Você está na página 1de 25

Initiating Coverage

Rating Matrix
Rating Target Target Period Potential Upside : : : : Buy | 234 12 months 15%

December 14, 2011

Amara Raja Batteries (AMARAJ)


| 203

The time for the challenger has come


FY13E 19.6 22.3 23.1 23.1

YoY Growth (%)


Net Sales EBITDA Net Profit EPS (|) FY10 11.5 44.0 107.6 107.6 FY11 20.3 (11.4) (11.3) (11.3) FY12E 25.2 24.3 21.9 21.9

Current & Target Multiple (x)


P/E Target P/E EV / EBITDA P/BV RoNW RoCE FY10 10.4 12.0 6.0 3.2 30.7 38.5 FY11 11.7 13.5 6.8 2.7 22.9 28.7 FY12E 9.6 11.1 5.5 2.2 23.1 30.1 FY13E 7.8 9.0 4.2 1.8 23.3 31.7

Stock Data
Bloomberg/Reuters Code Sensex Average volumes Market Cap (| crore) 52 week H/L Equity Capital (| crore) Promoter's Stake (%) FII Holding (%) DII Holding (%) AMRJ:IN / AMAR.NS 16,002.5 77,170 1,737 262/150 17.1 52.1 21.7 4.3

Amara Raja Batteries (ARBL) is the second largest battery maker in India with strong credentials to challenge Exide industries dominance in the lucrative auto-ancillary segment. ARBL commands a market share of (~25%) in the OEM auto space and ~16% in the replacement segment. In the industrial segments, it commands an overall market share of ~35% led by telecom and commercial UPS segment. We are firm believers of the long term automotive story, which is expected to fuel a CAGR sales growth of ~16% over FY11-14E. Even industrial demand is expected to grow in the commercial power supply segment. On the softer points, strong brand franchise and efficient two-tiered dealer network provides a strong edge in terms of barriers to entry. We find the battery business at the most attractive on a longer term among other auto-ancillary businesses. Margins for ARBL are expected to improve with higher aftermarket sales and operating leverage coupled with stable lead prices. We estimate revenues and PAT will grow at ~22% CAGR over FY11-13E to ~| 2638 and ~| 222 crore, respectively. We are initiating coverage on ARBL with a BUY rating.

Auto-replacement to be game changer


The domestic auto sector has entered a structural bull run on the back of low penetration and growing income levels. We estimate the OEM demand will reach ~26 million units in FY14E with a CAGR of ~13.5%. Another key point is the shift of the total industry towards electric start (two-wheelers the last entrant) variants leading to higher usage and lower average battery life. Both these factors combined would help in ushering in a new wave of the replacement cycle, which we estimate will grow at ~18.7% CAGR FY11-14E to ~37 million units.

Comparable return matrix (%)


Return % Amara Raja Batteries Exide Industries HBL Power Systems 1M (0.4) (2.8) (8.0) 3M (6.7) (9.1) (1.5) 6M 1.0 (22.4) (11.8) 12M 20.4 (26.0) (34.6)

Aggressive entry into OEMs along with unique distribution to bear fruit
ARBL has expanded capacities to set up dedicated channels for OEMs like HMSI, Honda and Bajaj Auto, thereby providing strong dedicated lines of revenue. This, coupled with the unique two-tiered franchised distribution model will help in deeper penetration and improved after market service coupled with more replacement sales opportunities for ARBL.

Price movement
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Dec-10 Mar-11 Price (R.H.S) Jun-11 Sep-11 Nifty (L.H.S) 300 250 200 150 100 50 0 Dec-11

Valuation
At the CMP of | 203, Amara Raja is trading at 9.6x FY12E EPS of | 20.1 and 7.8x FY13E EPS of | 26.0. We have valued the company at 9x its FY13 EPS of | 26.0 (~35% discount to Exide Industries core business multiple) to arrive at a target price of | 234 with an upside potential of 15%. We are initiating coverage on the stock with a BUY rating.
Exhibit 1: Key Financials
(Year-end March) Net Sales (| crore) EBITDA (| crore) Net Profit (| crore) EPS (|) P/E (x) Price / Book (x) EV/EBITDA (x) RoCE (%) RoE (%) FY09 1,313.2 199.6 80.5 9.4 21.6 4.3 9.3 23.9 19.8 FY10 1,464.5 287.3 167.0 19.6 10.4 3.2 6.0 38.5 30.7 FY11 1,761.1 254.6 148.1 17.3 11.7 2.7 6.8 28.7 22.9 FY12E 2,205.5 316.4 180.6 21.1 9.6 2.2 5.5 30.1 23.1 FY13E 2,638.0 387.1 222.3 26.0 7.8 1.8 4.2 31.7 23.3

Analysts name
Karan Mittal karan.mittal@icicisecurities.com Nishant Vass nishant.vass@icicisecurities.com Aman Daga h@icicisecurities.com aman.daga@icicisecurities.com

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 1

Promoter and institutional holding trend (%)


60.0 45.0 (%) 30.0 15.0 0.0 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 FII & DII 21.0 21.8 24.4 25.6 26 52.1 52.1 52.1 52.1 52.1

