by strong growth in the automotive and telecom replacement segments and pricing action over the last one year. According to the Management, while the two-wheeler and four-wheeler replacement battery segments grew strongly, the OEM segment continued to witness slowdown in sales. In the industrial segment, the telecom vertical sustained its strong growth momentum, led by a double digit volume growth, while the UPS segment witnessed slowdown in sales. The EBITDA margin improved 141bp yoy (flat qoq) to 17.4%, owing to a superior product-mix, price increases and operating leverage benefits. As a result, the operating profit surged 23.4% yoy (5.9% qoq) to Rs.150cr. Led by a robust operating performance, the net profit grew 17.4% yoy to Rs.95cr. On a sequential basis, the net profit stood flat, as the tax rate increased to 33% as opposed to 29.4% in 2QFY2014.
Outlook and valuation: Due to the strong operating performance over the last several quarters, AMRJ has narrowed the valuation gap to the market leader, Exide, from ~50% to ~15% currently (one year forward basis). We expect the company to sustain its strong operating performance and thereby its outperformance relative to Exide, aided by sustained growth in the automotive and industrial battery volumes. At Rs.334, AMRJ is trading at 13.9x FY2015E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.362 valuing the stock at 15x FY2015E earnings.