2QFY2012 Result Update | Auto Ancillary

November 18, 2011

Amara Raja Batteries

Performance Highlights
Y/E March (` cr) Net sales EBITDA EBITDA margin (%) Reported PAT
Source: Company, Angel Research

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Auto Ancillary 1,862 0.3 262/158 21,187 2 16,372 4,906 AMAR.BO AMRJ@IN
392 56 42.8 58.6 157bp 64.1 525 68 12.9 39 6.7 30.0 282bp 33.0

`218 `250
12 Months

2QFY12 2QFY11 % chg (yoy) 1QFY12 % chg (qoq) 560 88 15.7 52

14.2 32

Amara Raja Batteries (AMRJ) reported robust 2QFY2012 results, which came in ahead of our estimates, driven by strong growth in the industrial battery segment and stable performance in the auto replacement segment. We revise our earnings estimates marginally upwards to factor in the companys strong performance during the quarter. We maintain our Buy rating on the stock. Strong operating performance despite increased competitive activity: AMRJ posted impressive 42.8% yoy (6.7% qoq) growth in its top line to `560cr, led by strong growth in the industrial battery segment and stable performance by the auto battery segment. The industrial battery segments growth was aided by growth in the telecom (strong exports growth led by demand from Bharti Airtels African operations) and UPS segments, where AMRJ further increased its market share. Operating margin witnessed a 157bp yoy (strong 282bp qoq) expansion to 15.7%, led by a 351bp and 133bp yoy contraction in other expenditure and staff costs as a percentage of sales, respectively. Raw-material cost as a percentage of sales, however, increased by 320bp yoy mainly due to increased lead prices. Operating and net profit registered significant 58.6% yoy (30% qoq) and 64.1% yoy (33% qoq) growth, respectively, led by strong operating performance. Outlook and valuation: We estimate AMRJs top line to witness a CAGR of ~20% over FY201113E, leading to a ~17% CAGR in its net profit, largely aided by sustained growth in the auto and industrial battery volumes. We believe AMRJ is well placed to tap the rising demand from the auto and industrial segments, with its innovative products, competitive pricing, increased capacity and widening reach. AMRJ is trading at 9.2x FY2013E earnings. We maintain our Buy rating on AMRJ with a target price of `250.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 52.1 24.5 9.9 13.5

Abs. (%) Sensex AMRJ

3m (2.3) (6.9)

1yr (17.9) 22.1

3yr 83.2 374.5

Key financials
Y/E March ( ` cr) Net sales % chg Net profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 1,464 11.5 159 97.7 19.7 19.6 11.1 3.4 33.5 35.9 1.3 6.5

FY2011 1,761 20.3 148 (7.1) 14.5 17.3 12.6 2.9 24.8 30.2 1.1 7.4

FY2012E 2,179 23.7 179 21.0 14.3 20.9 10.4 2.3 24.6 30.8 0.8 5.9

FY2013E 2,514 15.4 203 13.8 13.8 23.8 9.2 1.9 22.7 29.1 0.7 5.0

Yaresh Kothari
022-3935 7800 Ext: 6844 yareshb.kothari@angelbroking.com

Please refer to important disclosures at the end of this report

Amara Raja Batteries | 2QFY2012 Result Update

Exhibit 1: Quarterly performance

2QFY12 Net sales Consumption of RM (% of sales) Purchases of goods (% of sales) Staff cost (% of sales) Other expenses (% of sales) Total expenditure Operating Profit OPM (%) Interest expense Depreciation Other Income Profit before tax Extraordinary income/(expense) PBT after extraordinary items (% of sales) Provision for taxation (% of PBT) Reported PAT Adjusted PAT PATM (%) Equity capital (cr) Reported EPS (`) Adjusted EPS (`)
Source: Company, Angel Research

2QFY11 392 248 63.2 3 0.7 20 5.2 66 16.8 337 56 14.2 (1) 11 2 47 47 12.0 16 33.1 32 32 8.1 17.1 3.7 3.7

% chg yoy 42.8 49.8 71.0 6.3 13.2 40.2 58.6 (284.8) 10.9 (10.8) 62.8 62.8 60.2 64.1 64.1

1QFY12 525 347 66.1 21 4.0 20 3.9 69 13.1 458 68 12.9 11 1 58 58 11.0 19 32.7 39 39 7.4 17.1

% chg qoq 6.7 6.9 0.2 (78.1) (79.5) 5.6 (1.0) 8.9 2.1 3.2 30.0 21.9 404.8 9.7 51.8 32.7 32.7 24.4 32.1 (0.5) 33.0 33.0 24.7 33.0 33.0

