Valuation rockets in auto proxy play! • Amara Raja Batteries :: ICICI Securities, report

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

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Superb run continues…Uninterrupted! • Amara Raja Batteries (ARBL) :: ICICI Securities, PDF link

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Amara Raja Batteries Replacement demand benefit; Buy :: Anand Rathi

Amara Raja Batteries
Replacement demand benefit; Buy
Key takeaways
Decent performance likely in 3QFY14. Amara Raja Batteries (ARB) is
expected to report decent performance in 3QFY14 on its sustained leadership
in the telecom and UPS segments as well as replacement demand. This will
offer some stability to the automotive segment. We expect 12.7% yoy sales
growth, to `8.6bn, and 15.3% yoy EBITDA growth, to `1.4bn; EBITDA
margin is expected to be 16.4% (lower 80bps qoq, higher 40bps yoy). Backed
by decent EBITDA, adjusted profit growth is expected to be 13.6% yoy, to
`919m.
Auto replacement, industrials driving growth. As in 2QFY14, ARB’s
revenue growth in 3QFY14 too is expected to be driven by double-digit
growth in auto-replacement demand and the industrial segment. However,
auto OEM and home-UPS trading businesses is expected to be sluggish due
to lower auto demand and mild summer/good monsoons, respectively.
ARB’s enhanced two-wheeler capacities are expected to come on-stream in
4QFY14. This would not only help it grow its OEM business in this segment,
but also tap replacement demand. The expanded capacities for medium and
large VRLA batteries are also expected to commence operations in 4Q.
Our take. Competitive intensity in the industry is likely to increase with
continued weakness in OEM demand. However, with a good product range,
greater replacement exposure and decent industrial demand, ARB could
outperform peers in the auto-ancillary segment. The stock had stagnated in
1HCY13 after a re-rating in CY12 and has, thereafter, put up a better
performance. We maintain Buy, with target price of `367. At the ruling price,
it trades at 13.7x FY15e EPS. Risks. Keener competition, input cost rise,
valuations at a substantial premium to its past five-year average of 9.1x.

Amara Raja Batteries: Buy :Business Line

Outlook-Amara Raja Batteries, Nelco, Neyveli Lignite, DCB, Hero Honda, Strides Arcolab ::Business Line

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Please share your technical view on Amara Raja Batteries bought at Rs 207.

Kaushalendra Pratap Singh

Amara Raja Batteries (Rs 284.3): Amara Raja Batteries ceased its upward charge in January this year when it reversed lower from the peak at Rs 327. This decline ended after the stock lost 23 per cent from this peak with the bottom at Rs 249.

The significant point to note here is that the stock retraced around 30 per cent of the rally from the February 2011 low, during this correction. The stock has significant long-term support in the zone between Rs 230 and Rs 250. Long-term investors can hold the stock as long as it trades above Rs 230.

Sideways movement in the zone between Rs 230 and Rs 330 is possible for a few more months but this is conducive for the stock’s long-term prospects. It will imply that the stock could move beyond Rs 350 over the long-term.

Long-term supports below Rs 230 are at Rs 200 and Rs 170.

Please advise on the medium- and long-term outlook of Nelco. Can these be bought at current levels?

Anil

Nelco (Rs 42.1): The medium as well as the long-term trend in Nelco are currently down. The stock is, however, halting above key long-term support around Rs 40. Investors with a greater penchant for risk can buy the stock at these levels with stop-loss at Rs 36. Fresh purchases should, however, be avoided on a breach of this level since the target on a breach of this support is quite some way off, at Rs 21.

Key medium-term resistance is placed at Rs 65. Investors can offload part of their holding if the stock is unable to move beyond this level. Medium-term view will turn positive only on a close above Rs 80.

Kindly give your view on Neyveli Lignite Corporation bought at Rs 108 and Development Credit Bank at Rs 52. I can hold the stocks for six months.

P.S.R. Murthy

Neyveli Lignite Corporation (Rs 74.8): The trends along all time-frames are down for Neyveli Lignite Corporation. Investors can, however, draw solace from the fact that the stock is now close to its key support zone around Rs 70. This level has cushioned the stock twice already since November 2011.

Investors can, therefore, hold the stock only as long as it trades above Rs 60.

If the stock breaches this level emphatically and closes below it on a weekly basis, it will imply that the stock is heading lower to the October 2008 trough at Rs 44.

Medium-term resistances are at Rs 90 and Rs 110. The trend along this time-frame will turn positive only on a close above Rs 110.

Failure to do so will imply that the stock will continue to be under pressure. Targets on move above Rs 110 are Rs 124 and Rs 136.

