Amara Raja Batteries Limited

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RC Capital Management Amara Raja Batteries Limited
Company Analysis: Amara Raja Batteries Limited

Posted on 20th November 2011
About
Amara raja batteries is the no.2 batteries maker in India after Exide industries. The company has
a market share of around 25% in the automotive sector and around 40% in the industrial sector
(UPS, telecom and others).
The company was one the first companies to introduce the VRLA technology (low maintenance)
in India. In addition, the company has been able to develop a good presence in the after-market
(retail) for automotive batteries through a network of 18000+ retailers and 800 power zone outlets.
The company’s brands – Amaron and Powerzone are well recognized brands in the automotive
battery segment.
Johnson controls, a leading global automotive component company is one of the majority
shareholders of the company and has been providing new technologies to the company on a
regular basis
Financials
The company has done quite well in the last 10 years. The top line of the company has grown
from around 190 Crs in 2002 to around 2000 Crs for the current year. This translates into a CAGR
of around 26% per annum. The net profit has also grown at the same rate – 26% per annum during
this period.
This performance however, has not come as a straight line increase. The company’s profits
suffered during the 2002-2005 phase when the company decided to expand further into the
automotive and UPS segment and incurred heavy expenses on new product launches during the
period. These investments have however paid off and the company is now clearly the no.2 player
in the automotive market.
The company has been able to improve its ROE from around 13% levels to 30%+ levels in 2011.
The company has generally kept a low debt position though it added some debt in 2007-2008 to
add capacity which has since been paid off.
Finally, the company has become more efficient as it has been able to raise its asset turns from
around 1 to almost 2.7 in the current year.
Page. 1 www.rccapitalmanagement.com Confidential

Positives
The company has a close relationship with a lot of industrial/ telecom companies such as Bharti
Airtel and has a high market share in the industrial and UPS space. The company has been able
to make a successful entry in the automotive segment. It has been able to build strong brand
equity in the retail space through its Amaron brand and extensive service/ distribution network.
The company is expanding in the auto OEM space and is now planning further expansion in the
two wheeler segment.
The company has been able to grow its export sales from 52 Cr to 84 Crs in 2011. The company is
looking at further expansion in export sales in the current year and seems to have been successful
in the first half of 2012.
Risks
Raw material accounts for around 66% sales and lead and lead alloys account for 80% of the RM
costs. The fall in the rupee and increase in lead prices may cause a squeeze in the net margin. The
company has price escalation clauses tied to lead prices, but a lag in the change of its selling price
may impact the net margins of the company.
The slowdown in the auto sector and in the export market may also impact the company in the
short to medium term.
Finally, the competitive intensity in the industry may go up due to slowdown in the growth. This
may result in price pressure and thus impact net margins
Management quality checklist
 Management compensation: On the higher side. MD and chairman get around 4-5% of
net profit as compensation which is on the higher side.
 Capital allocation record: Quite good. The company has re-invested the profits in the
business at high rates of return. In view of the opportunities, the company should be able
to re-invest in the business going forward at an attractive rate
 Shareholder communication: Fairly good. The company provides extensive details of the
industry, its business and future plans through its annual report.
 Accounting practice: Conservative. Could not find anything of concern
 Conflict of interest: The Company procures from its sister concerns to the tune of 110 Crs.
Does not appear to be of concern, but needs to be watched
 Performance track record: Above average as noted earlier

Valuation
The company is currently valued at 10 times earnings which is low for a company growing at
20%+ and having an ROE of 30%+. If we assume at average margin of around 7-8% and growth
of 12-15%, the fair value can be taken in the range of 350-400 per share.
Conclusion
The company has done quite well in the last 10 years. The battery market is currently dominated
by Exide industries in India. Amara raja batteries has been able to develop a strong position in
the industrial segment and use that as a launching pad to establish a position in the automotive
segment. The company is now a firm no.2 in the industry.
The management has been quite aggressive and smart in building the company by focusing on
the correct variable in each segment. The company should continue to do quite well for reasons
stated earlier. At the time of writing this analysis the stock is selling at around 210 which is not
cheap enough for me. We added the stock to the model portfolio at around 180 levels which was
around 50% of fair value. I may decide to make the stock a full position soon if the price drops by
5-10% from the current levels.