1HFY12 1,086 719 66.2 26 2.4 42 3.9 144 13.2 930 156 14.4 1 22 2 135 135 12.4 44 32.6 91 91 8.4 17.1 10.6 10.6

1HFY11 839 544 64.8 4 0.5 40 4.8 133 15.9 722 118 14.0 21 2 99 1 98 11.7 33 33.8 65 66 7.9 17.1 7.6 7.5

% chg yoy 29.4 32.2 475.7 4.9 7.6 28.9 32.6 (984.4) 7.2 (6.1) 35.5 37.0 32.2 39.4 37.1

560 371 66.3 5 0.8 22 3.8 75 13.3 472 88 15.7 1 12 1 77 77 13.7 25 32.5 52 52 9.3 17.1 6.1 6.1

64.1 64.1

4.6 4.6

39.4 41.8

Top line marginally above expectation: AMRJ posted impressive 42.8% yoy (6.7% qoq) growth in its top line to `560cr. Top-line growth was led by growth in the industrial battery segment and stable performance by the auto battery segment. The industrial battery segments growth was aided by growth in the telecom (strong exports growth led by demand from Bharti Airtels African operations) and UPS segments, where AMRJ further increased its market share. The two-wheeler battery segment maintained its volume momentum and reported strong growth, at par with the industrys growth.

November 18, 2011

Amara Raja Batteries | 2QFY2012 Result Update

Exhibit 2: Robust top-line growth of 42.8% yoy

(` cr) 600 500 400 300 200 100 0 6.4 10.3 15.8 8.7 15.9 17.6 30.9 Net sales (LHS) 45.7 yoy growth (RHS) (%) 50 45 42.8 40 35 30 25 20 15 10 5 0

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

Source: Company, Angel Research

EBITDA margin surprised positively and stood at 15.7%: For 2QFY2012, the companys EBITDA margin witnessed a 157bp yoy (strong 282bp qoq) expansion to 15.7%, led by a 351bp and 133bp yoy contraction in other expenditure and staff cost as a percentage of sales, respectively. Raw-material cost as a percentage of sales, however, increased by 320bp yoy mainly due to increased lead prices. As a result, operating profit witnessed better-than-expected 58.6% yoy (30% qoq) growth to `88cr.

Exhibit 3: Average lead prices up 20.2% yoy

(US $/tonne) 5,000 4,000 3,000 2,000 1,000 0 Lead inventory (RHS) Lead prices (LHS) (tonne) 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0

Exhibit 4: EBITDA margin surprised positively

(%) 80 70 60 50 40 30 20 10 0 23.6 18.8 55.8 60.1 EBITDA margin 66.1 66.6 63.9 Raw-material cost/sales 64.5 67.1 70.1 67.1

2QFY12
12.9 15.7

14.6

13.9

14.2

15.6

14.5

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

Source: Company, Bloomberg, Angel Research

Source: Company, Angel Research

Net profit jumps by 64.1% yoy: AMRJ posted a 64.1% yoy (33% qoq) jump in its net profit to `52cr mainly due to better-than-expected operating performance. During the quarter, AMRJ repaid the last installment of foreign currency term loan worth ~US$2mn.

November 18, 2011

2QFY12

Dec-02

Mar-02

Dec-06

Oct-03

Apr-09

Nov-10

Feb-06

Sep-07

Feb-10

May-05

Sep-11

Jul-04

Jul-08

Amara Raja Batteries | 2QFY2012 Result Update

Exhibit 5: Impressive net profit growth of 64.1% yoy

(`cr) 60 50 40 30 20 10 0 13.3 10.8 8.5 9.3 8.0 8.1 8.2 7.4 Net profit (LHS) Net profit margin (RHS) (%) 14 12 9.3 10 8 6 4 2 0

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

Source: Company, Angel Research

November 18, 2011

2QFY12

Amara Raja Batteries | 2QFY2012 Result Update

Investment arguments
AMRJ is Indias second-largest manufacturer of lead batteries, with a market share of ~27%. 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 ~53% and ~47%, respectively, to AMRJs overall revenue in FY2011. We expect the automotive battery market to post a ~13% CAGR in sales over FY201113E, led by healthy growth in replacement demand, a ~10% CAGR in new vehicle sales and shrinking market share of unorganized players. Thus, during FY201113E, we expect AMRJs automotive battery segment to post a ~22% revenue CAGR. Also, with a strong focus on strengthening its distribution network, we expect AMRJ to increase its market share to ~30% by FY2013E. AMRJ pioneered the use of maintenance-free batteries with presence in the railway signaling, telecom power and supply solutions segments. Going forward, we expect the power backup (UPS/inverter) segment to drive demand for industrial batteries, leading to a ~16% revenue CAGR in AMRJs industrial battery segment over FY201113E.

