CMP (NSE) 15:59, 18 Jun
Last updated on
28 Oct, 2020
Faster than expected pick-up in demand
AMRJ’s 2Q revenue grew 14% YoY vs. our estimate of flattish revenue. As per management, the auto OE segment witnessed strong pick-up vs. 1Q. Robust YoY growth was seen in replacement demand, post-opening of lockdowns. Within the industrial segment, demand from the telecom and commercial UPS sectors was healthy.
Gross margin (GM) expanded 120bps QoQ to 34.7% (est. 35.4%), aided by moderation in lead prices (down 5% QoQ in 1Q; 1-quarter lag) and better mix (higher share of replacement sales). Ebitda margin improved sharply, by 430bps QoQ to 17.6% (140bps beat), driven by operating leverage (sales up 68% QoQ) and control on operating costs.
Absolute Ebitda (+16% YoY) came in 23% above estimate, owing to strong operating performance (top-line and margin). As a result, both PBT and PAT came in ~28% above our expectations.
We raise our FY21 EPS by 15%, driven by an upgrade in revenue growth assumptions. Upgrade in FY22-FY23ii EPS is moderate, at 4%. We like the sector for its secular growth and low competitive intensity.
Technically, the stock is trading in a strong higher top higher bottom chart structure and has given a consolidation breakout on the daily chart. It has also given a bullish Golden crossover (89DEMA/200DEMA) & is showing good strength on the MACD Histogram. If the current impulse move accentuate the way it should, we expect Amara Raja Batteries to test our immediate target price of Rs898 in 12 months.