2012 – Annual Results Analysis

Posted on 10th June 2012
The company has performed much better than expected, in spite of a slowdown in the automotive
and telecom sectors (which are the key demand sectors for the company)
The company grew its top line by around 34% in 2012, net profits by 45% and ended the year with
a bottom line of around 215 crores. The net margins of the company have also increased from
8.5% to 9.1% in the current year. The company was able to improve its fixed asset turns and
working capital turns during the year, thus raising the capital efficiency. The company has been
able to maintain an ROE is excess of 30% during the year too.
The company continues to be a zero debt company with excess cash of around 150 Crs on its
books. The company has also increased capacity in 4 wheeler and 2 wheeler batteries to 5.6 Mn
units and 4.8 Mn respectively with further expansion plans in the current year.
In summary the company has been executing well and has most probably gained market share
in the industry. With the benefit of perfect hindsight, we should have built a full position sooner.

Q1-2013 –Results Analysis

Posted on 20th August 2012
This Company is clearly our top performer, both in terms of the fundamental performance and
stock price. The key mistake I have committed here is not to build a full position and wait for the
price to drop a bit. It was clearly due to anchoring to a lower price. I have since then avoided this
kind of mistake with the newer picks.
The company delivered a 32% growth in sales and a near doubling of profits. The net profit
margin has jumped to 11% in the quarter, driven mainly by operating leverage (overheads as %
of sales is at an all-time low). In addition, depreciation and interest as percentage of sales has also
come down.
The company is gaining market share in the industry and is very likely gaining sales from the un-
organized sector too. The company should continue to do well, though possibly not at current
levels, for the remainder of the year.


Amara raja batteries has been the exact opposite of Crompton greaves in terms of the fundamental
and stock price performance. It has performed beyond my expectations and continues to do so.
The company reported a 28% growth in top line and 46% growth in profit for the quarter. The
first half of the year had a 30% growth in the top line and 67% growth in the profit. The company
is executing well and is also benefiting from economies of scale due to which the net profit is
rising at a faster rate than the top line.
The company has most likely (we don’t the numbers to prove that) gained market share from the
unorganized sector and from the market leader – Exide in the OEM and the after-market battery
segment. An improvement in the industrial segment should enable the company to maintain its
growth trajectory for some time.
The downside on this idea is that I did not create a full position and got anchored to the price/
valuation. This has hurt the performance of the model portfolio. I plan to look at the idea again
and make a fresh decision based on the current facts.
Hopefully, some of you would have ignored my suggestion and bought a full position when I
introduced the stock in 2011.


Posted on 30th January 2013
The company reported a 23% growth in top line and profit for the quarter on y-o-y basis. The q-
o-q growth has however slowed down to around 5% on the top line and 3.5% on profits
(excluding the impact of exceptional items).
I think the 30%+ growth rates may not happen in the future as the company has been able to gain
at the expense of industry leader – Exide and other players. We should be able to get a 15-20%
growth in the future which would be good, though not spectacular. The company also
announced a capex of around 440 Crs which should be funded from cash on the books (current
cash is around 350 Crs now) and future profits.
We have a full position in the stock in the model portfolio and will continue to hold it as a long
term position. I think the re-rating has occurred partly and the future returns are likely to be
driven more by the underlying growth of the business.


