Amara Raja Batteries (Q1 FY15)

India Infoline News Service | Mumbai |

Revenues at Rs10.3bn higher by 15.1% yoy; better than our estimates

CMP Rs518, Target Rs550, Upside 6.2%

  • Revenues at Rs10.3bn higher by 15.1% yoy; better than our estimates
  • OPM at 17.1% was higher by 79bps yoy and 155bps qoq, yoy improvement was on the back of price hikes implemented over the past on year and benefits of operating leverage, OPM was ahead of our estimates
  • PAT at Rs1,060mn was higher by 8.3% yoy and 32.4% qoq and was better than estimates
  • Downgrade to Accumulate as valuations look fair at P/E of 18.1x FY16E EPS of Rs28.6
Result table
(Rs m) Q1 FY15 Q1 FY14 % yoy Q4 FY14 % qoq
Net sales 10,290 8,938 15.1 8,879 15.9
Material costs (6,875) (5,969) 15.2 (5,942) 15.7
Personnel costs (471) (385) 22.2 (415) 13.5
Other overheads (1,190) (1,130) 5.3 (1,146) 3.9
Operating profit 1,755 1,454 20.7 1,377 27.5
OPM (%) 17.1 16.3 79 bps 15.5 155 bps
Depreciation (310) (145) 113.3 (190) 63.4
Interest (0) (0) (42.9) (6) (96.7)
Other income 59 96 (39.0) 61 (3.9)
Extra ordinary items - -
(39)
PBT 1,504 1,405 7.1 1,204 24.9
Tax (445) (427) 4.2 (404) 10.2
Effective tax rate (%) 29.6 30.4
33.5
Reported PAT 1,060 978 8.3 801 32.4
Adj. PAT margin (%) 10.3 10.9 (65) bps 9.0 128 bps
Ann. EPS (Rs) 24.8 22.9 8.3 18.7 32.4
Source: Company, India Infoline Research

Revenues better than expectations
For Q1 FY15, Amara Raja reported a revenue of Rs10.3bn, which was higher than our estimate ofRs10bn. Revenues for the quarter were higher by 15.1% yoy and higher by 15.9% qoq. The automotive battery business continued to maintain the growth momentum in 4-W batteries backed by improved aftermarket sales indicating increase in market share for Amara Raja Batteries. The significant volume growth in 2W batteries has added to the performance of the business unit. During the quarter, the Company has commenced supplies of two wheeler batteries to Honda Motors India Limited, for their plant in Karnataka. The trading in tubular batteries and home UPS under private label program has sustained the momentum during the quarter, despite unfavourable demand conditions. The industrial battery business registered double digit volume and revenue growth aided by newly added capacities both in LVRLA and MVRLA product ranges, optimal product mix and strong demand for Company’s products. The demand from telecom sector continues to be robust and is primarily for replacement. The demand for UPS batteries too is showing signs of improvement.

OPM surges 155bps yoy to 17.1% substantially ahead of expectations
For Q1 FY15, Amara Raja reported an OPM of 17.1%, which was higher than our estimate of 16.2%. Operating profit for the quarter was higher by 20.7% yoy and 27.5% qoq. While gross margins remained flattish with just 2bps yoy increase and a 11bps increase sequentially, higher margins was driven by benefits of operating leverage. This was evident with overheads declining by 107bps yoy and 155bps qoq.

Cost analysis
As a % of net sales Q1 FY15 Q1 FY14 bps yoy Q4 FY14 bps qoq
Raw material 66.8 66.8 2 66.9 (11)
Personnel Costs 4.6 4.3 27 4.7 (10)
Other overheads 11.6 12.6 (107) 12.9 (134)
Total costs 82.9 83.7 (79) 84.5 (155)
Source: Company, India Infoline Research


PAT at Rs1,060mn was 5% ahead of estimates
Amara Raja reported a PAT of Rs1,060mn a growth of 8.3% yoy. The growth was much lower when compared with the 20.7% yoy jump in operating profit. This was primarily on account of more than doubling of the depreciation charge which was due to 1) implementation of provisions of the Companies Act 2013, whereby the charge was higher by Rs94mn and 2) capacity expansion done in the past one year. 39% yoy lower other income worsened the impact.

Downgrade to accumulate as valuations look fair at FY16E P/E of 18.1x
We expect recovery in passenger car sales in the domestic market from H2 FY15 and expect a stronger growth in FY16. Two-wheeler sales led by scooters will continue to be on a strong footing. However, we expect some slowdown in the replacement market where growth has been in excess of 10% over the past couple of years. This is due to marked slowdown seen in passenger car demand over the past couple of years. We expect Amara Raja to protect its margin premium when compared with the leader. Overall we expect earnings CAGR of 15% during FY14-16E. We find the valuations fair at P/E of 18.1x on FY16E EPS of Rs28.6. Downgrade rating to Accumulate with price target of Rs550.

Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Revenues 29,614 34,518 40,193 48,433
yoy growth (%) 25.2 16.6 16.4 20.5
Operating profit 4,516 5,754 6,794 8,276
OPM (%) 15.2 16.7 16.9 17.1
Pre-exceptional PAT 2,959 3,713 4,116 4,891
Reported PAT 2,959 3,713 4,116 4,891
yoy growth (%) 37.6 25.5 10.8 18.8





EPS (Rs) 17.3 21.7 24.1 28.6
P/E (x) 29.9 23.8 21.5 18.1
Price/Book (x) 8.3 6.5 5.2 4.2
EV/EBITDA (x) 18.9 15.0 12.6 10.3
Debt/Equity (x) 0.1 0.1 0.0 0.0
RoE (%) 31.4 30.7 26.8 25.5
RoCE (%) 41.2 40.9 36.5 35.3
Source: Company, India Infoline Research

BSE 777.80 7 (0.91%)
NSE 778.50 7.10 (0.92%)

***Note: This is a NSE Chart

 

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