Outlook and valuation

We estimate AMRJs top line to witness a CAGR of ~20% over FY201113E, leading to a ~17% CAGR in its net profit, largely aided by sustained growth in auto and industrial battery volumes. On the valuation front, AMRJ is trading at 10.4x and 9.2x FY2012E and FY2013E earnings, respectively. At present, AMRJ is trading at a ~35% discount to Exide (adjusted for insurance business). Although AMRJ has always traded at a discount to Exide (due to Exides leadership position, scale of operations, superior margins and return ratios), AMRJ is well placed to tap the rising demand from the automobile and industrial segments with its innovative products, competitive pricing, increased capacity and widening reach. We believe, going forward, the discount commanded by AMRJ compared to Exide would reduce with a) increasing scale of operations, b) sustainable revenue and earnings visibility and c) improving return ratios. We maintain our Buy rating on AMRJ with a target price of `250.

November 18, 2011

Amara Raja Batteries | 2QFY2012 Result Update

Exhibit 6: One-year forward P/E band

(`) 350 300 250 200 150 100 50 0 Share price (`) 5x 8x 11x 14x

Exhibit 7: ARBL P/E Premium/Discount to Exide

(%) 0 (10) (20) (30) (40) (50) (60) (70) (80) (90) prem./ disc. to Exide Five-yr average Prem/Disc

Dec-04

Jan-07

Aug-05

Apr-04

Dec-01

Apr-06

Jan-09

Jun-10

Aug-02

Aug-07

Source: Company, Bloomberg, Angel Research

May-03

Source: Company, Bloomberg, Angel Research

Exhibit 8: Auto Ancillary - Recommendation summary

Company Amara Raja Automotive Axle Bharat Forge* Bosch India# Exide Industries FAG Bearings# Motherson Sumi* Subros
^

Reco. Buy Buy Buy Accumulate Accumulate Buy Buy Neutral

CMP Tgt. price Upside (`) (`) (%) 218 353 276 6,918 114 1,204 152 24 250 450 323 7,763 128 1,396 193 15.0 27.2 17.2 12.2 11.8 16.0 26.7 -

P/E (x) FY12E 10.4 8.8 14.5 19.7 20.6 11.6 17.1 7.4 FY13E 9.2 7.9 12.8 17.8 14.8 10.5 12.6 5.9

EV/EBITDA (x) FY12E 5.9 5.2 7.1 12.1 12.4 6.3 8.3 4.5 FY13E 5.0 4.5 6.0 10.5 8.7 5.2 6.7 3.8

May-08

Mar-06

Nov-06

Nov-11

RoE (%) FY12E 24.6 27.6 20.2 21.2 16.3 26.4 20.6 8.3 FY13E 22.7 26.2 19.0 19.4 20.1 23.1 24.3 10.0

FY1113E EPS CAGR (%) 17.3 24.2 31.5 19.2 1.7 25.1 10.3 (7.5)

Source: Company, Angel Research; Note: * Consolidated results; # December year end; ^ September year end