The company reported a 19% growth in top line and a 2 % profit growth for the quarter on y-o-y
basis (16% profit growth if one excludes the impact of some additional impairment and
depreciation). The q-o-q growth has however slowed down to around 5% on top line basis.
The company has been able to achieve a volume growth of 20% in four wheeler batteries and 37%
in the two wheeler segment for the year. The top line growth for the year was 25% and profit
growth was at 33%. As the company is now facing capacity constraints, it has decided to invest
up to 760 Crs on various capacity enhancement projects (through a combination of debt and cash
on the balance sheet)
As I wrote last quarter, I think 30%+ growth rates may not happen in 2014 due to capacity
constraints and higher competition. We should however be able to get a 15-20% growth in the
future which would be good, though not spectacular.
We have a full position in the stock in the model portfolio and will continue to hold it as the
company should be able to grow its intrinsic value at a rate of around 20% per annum.

Additional Note
Posted on 4th July 2013
Why we are reducing the position size?
A sell order on one of our top position (and the largest one), would definitely be a surprise for all
of you. I had recently written that we will continue to hold this position as I expect the intrinsic
value of the company to grow at 20% per annum in the long run. I still expect the business to do
well, but have become wary of the management.
It is easy to fall in love with a stock (especially one which has done so well) and ignore any new
information. Some of the issues had been known to me at the time of buying the stock and some
I have become aware of over the last few months. Let me provide some details on it –
 The MD is interested in politics and wants to become an MP. This could result in loss of
focus at the top management level. This issue is a concern, though I am not too alarmed
by it in the short term.
 Compensation is too high for the MD and chairman. This issue is not new and we have
known this for some time. At the same time, too high a compensation is never a good sign.
 One of the auditors is an ex-employee (not verified). I came to know of this point recently.
The annual report does not show any signs of cooking the numbers (outright fraud is
usually not known till much later). This is a point is of concern
 ARBL stock was manipulated in 2000-2001 by brokers, though management seems to have
not been involved. We have known this too for some time. I investigated this further and
though I could not find any involvement of the management, it was still a disturbing
episode.
As you can see that none of the reasons above if considered individually become a major cause
of concern. However, when I look at all the above points together, my gut feeling has changed
and I am now uneasy about the company’s management.
You may have a valid point in arguing that gut feeling and fuzzy information should not have a
place in investing. One should make decisions based on hard evidence. At the same time,
corporate governance and management ethics in themselves (like honesty) are grey and fuzzy
issues and cannot be quantified. By the time one is aware of these issues via news, the damage
has already been done.
I may turn out to be wrong in this case and company may give high returns going forward. At
the same time, this stock has the highest allocation in my personal and model portfolio. A high
allocation means that I implicitly have a very high level of confidence on the company and its
management. As this is no longer the case, I am trimming the position size to begin with.
I will keep tracking the company closely and we will make decisions based on new information.

2013 – Annual Results Review

This is an odd pick for us. The business is doing extremely well and based on my impressions
from the annual report, should continue to do fine. However, as I wrote in an earlier update, I am
uncomfortable with the management.
Key risk (identified earlier) and their current status
Demand risk: The target industries for the company – telecom and automotive have slowed
considerably in the last two years. At the same time, the company has been able to hold its market
share in the telecom space and grow industrial batteries by expanding in the UPS and backup
power segments.
In the automotive segment, the company has been able to grow in the four-wheeler after market
due to a steady replacement demand and by adding new OEM customers. In addition to this, the
company has expanded into the two-wheeler after market segment and is in the process of getting
approvals from several two wheeler OEMs.
Raw material pricing risk – Lead and lead alloys account for almost 75-80% of the raw material
costs of the company. This is in turn depends on the lead pricing and the exchange rates (as 45%
of requirement is imported). The company has price escalation clauses tied to lead prices, but a
lag in the change of its selling price may impact the net margins of the company in the short term
Management – I consider it as a risk in the medium to long term as I am not sure how they will
react to a business slowdown and a corresponding impact on stock prices. I have seen a lot of
managements get into window dressing to keep the appearances and stock prices up. As
I detailed earlier, there are several points which makes me uncomfortable. In addition, I noticed
the following in the latest annual report
 Compensation for the promoters (Indian) increased by close to 50% and is now almost
30% of the total compensation cost for the company. The management has done a good
job in developing the company, but this is clearly excessive pay.
 Related party transactions: Transactions worth 400 Crs (13% of revenue) with companies
controlled by the same management is too high for comfort.
 Donations: At around 11 Crs, it is among highest I have seen in Indian companies. In
addition, there is no detailed disclosure on how the money is being spent.