Technicals-Amara Raja Batteries, Nelco, Neyveli Lignite, DCB, Hero Honda, Strides Arcolab ::Business Line

�� -->

Please share your technical view on Amara Raja Batteries bought at Rs 207.

Kaushalendra Pratap Singh

Amara Raja Batteries (Rs 284.3): Amara Raja Batteries ceased its upward charge in January this year when it reversed lower from the peak at Rs 327. This decline ended after the stock lost 23 per cent from this peak with the bottom at Rs 249.

The significant point to note here is that the stock retraced around 30 per cent of the rally from the February 2011 low, during this correction. The stock has significant long-term support in the zone between Rs 230 and Rs 250. Long-term investors can hold the stock as long as it trades above Rs 230.

Sideways movement in the zone between Rs 230 and Rs 330 is possible for a few more months but this is conducive for the stock’s long-term prospects. It will imply that the stock could move beyond Rs 350 over the long-term.

Long-term supports below Rs 230 are at Rs 200 and Rs 170.

Please advise on the medium- and long-term outlook of Nelco. Can these be bought at current levels?

Anil

Nelco (Rs 42.1): The medium as well as the long-term trend in Nelco are currently down. The stock is, however, halting above key long-term support around Rs 40. Investors with a greater penchant for risk can buy the stock at these levels with stop-loss at Rs 36. Fresh purchases should, however, be avoided on a breach of this level since the target on a breach of this support is quite some way off, at Rs 21.

Key medium-term resistance is placed at Rs 65. Investors can offload part of their holding if the stock is unable to move beyond this level. Medium-term view will turn positive only on a close above Rs 80.

Kindly give your view on Neyveli Lignite Corporation bought at Rs 108 and Development Credit Bank at Rs 52. I can hold the stocks for six months.

P.S.R. Murthy

Neyveli Lignite Corporation (Rs 74.8): The trends along all time-frames are down for Neyveli Lignite Corporation. Investors can, however, draw solace from the fact that the stock is now close to its key support zone around Rs 70. This level has cushioned the stock twice already since November 2011.

Investors can, therefore, hold the stock only as long as it trades above Rs 60.

If the stock breaches this level emphatically and closes below it on a weekly basis, it will imply that the stock is heading lower to the October 2008 trough at Rs 44.

Medium-term resistances are at Rs 90 and Rs 110. The trend along this time-frame will turn positive only on a close above Rs 110.

Failure to do so will imply that the stock will continue to be under pressure. Targets on move above Rs 110 are Rs 124 and Rs 136.

Amara Raja Batteries- Results above estimates on higher margins:: Nomura

Above or below expectations?
AMRJ reported another strong set of results. 3QFY13 PAT came in at
INR 809mn, which was 16% ahead of our estimates (INR 694mn)
and 7% ahead of consensus (INR 757mn). EBITDA margins came in
at 16% while we were expecting 14.4%. The beat is led by lower than
expected RM/sales (100 bps) and lower other expenses/sales (60 bps).

Query Corner:: Omaxe, Unitech, Amara Raja Batteries, Firstsource Solutions, Orient Paper, JSW Energy: Business Line

Amara Raja Batteries: Buy :: Business Line

Amara Raja Batteries :: Prabhudas Lilladher MID-CAP top pick

Fundamentals intact for the battery industry: We believe that the fundamentals
of the battery industry remains strong and we continue to remain positive on both
the battery companies. Post >25% YoY growth in FY10 and FY11 each, we expect
strong traction in high margin replacement segment (with sufficient pass-on
ability). Shift of shares from unorganized to organized within the replacement
market due to obligation on Exide/ARBL to procure a worn-out battery (source of
lead for unorganized segment) for every new battery sold. Shift to VRLA
technology in two-wheeler batteries is difficult to manufacture for the
unorganized players
Automotive Segment: 65% of automotive business comes from the replacement
market in terms of volume and about 35% comes from OEMs. In revenue terms, it
would be around 28% OEMs and the balance comes from the replacement
markets. The replacement market includes two brand sales which are ‘Amaron’
and ‘Power Zone’ as well as some private label opportunities.
Industrial Battery segment volumes up 15%: Industrial segment registered a
volume growth of 15%+ amidst very competitive market conditions. AMRJ has
gained market share in the both the segments of Telecom and UPS. AMRJ has
increased its market share to ~33% currently in UPS segment at the cost of the
importers in the unorganized market. With China levying a 17.5% export tax on
lead and lead products and rupee depreciating, it is unviable for the traders to
import the UPS batteries. This, together with higher demand in the commercial
UPS segment, augurs well for AMRJ.
Telecom vertical to grow at 6‐8% CAGR over next three years: Overall, the
Telecom Operators and Service Providers have shifted to one-on-one negotiations
with reliable vendors as against the earlier followed norm of reverse auction
mechanism, where the lowest bidders used to get the orders.
Outlook & Valuation: AMRJ has maintained a strong balance sheet, with the
return ratios in excess of 24% for the past few years. We expect revenues to grow
at a CAGR of 15.1% and net profit to grow at a CAGR of 22.2% for FY12-FY14E
period. The stock is currently trading at 11.9x its FY13E EPS and 10.2x FY14E EPS,
which in our view is attractive. We maintain our ‘Accumulate’ rating on the stock.
Our revised Target Price of Rs417 is based on 11.0x FY14E EPS (~26% discount to
15x FY14E earnings target multiple for Exide).

