Amara Raja Batteries Ltd: Charged up

ARBL entered the automotive battery business in CY2000 in collaboration with Johnson Controls, USA global leader in automotive batteries, as its partner.

January 01, 1970 5:30 IST | India Infoline News Service
CMP Rs267, Target Rs340, Upside 27.3%

Amara Raja Batteries Ltd (ARBL) is one of the best plays on the ensuing surge in replacement demand for automotive batteries in the domestic market. During FY09-12, passenger car sales in the domestic market registered a CAGR of 18.2% and 2-wheeler sales witnessed a CAGR of 21.8%. With replacement cycle for batteries in a passenger car of 30-36 months and that of a switch-start 2-wheeler of 24-30 months, substantial jump in replacement demand can be seen in the near future.

As compared to past, 2-wheeler battery replacement market is likely to increase in size. This can be mainly attributed to the rising proportion of switch-start 2-wheelers in the domestic sales. In a kick-start 2-wheeler, replacement of batteries was not essential as it was not used to start the vehicle. However, batteries are a key for ignition of switch-start 2-wheelers.

ARBL has gained a strong foothold in the replacement market for the automotive with a steady increase in market share in the segment. Even with the OEMs, the company has been able to get into its fold most incumbent players and is in discussions to enter into tie-ups with new entrants.

The industrial segment is mainly driven by demand for UPS led by investments in IT industry and towers in the telecom segments. Battery demand in the UPS segment, which has witnessed a 15% growth, is expected to continue given that investments in computerization by India Inc has been on a rise. While pace of new addition of new telecom towers has slowed down, replacement of batteries in the existing towers is due which will keep demand growth from the segment robust.

ARBL, to capture these growth opportunities is expanding capacities in all segments by nearly 50% by H2 FY15. The company has been performing better than Exide in the past few quarters on all counts. This has triggered a re-rating in the stock. We expect the performance to continue on both revenue and profitability fronts with estimates of a revenue and PAT CAGR of 22% and 26% respectively between FY12-15E. We initiate coverage with a BUY recommendation and a 9-month price target of Rs340.

Financial summary
Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Revenues 23,674 29,640 36,754 43,370
yoy growth (%) 34.4 25.2 24.0 18.0
OPM (%) 15.0 16.2 16.0 15.8
Reported PAT 2,151 3,172 3,712 4,182
yoy growth (%) 45.2 47.5 17.0 12.7
EPS (Rs) 12.6 18.6 21.7 24.5
P/E (x) 21.2 14.4 12.3 10.9
Price/Book (x) 5.5 4.2 3.2 2.6
EV/EBITDA (x) 12.5 8.8 7.5 6.5
Debt/Equity (x) 0.1 0.1 0.1 0.0
RoE (%) 29.3 33.1 29.7 26.4
RoCE (%) 38.0 42.6 40.8 36.8
 Source: Company, India Infoline Research

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