New opportunities
Expansion in two wheelers – the company has been approved by the major two wheeler OEMs
such as Honda motors, Hero MotoCorp and Bajaj auto limited. This is a huge market and the
company should be able to get good growth numbers in the coming years.
Exports – The Company is planning to expand in the Asia pacific region and with the depreciation
of the rupee (and appreciation of the Chinese Yuan), should be able to do quite well in the near
future.
Home UPS and power back up – the company is targeting this fast growing segment and should
do well as a result of its wide distribution network and strong brand in the battery space.
In addition to all the above demand drivers, the replacement demand from telecom and
automotive should provide a steady level of demand and decent levels of growth. The company
is planning to invest close of 700 Crs (which will double the gross block) in the next few years to
meet these various sources of demand.
Changes to fair value
As you can see, the demand picture looks good and the company has a strong tailwind on its
back. At the same time, I am uneasy about the management. Holding this stock is like riding a
tiger – Getting off the ride at the right time is going to be important!
I am not adding to the position in the model portfolio and we will exit it slowly over time.

Q1-2014 –Results Review

The company reported a 28.3% growth in top line and a 28 % profit growth for the quarter on y-
o-y basis. The q-o-q growth was around 11% on top line basis.
The company was able to achieve a slight improvement in net margins (from 10.1% to around
10.9%) based on an improvement in overhead expenses (as % of sales) and depreciation – mainly
as a result of operating leverage.
The company seems to be firing on all cylinders and should do well in the current year. I am still
pessimistic on certain aspects of the company


o-y basis. The company had a slowdown in the sales in the current quarter due to capacity
constraints and sluggish sales to Auto and industrial OEM. The company is likely to commission
capacity by early next year and should be able to improve the growth rates.
The company was able to achieve an improvement in net margins (from 10.1% to around 11.3%)
based on an improvement in overhead expenses (as % of sales) and depreciation – mainly as a
result of operating leverage.
The company should do well in next few years, though we could see a slowdown in the second
half of the current year. I am still pessimistic on certain aspects of the company


Posted on 3rd February 2014
The company reported a 13.4% growth in top line and a 17.2 % profit growth for the quarter on
y-o-y basis. The company had a slowdown in the sales in the current quarter due to capacity
constraints and sluggish sales to Auto and industrial OEM. The company is likely to commission
capacity by early next year and should be able to improve the growth rates.
The company was able to achieve an improvement in net margins (from 10.1% to around 11.1%)
based on an improvement in overhead expenses (as % of sales) and depreciation – mainly as a
result of operating leverage.
The company should do well in next few years, though we are now seeing a slowdown in the
second half as indicated earlier by the management. The performance is still commendable
considering that the automotive and industrial sectors are down in the dumps and the main
competitor – Exide had a de-growth of 10% during the quarter.


o-y basis. The company had a slowdown in the sales in current quarter due to capacity constraints
and sluggish sales to Auto and industrial OEM. The new capacity should be online or coming
online soon (will know from the annual report) and this should help the company take advantage
of a revival in OEM demand and continue to meet the after-market demand in FY 2015.
The company closed the year with a 15.8% growth in sales and 22% growth in profits. Operating
margins improved from 15.8% to 16.6% mainly due to lower overheads as % of sales (from
operating leverage). Net margins improved marginally to 10.6%. I don’t think the operating
margins are likely to expand much in the future (due to higher depreciation from the new
capacity)
The company should do well in next few years, though we have seen a slowdown in the second
half as indicated earlier by the management. The performance is still commendable considering
that the automotive and industrial sectors are down in the dumps.
I am still pessimistic on certain aspects of the company – you can read the post on the same here.
We will continue to monitor the management and keep an open mind on it for now.