Amara Raja Batteries- Industrial segment to drive growth:: Prabhudas Lilladher,

We had a concall with the CFO – Mr. Suresh Kalyan of Amara Raja Batteries (AMRJ)
to get an update on their business. The management guided for a double-digit
volume growth, with an EBITDA margin of 14-15% in FY13E. According to them, the
automotive replacement segment is likely to grow by 12-14%, whereas the UPS
segment is likely to grow at 15% in FY13E. The company has upped its capex
guidance to Rs2.2bn for FY13E. The following are the key highlights of our
interaction:

PL INDIA: Amara Raja Batteries - Industrial segment to drive growth - Accumulate

Amara Raja Batteries                  Accumulate          

Company Update - Industrial segment to drive growth

We had a concall with the CFO – Mr. Suresh Kalyan of Amara Raja Batteries (AMRJ) to get an update on their business. The management guided for a double-digit volume growth, with an EBITDA margin of 14-15% in FY13E. According to them, the automotive replacement segment is likely to grow by 12-14%, whereas the UPS segment is likely to grow at 15% in FY13E. The company has upped its capex guidance to Rs2.2bn for FY13E. The following are the key highlights of our interaction:

AMARA RAJA BATTERIES BULLISH Time Horizon : 0-3 Months Buy in the Range of Rs.294-302 ::Angel Broking

Result Update - Q3FY12: Amara Raja Batteries: MSFL Research

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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.

52 Week Blockbuster: Amara Raja Batteries ::Business Line,

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Buy Amara Raja Batteries; Target : Rs 234 :: ICICI Securities,

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The time for the challenger has come…
Amara Raja Batteries (ARBL) is the second largest battery maker in India
with strong credentials to challenge Exide industries’ dominance in the
lucrative auto-ancillary segment. ARBL commands a market share of
(~25%) in the OEM auto space and ~16% in the replacement segment.
In the industrial segments, it commands an overall market share of
~35% led by telecom and commercial UPS segment. We are firm
believers of the long term automotive story, which is expected to fuel a
CAGR sales growth of ~16% over FY11-14E. Even industrial demand is
expected to grow in the commercial power supply segment. On the
softer points, strong brand franchise and efficient two-tiered dealer
network provides a strong edge in terms of barriers to entry. We find
the battery business at the most attractive on a longer term among
other auto-ancillary businesses. Margins for ARBL are expected to
improve with higher aftermarket sales and operating leverage coupled
with stable lead prices. We estimate revenues and PAT will grow at
~22% CAGR over FY11-13E to ~| 2638 and ~| 222 crore, respectively.
We are initiating coverage on ARBL with a BUY rating.
Auto-replacement to be game changer
The domestic auto sector has entered a structural bull run on the back of
low penetration and growing income levels. We estimate the OEM
demand will reach ~26 million units in FY14E with a CAGR of ~13.5%.
Another key point is the shift of the total industry towards electric start
(two-wheelers the last entrant) variants leading to higher usage and lower
average battery life. Both these factors combined would help in ushering
in a new wave of the replacement cycle, which we estimate will grow at
~18.7% CAGR FY11-14E to ~37 million units.
Aggressive entry into OEMs along with unique distribution to bear fruit
ARBL has expanded capacities to set up dedicated channels for OEMs like
HMSI, Honda and Bajaj Auto, thereby providing strong dedicated lines of
revenue. This, coupled with the unique two-tiered franchised distribution
model will help in deeper penetration and improved after market service
coupled with more replacement sales opportunities for ARBL.
Valuation
At the CMP of | 203, Amara Raja is trading at 9.6x FY12E EPS of | 20.1
and 7.8x FY13E EPS of | 26.0. We have valued the company at 9x its
FY13 EPS of | 26.0 (~35% discount to Exide Industries’ core business
multiple) to arrive at a target price of | 234 with an upside potential of
15%. We are initiating coverage on the stock with a BUY rating.

