Amara Raja Batteries Ltd - Charging Ahead; Result Update Q3FY15 :: Edelweiss

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Amara Raja Batteries Ltd. (ARBL) reported Q3FY15 PAT of INR 102 cr, in-line with our estimate. The company registered a sales growth of 23% YoY, led 30% YoY volume growth in industrials, 56% growth in 2W and 12% in 4W batteries. As per our channel check AMRJ has not taken any price action during the quarter post 3% cut during last quarter. The company’s Telecom batteries capacity is 95% utilized in just three months of addition. The management expects to commission 4 wheeler capacity during this quarter and Tubular capacity (Home UPS) by Dec-15. Management is confident to maintain current EBITDA margin run rate of ~17%.We have a HOLD rating on the stock.

Sales growth at 24% YoY; Led by 2 wheelers and Industrials growth

ARBL has reported sales growth of 24%YoY led by 56% YoY growth in 2 wheeler batteries, 31% YoY growth in 4 wheeler and 12% YoY growth in 4 wheeler batteries. Supplies to Honda will meet 100% of their requirement for their new Karnataka plant, which initially at full capacity will require 1.2mn batteries. Quick Recharge series (QRS) of telecom batteries have become a preferred product for telecom applications and the management indicated that one customer has completely switched to QRS batteries due to lower downtime, which leads to higher realisations with no competition in similar product offerings. This is evident from the fact that telecom battery utilization has reached 95% in just three months since addition of capacity.

EBITDA margin at ~17%; Could increase due to better mix

EBITDA margins for Q3FY15 stood at 16.9%, up by 150bps QoQ led by operating leverage. Gross margins were higher by 70 bps despite rising mix of OEM sales and higher lead price in Q2FY15. As per our channel checks AMRJ has not taken any price cuts while ARBL cut battery prices by 3% in May 2014 on the back of rupee appreciation and in response to Exide price cut. We believe that higher share of QRS batteries and cost engineering in telecom batteries led to telecom battery margins of 15% Vs traditional 12%, which will sustain going forward. With tubular capacity coming on-stream from Dec-15 AMRJ margins will improve due to 1) reduction in traded batteries which have lower margins and 2) Home UPS has~20% margins.

4-W capacity to start soon; Inverter capacity to commission by Dec-15

ARBL has commissioned its fully-integrated MVRLA and Large VRLA battery plant at Chittoor, Andhra Pradesh during Q4FY14. Telecom capacity has reached 95% utilization since its commissioning in Feb 2014, representing robust demand for the company’s product. The management is planning to expand telecom battery (Large VRLA). 4-wheelers capacity will be commissioned soon and will add 2.25mn batteries, taking overall capacity to 8.25 mn. Additionally AMRJ is adding tubular capacity for manufacturing Home UPS/inverters with capex of INR 500 cr (revenue potential of INR 1000 cr). This capacity is expected to be on-stream by Dec-15.

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https://www.edelweiss.in/research/Amara-Raja-Batteries-Ltd--Charging-Ahead;-Result-Update-Q3FY15/10005499.html