I would recommend reading the 2013 review as majority of the positives and negatives around
this company remain the same.
Key risk (identified earlier) and their current status
considerably in the last few years. The telecom segment performed much better in the current
year and the company was able to take advantage of the higher demand.
company has expanded into the two-wheeler after market segment which grew by 63% during
the year.
costs of the company. This is in turn depends on the lead pricing and the exchange rates (as 45%
of requirement is imported). The company has price escalation clauses tied to lead prices, but a
lag in the change of its selling price may impact the net margins of the company in the short term
Management – I consider it as a risk in the medium to long term. As I detailed earlier, there are
several points which makes me uncomfortable. In addition, I noticed the following in the latest
annual report
 Compensation for the promoters (Indian) increased by close to 25% and is now almost
30% of the total compensation cost for the company. The management has done a good
job in developing the company, but this is clearly excessive pay.
 Related party transactions: Transactions worth 473 Crs (13.7% of revenue) with companies
controlled by the same management is too high for comfort.
 Donations: At around 13.5 Crs, it is among highest I have seen in Indian companies. In
New opportunities
company should be able to get good growth numbers in the coming years.
Exports – The Company has started expanding in the export markets and was able to grow export
revenues by 60% during the year.

Home UPS, power back up and solar – the company is targeting these fast growing segments and
should do well as a result of its wide distribution network and strong brand in the battery space.
is planning to invest close of 750 Crs (which will double the gross block) in the next few years to
meet these various sources of demand. The investment is planned in phases and around 330 Crs
was spent during the year
back. At the same time, I am uneasy about the management. It is a position, where unlike some
others in the portfolio, I will not hesitate to sell the entire holding if I feel that the management
has started doing something against the interest of the minority shareholders.
In view of the demand tailwind and the plans of the company (and execution track record), I
would estimate the fair value at around 500 levels and increasing at 20%+ rate per annum. We
will hold the stock as long as the company keeps doing well and the management does not try to
pull a fast one on the shareholders.


The company reported a 15% growth in top line and an 8 % profit growth for the quarter on y-o-
y basis. The lower profit growth was due to higher depreciation (new capacity brought on stream
in the current financial) and due to higher manpower charges. The impact of higher depreciation
and manpower should get reduced as the capacity gets utilized over time.
Operating margins were around 16.9% which is slightly higher than 2014 and net margins were
slightly lower (by .3%) than last fiscal due to the reasons detailed earlier.
The company should be able to deliver a 15-20% top line and profit growth over the next few
years as the demand for batteries from the industrial, telecom and automotive sector recovers.
We continue to hold the stock in the portfolio.


The company reported a 31% growth in top line and operating profits and a 6 % profit growth
for the quarter on y-o-y basis. The top line growth for the first half was 23% and net profits grew
by 7.3% during the same period
The lower profit growth was due to higher depreciation (new capacity brought on stream in the
current financial and change in company law) which more than doubled during the year. The
impact of higher depreciation should get reduced as the capacity gets utilized over time.
The company should be able to deliver a 15-20% top line and profit growth over the next few
years as the demand for batteries from the industrial, telecom and automotive sector recovers.
This stock continues to present us with a dilemma. The fundamental performance of the company
continues to be very good (30% growth in the current year), but the promoter actions makes your
stomach churn (with all kinds of related party transactions).
I do not have an intention of holding the stock for the long term (though it could go up over time
due its good performance). We will exit the position in due course of time – though I cannot tell
you the exact time as of now.


