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Amara Raja Batteries
For 3QFY2011, Amara Raja Batteries (ARBL) reported 15.8% yoy growth in net sales to
`425.5cr (`367.5cr), which was 3.1% above our expectation of `412.5cr, aided by ~15%
yoy volume growth. Net sales growth was aided by healthy double-digit volume growth from
the auto battery segment. In the industrial battery segment, telecom batteries remained
subdued, impacting the company’s overall volume and realisation growth. However,
management is sanguine on the telecom side of the business, as a large number of towers in
mobile telecom network have been established over the previous 3–4 years; batteries in
these towers would be due for replacement progressively. The emerging opportunities in
solar and increasing market share in UPS would help the division to further optimise its
revenue streams. Telecom volume contribution of the company came down to ~20% from
~40% last year.
During 3QFY2011, ARBL witnessed a 322bp yoy decline in EBITDA margins, owing to a
substantial 445bp yoy rise in raw-material costs, which accounted for around 64.4% of sales
(59.9% in 3QFY2010). Raw-material costs were impacted, to a certain extent, by the increase
in average lead prices, which were up ~4.5% yoy and ~17% qoq. Margins were also down
due to the lower realisations from the telecom battery segment. The company expects prices
in the telecom battery segment to inch upwards in the next few quarters. In the industrial
segment, the company is not going to be witnessing much decline in volumes, as it has
actually been able to increase its market share during the year. ARBL reported a 0.6% yoy
decline in net profit to `39.6cr (`39.9cr) during the quarter. Net profit growth was impacted
by lower realisations and subdued growth from the telecom battery segment. However, lower
interest cost and higher other income restricted the fall at the bottom-line front to a certain
extent during the quarter.
On the valuation front, ARBL is trading at 10.6x and 8.1x FY2011E and FY2012E EPS,
respectively. At present, ARBL is trading at ~47% discount to Exide, adjusted for Exide’s
insurance business). We maintain our Buy rating on ARBL with a Target Price of `240. At our
target price, the stock will trade at 10.7x (35% discount to Exide's multiple of 16.5x) FY2012E
EPS of `22.4. We would be releasing a detailed result update post the earnings call with
management.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Amara Raja Batteries
For 3QFY2011, Amara Raja Batteries (ARBL) reported 15.8% yoy growth in net sales to
`425.5cr (`367.5cr), which was 3.1% above our expectation of `412.5cr, aided by ~15%
yoy volume growth. Net sales growth was aided by healthy double-digit volume growth from
the auto battery segment. In the industrial battery segment, telecom batteries remained
subdued, impacting the company’s overall volume and realisation growth. However,
management is sanguine on the telecom side of the business, as a large number of towers in
mobile telecom network have been established over the previous 3–4 years; batteries in
these towers would be due for replacement progressively. The emerging opportunities in
solar and increasing market share in UPS would help the division to further optimise its
revenue streams. Telecom volume contribution of the company came down to ~20% from
~40% last year.
During 3QFY2011, ARBL witnessed a 322bp yoy decline in EBITDA margins, owing to a
substantial 445bp yoy rise in raw-material costs, which accounted for around 64.4% of sales
(59.9% in 3QFY2010). Raw-material costs were impacted, to a certain extent, by the increase
in average lead prices, which were up ~4.5% yoy and ~17% qoq. Margins were also down
due to the lower realisations from the telecom battery segment. The company expects prices
in the telecom battery segment to inch upwards in the next few quarters. In the industrial
segment, the company is not going to be witnessing much decline in volumes, as it has
actually been able to increase its market share during the year. ARBL reported a 0.6% yoy
decline in net profit to `39.6cr (`39.9cr) during the quarter. Net profit growth was impacted
by lower realisations and subdued growth from the telecom battery segment. However, lower
interest cost and higher other income restricted the fall at the bottom-line front to a certain
extent during the quarter.
On the valuation front, ARBL is trading at 10.6x and 8.1x FY2011E and FY2012E EPS,
respectively. At present, ARBL is trading at ~47% discount to Exide, adjusted for Exide’s
insurance business). We maintain our Buy rating on ARBL with a Target Price of `240. At our
target price, the stock will trade at 10.7x (35% discount to Exide's multiple of 16.5x) FY2012E
EPS of `22.4. We would be releasing a detailed result update post the earnings call with
management.
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