Amara Raja Batteries - 2QFY2012 Result Update:: Angel Broking

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Amara Raja Batteries (AMRJ) reported robust 2QFY2012 results, which came in
ahead of our estimates, driven by strong growth in the industrial battery segment
and stable performance in the auto replacement segment. We revise our earnings
estimates marginally upwards to factor in the company’s strong performance
during the quarter. We maintain our Buy rating on the stock.
Strong operating performance despite increased competitive activity: AMRJ posted
impressive 42.8% yoy (6.7% qoq) growth in its top line to `560cr, led by strong
growth in the industrial battery segment and stable performance by the auto
battery segment. The industrial battery segment’s growth was aided by growth in
the telecom (strong exports growth led by demand from Bharti Airtel’s African
operations) and UPS segments, where AMRJ further increased its market share.
Operating margin witnessed a 157bp yoy (strong 282bp qoq) expansion to
15.7%, led by a 351bp and 133bp yoy contraction in other expenditure and staff
costs as a percentage of sales, respectively. Raw-material cost as a percentage of
sales, however, increased by 320bp yoy mainly due to increased lead prices.
Operating and net profit registered significant 58.6% yoy (30% qoq) and 64.1%
yoy (33% qoq) growth, respectively, led by strong operating performance.
Outlook and valuation: We estimate AMRJ’s top line to witness a CAGR of ~20%
over FY2011–13E, leading to a ~17% CAGR in its net profit, largely aided by
sustained growth in the 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 9.2x FY2013E earnings. We maintain our Buy rating on
AMRJ with a target price of `250.

Amara Raja Batteries...set to ZOOM ::ICICI Securities,

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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.

AMARA RAJA BATTERIES Key takeaways 􀁠 ::Kotak Sec Consumer Congerence,

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AMARA RAJA BATTERIES
Key takeaways
􀁠 The company has a 45% market share in the telecom segment, 32% market share in the
commercial UPS segment, 28% market share in the organized replacement 4-wheeler
segment, 25% market share in the organized replacement 2-wheeler segment. 40% of
company’s revenues come from the industrial segment and rest 60% come from the
automotive segment.
􀁠 The company indicated that it supplies to all 4-wheeler OEMs and has a 25% market
share in the 4-wheeler OEM segment. However, it does not supply to any 2-wheeler OEM
currently. The company expects to start supplying to the 2-wheeler OEMs over the next 8-
10 months. Despite no tie-ups with 2-wheeler OEMs, the company has been able to
increase its market share in the organized 2-wheeler replacement battery segment from
5% to 25% over the past 3 years.
􀁠 The company expects the automotive replacement segment to grow at 12-15% CAGR
over the next 5 years and it has not seen any slowdown in replacement battery volumes.
The company has increased its market share in the 4 wheeler replacement battery
segment by 5% over the last 2-3 years partly at the expense of Exide and partly of other
players.
􀁠 The company expects the 2-wheeler organized replacement market to grow at a rapid
pace due to the shift towards self-start which requires powerful and reliable batteries.
􀁠 In the industrial segment, telecom battery contributes 50% of industrial revenues while
commercial UPS forms 35% of industrial revenues. Rest 15% of industrial revenues
comprise exports, railways and power distribution/transmission sector. The company is
not present in the inverter battery segment.
􀁠 In the telecom battery segment, the company indicated demand is subdued due to no
new tower additions and delay in replacement of telecom batteries. However, the
company expects demand to grow at 7-8% yoy in FY2012E in the telecom segment
driven by replacement of telecom batteries. The company expects telecom battery prices
to also start rising as 3G penetration increases over the next 5 years as 3G network would
require more powerful batteries.
􀁠 In the UPS segment, Exide, Amara Raja and Chinese imports are the 3 major players
having almost equal market share of 32%. While Amara Raja has a dominant market
share in the commercial UPS segment, Exide dominates in the home UPS segment.
Operating margins in this segment are lower than automotive replacement due to
significant competition by imported batteries. The company expects this segment to grow
at 12-14% CAGR over the next few years.
􀁠 The company’s capacity will increase to 5.6 mn in 4-wheeler batteries and to 5 mn in the
2-wheeler battery segment by end of CY2011. It has a capacity of 900 mn ampere hours
in the industrial segment.