Posted on 30th January 2015
The company is 10 bagger for us from the time of purchase and a wealth creator of this type
should be a favoured investment. On the contrary I continue to be wary of the promoters for
reasons explained earlier.
The company reported a 31% growth in top line and operating profits and a 6 % profit growth
for the quarter on y-o-y basis.
The lower profit growth was due to higher depreciation (new capacity brought on stream in the
current financial and change in company law) which has more than doubled for the year. The
impact of higher depreciation should get reduced as the capacity gets utilized over time. In
addition, the tax as % of sales is also marginally higher during the quarter. Other expenses have
also risen as % of sales due to various expenses such as advertising and promotion.
The company should be able to deliver a 20%+ top line and profit growth over the next few years
as the demand for batteries from the industrial, telecom and automotive sector recovers. The
management expects to maintain operating margins in the range of 17-18% going forward.
I do not have an intention of holding the stock for the long term (though it could go up over time
due its good performance). We will exit the position in due course of time – though I cannot tell
you the exact time as of now.


Posted on 30th May 2015
The company reported a 20.5% growth in top line, 37% growth in operating profits and 25 %
profit growth for the quarter on y-o-y basis. On an annual basis, the numbers were 22.5% growth
for top line, 26% growth in operating profits and 11.8% growth in net profits.
The lower profit growth for the year was due to higher depreciation (new capacity brought on
stream in the current financial and change in company law) which has more than doubled for the
year. The impact of higher depreciation should get reduced as the capacity gets utilized over time.
The company should be able to deliver a 20%+ top line and profit growth over the next few years
as the demand for batteries from the industrial, telecom and automotive sector recovers. The
management expects to maintain operating margins in the range of 17-18% going forward, which
would be a small improvement from the current levels.
The company is 10 bagger for us from the time of purchase and a wealth creator of this type
should be a favoured investment. On the contrary I continue to be wary of the promoters for
reasons explained earlier. I have reduced the position to around 5% of the model portfolio to
manage the risk and will keep it at this level for the time being


Posted on 18th September 2015
Key risk and their current status
considerably in the last few years. The telecom segment performed much better in the current
year and the company was able to take advantage of the higher demand. A high growth rate in
the smartphone segment is likely to drive higher demand for data and hence for batteries to run
the expanded telecom network
company has expanded into the two-wheeler after market segment. In view of the growing
demand from OEM and retail (replacement) segment, the company has expanded capacity by
40% in the last 2 years
Finally, the company is also expecting higher demand from the solar power sector in the coming
years.
costs of the company. This is in turn depends on lead pricing and the exchange rates (as 45% of
requirement is imported). The company has price escalation clauses tied to lead prices, but a lag
in the change of its selling price may impact the net margins of the company in the short term.
Lead prices have been on a downward trend and this should help the company in the short to
medium term in terms of expanding margins.
several points which makes me uncomfortable. I noticed the following in the latest annual report
 Management continues to draw a very high compensation. The Chairman and MD

together draw almost 8% of PBT as commissions.
 Related party transactions: Transactions worth 630 Crs with companies controlled by the
same management is too high for comfort.
 Donations: At around 12.5 crs, it is among highest I have seen in Indian companies. In
New opportunities

company should be able to get good growth numbers in the coming years as it has the requisite
capacities in place.
revenues by 35%+ during the year. The company is expanding into the Africa, middle east and
south east Asian nations. This could be the next growth driver for the company in the coming
years.
The company is setting up new capacity to cater to the Home UPS segment.
has invested close to 600 Crs in the production capacity, which has come online in the current
year.
back. At the same time, I am uneasy about the management. We have reduced the position a bit
in the last few months and will maintain the holding at around 5% of the portfolio for the time
being.

Q2-2016 Results Review

Posted on 3rd November 2015
The company reported an 8.5% growth in top line, 10.1% growth in operating profits and 22 %
for top line, 11.2% growth in operating profits and 18.4% growth in net profits.
In comparison, the other large company in the space- Exide, had no growth in the top line and
profits till date for the year. In view of the ongoing slowdown in the user industries, the
performance of Amara Raja is quite good in comparison
As I wrote in the annual review, future growth could come from exports and new segments such
as solar, Home UPS and the two wheeler battery market. Once the demand recovers in the various
segments, we should see a top line and profit growth of 15-20% per annum for the next few years.
I continue to be wary of the promoters for reasons explained earlier. I have reduced the position
to around 5% of the model portfolio to manage the risk and will keep it at this level for the time
being.


