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B r a n d , p r o d u c t , c h a n n e l i n p l a c e … s e t t o z o o m !
We met the management of Amara Raja Batteries Ltd (ARBL) to further
our insight about the battery industry and the specific growth plans of
ARBL, the second largest player in the sector. ARBL is the only organised
strong challenger to Exide Industries in the battery making business with
an OEM market share (MS) of ~25%. It has been the dominant player in
the industrial business led by telecom (MS: ~45%) and commercial UPS
segment (MS: ~35%). The company continues to enjoy strong product
developments with technology from JV partner Johnson Controls. ARBL
also enjoys a unique distribution model with two-tier network unlike Exide
Industries (Exide).
ƒ Challenger has strong brand & distribution network
ARBL has strong brand equity in the domestic battery market with
flagship brands like Amaron and Power Zone targeting the urban and
rural markets, respectively. Even with a limited presence in the twowheeler OEM segment, ARBL enjoys ~15% market share. The channel
sales method followed by ARBL is a multi-branded one, which provides
it deeper penetration into the untapped markets.
ƒ Long-term growth driver automotive sales
The ARBL management remains pretty bullish on the long-term growth
prospects of the automotive industry in both the OEMs and replacement
segment. The management believes in improving OEM sales for
stronger long-term replacement demand and is aiming at ~35-40% MS
for the same in the coming years. To further this, it has taken a long
term view on capacity expansion and is aiming to increase capacity in
near future to ~8 million units in both the PV and two-wheeler segment.
ƒ Long-term pricing competition a “No-No”… learning from telecom
We were concerned about any imminent long-term pricing war between
ARBL and Exide. However, the management has dispelled any such
strategy. It believes the margin accretive co-existence of both players is
the way forward and the learning from the telecom debacle post 2008
has led them to the view. The recent price cuts by Exide have been
company and make specific for them and ARBL has not followed suit. It
provides welcome relief to the long-term pricing power of the segment.
View
ARBL is a strong player with strong return ratios, debt-free balance sheet
and cash generating nature of the business. Along with Exide, the stock
remains an attractive proxy play to automotive growth in both the OEM and
the replacement segment. At the CMP of | 210, ARBL is trading at 12.1x
FY11 EPS on a trailing basis, at 2.8x P/BV on FY11 historical book value
while on EV/EBITDA multiple also it is trading at 7.2x on FY11 basis.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
B r a n d , p r o d u c t , c h a n n e l i n p l a c e … s e t t o z o o m !
We met the management of Amara Raja Batteries Ltd (ARBL) to further
our insight about the battery industry and the specific growth plans of
ARBL, the second largest player in the sector. ARBL is the only organised
strong challenger to Exide Industries in the battery making business with
an OEM market share (MS) of ~25%. It has been the dominant player in
the industrial business led by telecom (MS: ~45%) and commercial UPS
segment (MS: ~35%). The company continues to enjoy strong product
developments with technology from JV partner Johnson Controls. ARBL
also enjoys a unique distribution model with two-tier network unlike Exide
Industries (Exide).
ƒ Challenger has strong brand & distribution network
ARBL has strong brand equity in the domestic battery market with
flagship brands like Amaron and Power Zone targeting the urban and
rural markets, respectively. Even with a limited presence in the twowheeler OEM segment, ARBL enjoys ~15% market share. The channel
sales method followed by ARBL is a multi-branded one, which provides
it deeper penetration into the untapped markets.
ƒ Long-term growth driver automotive sales
The ARBL management remains pretty bullish on the long-term growth
prospects of the automotive industry in both the OEMs and replacement
segment. The management believes in improving OEM sales for
stronger long-term replacement demand and is aiming at ~35-40% MS
for the same in the coming years. To further this, it has taken a long
term view on capacity expansion and is aiming to increase capacity in
near future to ~8 million units in both the PV and two-wheeler segment.
ƒ Long-term pricing competition a “No-No”… learning from telecom
We were concerned about any imminent long-term pricing war between
ARBL and Exide. However, the management has dispelled any such
strategy. It believes the margin accretive co-existence of both players is
the way forward and the learning from the telecom debacle post 2008
has led them to the view. The recent price cuts by Exide have been
company and make specific for them and ARBL has not followed suit. It
provides welcome relief to the long-term pricing power of the segment.
View
ARBL is a strong player with strong return ratios, debt-free balance sheet
and cash generating nature of the business. Along with Exide, the stock
remains an attractive proxy play to automotive growth in both the OEM and
the replacement segment. At the CMP of | 210, ARBL is trading at 12.1x
FY11 EPS on a trailing basis, at 2.8x P/BV on FY11 historical book value
while on EV/EBITDA multiple also it is trading at 7.2x on FY11 basis.
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