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ACCUMULATE
CMP Target Price
% chg (yoy) 23.8 14.6 (129)bp 22.7 2QFY13 719 118 16.4 79 % chg (qoq) 5.6 3.3 (37)bp 1.8
`308 `323
12 Months
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
Auto Ancillary 5,257 (161) 0.5 328/109 42,275 2.0 19,895 6,035 AMAR.BO AMRJ@IN
Amara Raja Batteries (AMRJ) reported strong results for 3QFY2013 with top-line and bottom-line performance beating our estimates yet again. AMRJ has announced a capital expenditure plan of `750cr over the next two years to ease the capacity constraints that it is facing currently. We expect the company to sustain its growth momentum going ahead, led by widening reach, strong product offerings and increasing capacity. Further, price hike of ~4% in the replacement segment should enable the company to offset the impact of the recent surge in lead prices. We revise our revenue and earnings estimates upwards to factor in the strong operating performance during the quarter. Nevertheless, due to limited upside from the current levels we recommend an Accumulate rating on the stock. 3QFY2013 performance beats estimates: For 3QFY2013, AMRJ posted a robust top-line growth of 23.8% yoy (5.6% qoq) to `759cr led by strong double digit revenue growth in the automotive replacement (four-wheeler as well as two-wheeler) and industrial (telecom and UPS) battery segments. However, depressed OEM demand and capacity constraints for four-wheeler batteries capped further growth in the top-line. On the operating front, margins remained stable on a sequential basis and stood at 16% as raw-material expense for the company remained stable despite increase in lead prices. On a yoy basis though, margins declined 130bp mainly on account of 200bp increase in other expenditure as a percentage of sales which could possibly be on account of higher power and advertising expenses. Led by strong operating performance and higher other income, net profit registered a strong 22.7% yoy (flat qoq) growth to `81cr. Outlook and valuation: Due to the strong operating performance over the last seven quarters, AMRJ has closed the valuation gap to the market leader Exide; both the companies are now trading at similar PE multiples (one year forward basis). We expect the company to sustain its performance going ahead and estimate AMRJ to post a strong revenue CAGR of ~21% over FY201214E, leading to an ~30% CAGR in its net profit, aided by sustained growth in the automotive and industrial battery volumes. At `308, AMRJ is trading at 14.3x FY2014E earnings. We recommend an Accumulate rating on the stock with a target price of `323, valuing the stock at 15x (in-line with Exide) FY2014E EPS.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 52.1 21.0 12.6 14.3
3m 7.5 36.1
FY2011 1,761 20.3 148 (6.9) 14.6 8.7 35.5 8.1 24.9 30.3 3.0 20.5
FY2012 2,367 34.4 215 45.2 15.0 12.6 24.4 6.4 29.3 35.9 2.2 14.4
FY2013E 2,983 26.0 316 47.1 16.1 18.5 16.6 4.8 32.9 39.7 1.7 10.5
FY2014E 3,477 16.6 368 16.4 16.1 21.6 14.3 3.7 29.1 36.7 1.5 9.4
Yaresh Kothari
022-3935 7800 Ext: 6844 yareshb.kothari@angelbroking.com
3QFY13 759 447 58.9 54 7.1 32 4.2 104 13.8 637 122 16.0 0 13 7 116 116 15.2 35 30.0 81 81 10.7 17.1 4.7 4.7
3QFY12 613 393 64.0 14 2.3 27 4.4 73 11.9 507 106 17.3 2 12 5 98 98 16.0 32 32.7 66 66 10.7 17.1 3.9 3.9
% chg (yoy) 23.8 13.9 278.5 19.4 42.6 25.7 14.6 (90.3) 10.4 33.5 17.9 17.9 7.8 22.7 22.7
2QFY13 719 420 58.4 52 7.3 30 4.2 99 13.7 601 118 16.4 1 13 7 111 (9) 102 14.2 32 31.1 70 79 11.1 17.1
% chg (qoq) 5.6 6.6 0.9 2.6 (2.9) 6.1 0.5 6.0 0.3 6.1 3.3 (2.2) (76.2) 0.1 0.7 4.0 13.5 7.5 9.3 (3.7) 15.4 1.8 (3.6) 0.0 15.4 1.8
9MFY13 2,172 1,278 58.9 158 7.3 91 4.2 285 13.1 1,812 359 16.5 1 39 20 339 (9) 330 15.2 103 31.1 227 236 10.9 17.1 13.3 13.8
9MFY12 1,700 1,114 65.5 38 2.3 72 4.2 214 12.6 1,438 262 15.4 3 34 8 233 233 13.7 76 32.7 157 157 9.2 17.1 9.2 9.2