Posted on 2nd February 2016
The company reported a 15.7% growth in top line, 33.1% growth in operating profits and 33.3 %
In comparison, the other large company in the space- Exide, has had de-growth in the top line
during the year. In view of the ongoing slowdown in the user industries, the performance of
Amara Raja is quite good in comparison
As I wrote in the annual review, future growth could come from exports and new segments such
as solar, Home UPS and the two wheeler battery market. Once the demand recovers in these
segments, we should see a top line and profit growth of 15-20% per annum for the next few years.
The current quarter has started seeing performance converge to this level now. We need to see if
the company continues to maintain the current pace.
I am still wary of the promoters for reasons explained earlier. I have reduced the position to
around 5% of the model portfolio to manage the risk and will keep it at this level for the time
being.


Posted on 1st June 2016
In comparison, the other large company in the space- Exide, had a 6.8% growth in the top line
during the quarter and a 1% de-growth during the year. The company performance seems to have
moderated from the prior quarters.
Future growth for the company could come from exports and new segments such as solar, Home
UPS and the two wheeler battery market. Once the demand recovers in these segments, we
should see a top line and profit growth of 15-20% per annum for the next few years.
The management seems to be optimistic of the future demand scenario and has decided to expand
its two wheeler battery capacity from 11 to 25 Million units over the next four years. The company
is also planning to expand the four wheeler capacity from 8.25 to 11 Million units.
I am still wary of the promoters for reasons explained earlier. I have reduced the position to
around 3.5% of the model portfolio to manage the risk and will keep it at this level for the time
being.


Posted on 23rd July 2016
Key risk and their current status
considerably in the last few years. A high growth rate in the smartphone segment is likely to drive
higher demand for data and hence for batteries to run the expanded telecom network
The automotive segment demand is improving and as a result, the company should be able to
improve its growth rate in the coming quarters. Finally, the company is also expecting higher
demand from the solar power and UPS sectors in the coming years.
In view of the better demand scenario, the company has expanded the automotive battery
capacity by 40% in the last 2 years.
costs of the company. This is in turn depends on lead pricing and the exchange rates (as 45% of
requirement is imported). The company has price escalation clauses tied to lead prices, but a lag
in the change of its selling price may impact the net margins of the company in the short term.
Lead prices have been on a downward trend and have helped the company expand its gross
margins by 4%
several points which makes me uncomfortable. I noticed the following in the latest annual report
 Management continues to draw a very high compensation. The Chairman and MD

together draw almost 8% of PBT as commissions.
 Related party transactions: Transactions worth 780 Crs with companies controlled by the
same management is too high for comfort.
 Donations: At around 12.5 Crs, it is among the highest I have seen in Indian companies.
This donation is being made to a trust controlled by the management.
New opportunities

company should be able to get good growth numbers in the coming years as it has the requisite
capacities in place.
revenues by 33% during the year. The company is expanding into the Africa, middle east and
south east Asian nations. This could be the next growth driver for the company in the coming
years.
The company is close to completing the new capacity to cater to the Home UPS segment.
Move from unorganized to organized – The unorganized sector accounts for almost 40% of the
replacement demand. This share is coming down and could accelerate if and when GST gets
passed (our thesis is not based on it). This should continue to provide a tailwind to the
replacement demand for the automotive segment.
The company has invested close to 1000 Crs in the production capacity in the last 3 years and
should be able to capture new demand as it materializes
back. The stock seems to be selling at fair value and future gains should track the earnings growth.
In a way, this company has been a disappointment for me. We made our first investment in 2011
and the stock is up 10X since our purchase. During this period, management has executed very
well and the competitive position of the company has strengthened (it’s a strong no.2 or even
no.1 in some segments).
The future prospects and growth opportunities for the company are even better than before and
I think the management will execute well to take advantage of it. In spite of all these positives I
have reduced the position size and will not raise it in the future as I do not have full faith in the
integrity of the management. The compensation, related party transactions and sporadic
incidents over time have shown that the management has a tendency to over-reach and be less
than fair to the minority shareholder.
This could have been a much larger position, if performance and quality of the business was the
sole factor. However, the management has always made me wary and hence we will continue to
hold the current position size for now.


