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Strong quarterly performance
Amara Raja Batteries (ARBL) recorded a 9% growth in sales sequentially driven largely by volume growth across segments. EBITDA margins improved 160bps q-o-q to 17.3% partially due to lower input costs and higher benefits of operating leverage. PAT grew 27% q-o-q to ` 659mln. We believe that company with increased capacity is adequately geared to benefit from the turn in automotive cycle, replacement demand and fast expanding industrial segment. We maintain Accumulate at a target price of ` 305.
Key takeaways from management call
• Sales growth driven by volume growth across segments. UPS segment drive industrial revenues. Telecom segment stable with lead cost increases passed on to customers
• Market share relatively stable, capacity constraints in the UPS segment (93% utilisation) restricting growth
• Q3 average lead cost at $2,360/t and guidance for 4Q is at $2,100-2,200/t
• Capacity utilisation has improved sequentially across segments and positive impact of operating leverage seen
• New capacity on 4W automotive segment (now 5.6mln units) to come in from end FY12 and management expects OEM:replacement ratio to maintain at 33:67
• Capacity expansion in 2W automotive segment (now 5mln units) completed. Sales to 2W OEM to begin in 1Q FY13 and management target to achieve OEM:replacement ratio of 1:1 by FY14. Currently it caters to aftermarket segment
• Will take action on pricing only if Exide, the market leader takes any further corrective action. We do not think any price war will take place
• The company has proposed a greenfield expansion to increase industrial segment capacity with overall capex of ` 1,900mln
Financial Summary
We expect a sales growth CAGR of 23% and EPS CAGR of 30% over FY11-13E. With lead prices below $2,000/t and currency stable we expect margins to be 15.9% and 15.7% in FY12E and FY13E respectively.
Maintain Accumulate at TP ` 305
ARBL is currently trading at 12.0x and 10.0x FY 12E and FY 13E EPS, respectively. ARBL has historically traded at a discount to the market leader Exide and expect that to continue in the near term. However with demand scenario in the industrial telecom segment (>40% of industrial revenues) improving and new capacity to kick in from early FY13 we expect the discount to narrow down. We therefore maintain our Accumulate rating at a target price of ` 319/share implying a P/E multiple of 10.5x FY13E earnings a discount of nearly 40% to Exide.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong quarterly performance
Amara Raja Batteries (ARBL) recorded a 9% growth in sales sequentially driven largely by volume growth across segments. EBITDA margins improved 160bps q-o-q to 17.3% partially due to lower input costs and higher benefits of operating leverage. PAT grew 27% q-o-q to ` 659mln. We believe that company with increased capacity is adequately geared to benefit from the turn in automotive cycle, replacement demand and fast expanding industrial segment. We maintain Accumulate at a target price of ` 305.
Key takeaways from management call
• Sales growth driven by volume growth across segments. UPS segment drive industrial revenues. Telecom segment stable with lead cost increases passed on to customers
• Market share relatively stable, capacity constraints in the UPS segment (93% utilisation) restricting growth
• Q3 average lead cost at $2,360/t and guidance for 4Q is at $2,100-2,200/t
• Capacity utilisation has improved sequentially across segments and positive impact of operating leverage seen
• New capacity on 4W automotive segment (now 5.6mln units) to come in from end FY12 and management expects OEM:replacement ratio to maintain at 33:67
• Capacity expansion in 2W automotive segment (now 5mln units) completed. Sales to 2W OEM to begin in 1Q FY13 and management target to achieve OEM:replacement ratio of 1:1 by FY14. Currently it caters to aftermarket segment
• Will take action on pricing only if Exide, the market leader takes any further corrective action. We do not think any price war will take place
• The company has proposed a greenfield expansion to increase industrial segment capacity with overall capex of ` 1,900mln
Financial Summary
We expect a sales growth CAGR of 23% and EPS CAGR of 30% over FY11-13E. With lead prices below $2,000/t and currency stable we expect margins to be 15.9% and 15.7% in FY12E and FY13E respectively.
Maintain Accumulate at TP ` 305
ARBL is currently trading at 12.0x and 10.0x FY 12E and FY 13E EPS, respectively. ARBL has historically traded at a discount to the market leader Exide and expect that to continue in the near term. However with demand scenario in the industrial telecom segment (>40% of industrial revenues) improving and new capacity to kick in from early FY13 we expect the discount to narrow down. We therefore maintain our Accumulate rating at a target price of ` 319/share implying a P/E multiple of 10.5x FY13E earnings a discount of nearly 40% to Exide.
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