% chg (yoy) 27.7 14.8 310.8 27.3 33.2 26.0 37.0 (67.9) 14.9 158.6 45.6 41.6 34.8 44.9 50.8
22.7 22.7
4.1 4.7
44.9 50.8
Better-than-expected growth in top-line: AMRJ reported a strong 23.8% yoy (5.6% qoq) growth in its top-line to `759cr led by strong double digit revenue growth in the automotive replacement (four-wheeler as well as two-wheeler) and industrial (telecom and UPS) battery segments. However, depressed demand from original equipment manufacturers (OEMs) and capacity constraints for four-wheeler batteries restricted further growth in the top-line. The company is investing `750cr for capacity expansion over the next two years in order to cater to the increasing demand across its product segments. AMRJ expects to increase large valve-regulated lead-acid (VRLA), medium VRLA, two-wheeler and four-wheeler battery capacity over the next 12-18 months. AMRJs capacity utilization for four-wheeler batteries is currently at ~90% and the Management expects the same to remain at current levels in 4QFY2013. The company is expanding its four-wheeler battery manufacturing capacity at the Chittoor plant from 5.6mn units a year to 6mn units by end of FY2013. The company has plans to increase it further to 8mn units by FY2015. Of the existing capacity of 5.6mn four-wheeler batteries, around one-third is supplied to the OEMs and the remaining to the replacement segment. For the two-wheeler battery segment, out of the installed capacity of 4.8mn batteries, around 3.6mn units are supplied to
the replacement segment. The company would commence supplies to two-wheeler OEMs soon. The company is also expanding its medium VRLA battery capacity from 1.8mn units to 3mn units by end of FY2013.
27.9
23.8
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
EBITDA margin sustained at 16%: During 3QFY2013, margins remained stable on a sequential basis and stood at 16% as raw-material expense for the company remained stable despite increase in lead prices. On a yoy basis though, margins declined 130bp, mainly on account of a 200bp increase in other expenditure as a percentage of sales, which could possibly be on account of higher promotional and advertising expenses and also on account of higher power costs. As a result, the operating profit jumped 14.6% yoy (3.3% qoq) to `122cr.
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
3QFY13
Mar-07
Mar-08
Dec-12
Jan-11
Apr-06
Feb-09
Feb-10
Jan-12
Adjusted net profit beats estimates; up 22.7% yoy: Led by a strong operating performance and significant increase in other income (up 33.5% yoy), the adjusted net profit registered a 22.7% yoy (flat qoq) growth to `81cr.
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
Investment arguments
AMRJ is Indias second-largest manufacturer of lead batteries, with a market share of ~28%. US based Johnson Controls is a joint venture partner of AMRJ and holds a 26% equity stake in the company. The automotive and industrial battery segments contributed ~55% and ~45% respectively to AMRJs overall revenue in FY2012. We expect the automotive battery market to post an 18-20% CAGR in sales over FY201214E, led by healthy growth in replacement demand, an 8-10% CAGR in new vehicle sales and shrinking market share of unorganized players. Thus, during FY201214E, we expect AMRJs automotive battery segment to post an ~18% revenue CAGR. Also, with a strong focus on strengthening its distribution network, we expect AMRJ to increase its market share going ahead. AMRJ pioneered the use of maintenance-free batteries with a presence in the railway signaling, telecom, power and supply solutions segments. Going forward, we expect the power backup (home UPS) segment to drive demand for industrial batteries, leading to an ~19% revenue CAGR in AMRJs industrial battery segment over FY201214E.