profit growth for the quarter on y-o-y basis. The operating profit growth was lower than sales
growth as the company had higher raw material costs in the quarter (higher lead prices). The
company has expanded its capacity substantially in the last 1-2 years and this capacity is now
coming on stream. This has led to higher depreciation charges in the current quarter due to which
net profit growth is lower.
The other large company in the space- Exide, had an 11.1 % growth in the top line during the
quarter. This means that Amara Raja for now is doing slightly better than the industry leader.
Future growth for the company could come from exports and new segments such as solar, Home
UPS and the two wheeler battery market. The demand from these new segments appears to be
recovering due to which, the growth rates have now improved from around 10% level to 15%+
levels.
We will maintain the position as is for now

Amara Raja Batteries Limited

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Amara Raja Batteries Limited

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RC Capital Management is an Investment

Advisory Firm specializing in identifying and

This report is a compilation of our analysis of

The report is meant for subscribers of RC Capital

RC Capital Management is a SEBI Registered Investment Advisor

Company Analysis: Amara Raja Batteries Limited

Page. 1 www.rccapitalmanagement.com Confidential

Management quality checklist

Page. 2 www.rccapitalmanagement.com Confidential

Page. 3 www.rccapitalmanagement.com Confidential

2012 – Annual Results Analysis

Page. 4 www.rccapitalmanagement.com Confidential

Q1-2013 –Results Analysis

Page. 5 www.rccapitalmanagement.com Confidential

Q2-2013 –Results Analysis

Page. 6 www.rccapitalmanagement.com Confidential

Q3-2013 –Results Analysis

Page. 7 www.rccapitalmanagement.com Confidential

Q4-2013 –Results Analysis

Page. 8 www.rccapitalmanagement.com Confidential

Why we are reducing the position size?

Page. 9 www.rccapitalmanagement.com Confidential

2013 – Annual Results Review

Key risk (identified earlier) and their current status

Page. 10 www.rccapitalmanagement.com Confidential

Changes to fair value

Page. 11 www.rccapitalmanagement.com Confidential

Q1-2014 –Results Review

Page. 12 www.rccapitalmanagement.com Confidential

Q2-2014 –Results Review

Page. 13 www.rccapitalmanagement.com Confidential

Q3-2014 –Results Review

Page. 14 www.rccapitalmanagement.com Confidential

Q4-2014 –Results Review

Page. 15 www.rccapitalmanagement.com Confidential

2014 – Annual Results Review

Key risk (identified earlier) and their current status

Page. 16 www.rccapitalmanagement.com Confidential

Changes to fair value

Page. 17 www.rccapitalmanagement.com Confidential

Q1-2015 –Results Review

Page. 18 www.rccapitalmanagement.com Confidential

Q2-2015 –Results Review

Page. 19 www.rccapitalmanagement.com Confidential

Q3-2015 –Results Review

Page. 20 www.rccapitalmanagement.com Confidential

Q4-2015 –Results Review

Page. 21 www.rccapitalmanagement.com Confidential

2015 – Annual Results Review

Key risk and their current status

 Management continues to draw a very high compensation. The Chairman and MD

Page. 22 www.rccapitalmanagement.com Confidential

Changes to fair value

Page. 23 www.rccapitalmanagement.com Confidential

Q2-2016 Results Review

Page. 24 www.rccapitalmanagement.com Confidential

Q3-2016 Results Review

Page. 25 www.rccapitalmanagement.com Confidential

Q4-2016 Results Review

Page. 26 www.rccapitalmanagement.com Confidential

2016 – Annual Results Review

Key risk and their current status

 Management continues to draw a very high compensation. The Chairman and MD

Page. 27 www.rccapitalmanagement.com Confidential