November 18, 2011

Nov-11

Oct-09

Jun-05

Jun-10

Sep-09

Feb-11

Sep-07

Feb-11

Jan-04

Apr-01

Oct-04

Apr-08

Jan-09

Amara Raja Batteries | 2QFY2012 Result Update

Profit & Loss Statement

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation & Amortization EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT Extraordinary expense PBT (reported) Tax (% of PBT) PAT (reported) Adj. PAT % chg (% of Net Sales) Reported EPS (`) Adjusted EPS (`) % chg FY2008 FY2009 FY2010 1,350 267 1,083 1,083 82.3 904 705 41 41 117 179 115.5 16.5 24 155 133.9 14.3 14 6 3.9 146 146 52 35.3 94 94 100.6 8.7 16.6 16.6 100.6 1,579 266 1,313 1,313 21.2 1,144 869 48 52 175 169 (5.5) 12.9 35 135 (12.9) 10.3 20 8 6.6 123 123 42 34.4 80 81 (14.7) 6.1 9.4 9.4 (43.1) 1,690 226 1,464 1,464 11.5 1,176 880 61 62 173 288 70.4 19.7 43 246 82.3 16.8 8 9 3.6 247 8 255 88 34.4 167 159 97.7 10.9 19.6 18.6 97.7 FY2011 FY2012E FY2013E 2,076 315 1,761 1,761 20.3 1,506 1,160 85 77 183 256 (11.4) 14.5 42 214 (12.9) 12.1 2 10 4.3 221 221 73 33.0 148 148 (7.1) 8.4 17.3 17.3 (7.1) 2,569 390 2,179 2,179 23.7 1,868 1,438 107 98 226 311 21.8 14.3 49 262 22.7 12.0 3 8 3.1 267 267 88 33.0 179 179 21.0 8.2 20.9 20.9 21.0 2,964 450 2,514 2,514 15.4 2,167 1,666 126 114 260 348 11.6 13.8 53 295 12.4 11.7 2 11 3.8 304 304 100 33.0 203 203 13.8 8.1 23.8 23.8 13.8

November 18, 2011

Amara Raja Batteries | 2QFY2012 Result Update

Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 311 122 189 66 16 575 51 103 421 179 396 666 427 146 281 40 47 526 70 87 369 184 342 710 491 185 306 23 16 631 62 109 460 319 312 656 539 224 315 38 16 742 40 111 590 349 393 761 629 273 356 38 28 932 102 142 689 412 520 942 686 326 360 41 43 1,104 145 163 795 463 641 1,085 11 322 333 316 17 666 17 389 406 286 18 710 17 527 544 91 22 656 17 629 646 95 20 761 17 789 806 115 20 942 17 968 985 80 20 1,085 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

November 18, 2011

Amara Raja Batteries | 2QFY2012 Result Update

Cash Flow Statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec. in Fixed Assets (Inc.)/Dec. in Investments (Inc.)/Dec. in loans & adv. Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2008 FY2009 FY2010 146 24 142 270 52 (9) (112) (0) (8) (4) (125) 176 5 (21) 159 26 26 51 123 35 (65) (177) 42 227 (90) (31) 9 (13) (125) 6 (30) 5 (63) (83) 19 51 70 255 43 (0) 12 88 198 (47) 31 16 (4) (4) (195) 8 (15) (202) (8) 70 62 FY2011 FY2012E FY2013E 221 42 91 187 73 93 (63) 0 (8) (4) (75) 4 29 (74) (41) (22) 62 40 267 49 50 76 88 202 (90) (12) (15) 0 (118) 20 46 (89) (23) 61 40 102 304 53 67 141 100 183 (60) (15) (10) (4) (89) (35) 25 (40) (50) 44 102 145

November 18, 2011

Amara Raja Batteries | 2QFY2012 Result Update

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.) 0.7 1.4 10.7 0.4 1.0 6.7 0.0 0.0 31.0 0.1 0.2 89.5 (0.0) (0.0) 76.0 (0.1) (0.3) 122.7 3.8 48 63 30 91 3.6 49 60 30 86 3.2 47 56 35 65 3.4 52 57 37 62 3.7 53 56 36 65 3.8 55 56 38 66 29.1 25.8 32.7 19.6 22.7 21.8 35.9 42.5 33.5 30.2 30.3 24.8 30.8 32.3 24.6 29.1 32.9 22.7 14.3 0.6 2.3 20.9 4.1 20.9 10.3 0.7 2.2 14.8 4.4 14.8 16.8 0.7 2.5 27.5 2.8 27.5 12.1 0.7 2.7 22.3 1.7 22.3 12.0 0.7 2.9 23.2 2.2 23.2 11.7 0.7 2.9 23.1 1.6 23.1 16.6 16.6 20.9 0.7 58.5 9.4 9.4 13.5 0.8 47.5 19.6 18.6 23.7 2.9 63.7 17.3 17.3 22.2 4.6 75.6 20.9 20.9 26.7 2.5 94.4 23.8 23.8 30.0 2.5 115.3 13.2 10.5 3.7 0.3 1.9 11.8 3.2 23.1 16.2 4.6 0.4 1.5 12.0 2.9 11.1 9.2 3.4 1.3 1.3 6.5 2.9 12.6 9.8 2.9 2.1 1.1 7.4 2.5 10.4 8.2 2.3 1.1 0.8 5.9 2.0 9.2 7.3 1.9 1.1 0.7 5.0 1.6 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

November 18, 2011

10

Amara Raja Batteries | 2QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Amara Raja Batteries No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

November 18, 2011

11