On the valuation front, AMRJ is trading at 14.3x FY2014E earnings. Historically, AMRJ has traded at a discount to Exide (due to Exides leadership position, scale of operations, superior margins and return ratios). But both the companies now trade at similar PE multiples as AMRJ has closed the valuation gap with robust operating performance over the last seven quarters. We expect AMRJ to sustain its strong performance going ahead on the back of increasing scale of operations, which will lead to sustainable revenue and earnings visibility. We recommend Accumulate rating on the stock with a target price of `323, valuing the stock at 15x (in-line with Exide) FY2014E EPS.
Dec-04
Nov-07
Dec-02
Dec-07
Aug-04
Aug-09
Dec-12
Feb-02
Feb-07
Feb-12
P/E (x) FY13E 16.6 15.9 12.2 23.3 21.0 12.0 24.5 10.4
^
EV/EBITDA (x) FY13E 10.5 6.5 6.1 14.3 11.3 6.9 9.4 4.4 FY14E 9.3 5.0 5.1 12.0 8.2 5.5 7.7 3.8 14.3 10.9 9.9 20.3 15.7 10.1 18.6 5.4
RoE (%) FY13E 32.9 12.1 18.5 18.8 15.4 21.7 22.9 5.6 FY14E 29.1 16.2 19.7 18.2 18.2 21.1 24.7 10.3
FY12-14E EPS CAGR (%) 30.8 4.5 14.6 19.0 20.2 22.0 56.2 0.2
FY14E
Motherson Sumi*
Company background
Amara Raja Batteries, a JV between Galla family and Johnson Controls, US, is India's second largest manufacturer in the organized valve-regulated lead-acid (VRLA) batteries market, finding applications in the automotive (~55% of total revenue) and industrial (~45% of total revenue) segments. AMRJ has a market share of 26% in four-wheeler OEMs, 19% in four-wheeler replacement and 25% in two-wheeler replacement battery markets. The company also commands dominant market shares of 46% and 32% in the telecom and UPS battery segments respectively. AMRJ derives ~45% and ~35% of its industrial segment's revenue from the telecom and UPS battery segments respectively.
Mar-12
Aug-08
Dec-12
Jun-06
Apr-04
Apr-09
Jan-10
Feb-07
Oct-10
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Apr-06
Oct-03
Oct-08
Apr-11
Sep-05
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Jul-11
Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.4 1.0 6.7 0.0 0.0 31.0 0.0 0.1 70.5 (0.2) (0.5) 75.7 (0.2) (0.5) 197.7 (0.0) (0.0) 187.8 3.6 49 60 30 86 3.2 47 56 35 65 3.4 52 57 38 61 4.1 43 48 31 49 4.3 39 49 31 44 3.5 40 49 31 49 19.6 22.7 21.8 35.9 42.5 33.5 30.3 30.6 24.9 35.9 44.0 29.3 39.7 46.5 32.9 36.7 34.6 29.1 10.3 0.7 2.2 14.8 4.4 0.7 22.6 16.8 0.7 2.5 27.5 2.8 0.3 34.9 12.2 0.7 2.7 22.6 2.3 0.1 23.9 13.0 0.7 3.4 29.6 3.1 (0.2) 24.6 14.2 0.7 3.7 36.3 2.1 (0.4) 21.2 14.4 0.7 3.0 28.8 3.1 (0.1) 25.1 4.7 4.7 6.7 0.4 23.7 9.8 9.3 11.8 1.5 31.8 8.7 8.7 11.1 2.3 37.8 12.6 12.6 15.3 1.9 48.2 18.5 18.5 21.7 2.0 64.4 21.6 21.6 25.2 2.0 83.6 65.3 45.7 13.0 0.1 4.1 32.1 7.6 31.5 26.0 9.7 0.5 3.6 18.3 8.0 35.5 27.7 8.1 0.7 3.0 20.5 6.9 24.4 20.1 6.4 0.6 2.2 14.4 5.4 16.6 14.2 4.8 0.6 1.7 10.5 4.2 14.3 12.2 3.7 0.6 1.5 9.3 3.4 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E
10
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Ratings (Returns):
11