Company Background
Amara Raja Batteries Ltd (ARBL) is the second largest player in the automotive battery segment and the largest supplier of industrial standby storage power in India. In the four-wheeler battery business, the company enjoys a market share of ~25% in OEM and ~30% in the organised aftermarket segment. The company has managed to achieve a market share of ~16-18% within three years of launch in the organised aftermarket segment, even despite its absence in the two-wheeler OEM battery segment. ARBL has Amaron and Powerzone brands in the automotive space while it has Amaron, Power Stack, Quanta and Power Sleek brands in the industrial segment. Amara Raja has a diversified product range catering to telecom, UPS back-up systems, railways, solar power and power utility sectors. The industrial battery product portfolio offers capacities ranging from 4.5 Ah to 5,000 Ah. ARBL is the market leader in the telecom and UPS battery business with ~42% and ~32% market share, respectively. Amara Raja created a dominant network (240 franchised distributors, about 18,000 retailers, 800 exclusive retail partners in the PowerZone format spread across semi-urban and rural locations and around 2,000 service hubs) in the automobile battery segment in India. ARBL has a manufacturing facility in Andhra Pradesh. The two-tiered distribution model has been a resounding success for ARBL. The company has been able to grow its brand equity and market penetration in line with market leader Exide Industries (EIL). Based out of Andhra Pradesh, ARBL has employee strength of nearly 3,000 with sound HR and business policies in place. The management has been ably led by Ramachandra Galla (Chairman) along with his son Jayadev Galla (MD) since its inception. In the past, the management has always been true to its guidance and has delivered on its commitments.
Exhibit 2: Automotive battery sales constitute majority of ARBLs revenues
ARBL

Promoter Holding

Source: Company, ICICIdirect.com Research

Automotive Batteries (55%)

Industrial batteries (45%)

Telecom (45%)

OEMs (25%) UPS (38%) Replacement (75%) Railway & other (17%)

Source: Company Annual Report, Management discussion, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 2

Exhibit 3: Amara Raja timeline


s Commenced production in Indias 1st and most advanced VRLA battery plant Signed JV with Johnson Controls Inc (JCI), USA Received ISO 14001 certification Launched PowerZone branded batteries and new look Amaron battery range Doubled both LVRLA and MVRLA battery capacities launched Pleasure

1992

1996

1997

2001

2002

2004

2007

2008

2009

2010

Supplied the first ever VRLA battery used by Indian Railways 1100Ah

Inaugurated greenfield automotive battery plant with a 1 million unit capacity

Received the Ford World Excellence award and signed OE agreement with Maruti Udyog Limited

Launched the Amaron Pro Bike Rider first VRLA two-wheeler batteries in India

Received the Supply Chain Leader 2011 Award and Best HR Strategy in line with Business

Source: Company, ICICIdirect.com Research

Exhibit 4: Subsidiaries and associate companies


Amara Raja

Group Companies

Amara Raja Electronics Ltd Amara Raja Power Systems Ltd Mangal Precision Products Ltd Galla Foods

Source: Company annual report, ICICIdirect.com Research

Exhibit 5: Management Team


Ramchandra Galla Jayadev Galla Chairman Managing Director He has been the Executive Chairman and MD of ARBL (July1998 to August 2003) before current role He has been the MD of ARBL since August 2003. Prior to this, he was the ED of the company

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 3

Structure & outlook of Indian automotive battery industry


The domestic lead acid storage battery market is estimated to be worth ~| 13,000 crore. The automotive battery segment constitutes 63% whereas the industrial segment occupies 37% of the total market. The branded battery segment is ~56% of the total automotive battery market with Exide and Amara Raja dominating the branded space.
Exhibit 6: Domestic lead acid battery market
Domestic lead acid storage battery market (| 13000 crore)

Automotive battery business (~63 % at | 8190 crore)

Industrial battery business (~37 % at | 4810 crore)

Branded battery (~58% at | 4750 crore)

Unbranded battery (~42 % at | 3440 crore)

Source: Company annual report, ICICIdirect.com Research

We estimate that overall automotive demand will increase at a CAGR of ~16.4% over FY11-14E to touch ~63 million units. The OEM demand is expected to touch ~26 million units while replacement estimates will touch ~37 million units by FY14E. We expect domestic auto sales to remain structurally robust and witness ~13.5% CAGR growth during FY11-14E. However, near term headwinds have made us cautious and factor in the lower end of our projections leaving room for upside risks to our estimates. Thus, in terms of utilisations, the industry could be near peak capacity usage by ~FY14E providing additional operational levers towards earning growth.
Exhibit 7: Automotive led industry wide demand scenario & growth estimates
Replacement demand (mn units) Passenger vehicles Commercial vehicles Three wheelers Two wheelers Total* OEM demand (mn units) Passenger vehicles Commercial vehicles Three wheelers Two wheelers Total Overall auto demand 2 0 0 8 11 26 2 1 1 11 14 34 3 1 1 13 18 40 3 1 1 16 21 47 4 1 1 18 24 53 4 1 1 19 26 63 13.0% 19.0% 14.3% 13.3% 13.5% 16.4% Major participants Exide Amara Raja Others Unorganised Total industry capacity est. Expected utilisation levels FY09 2 1 1 12 15 FY10 3 1 1 15 20 FY11 3 1 1 17 22 FY12E 4 1 1 20 26 FY13E 5 1 1 21 29 FY14E 6 2 2 28 37 19.2% 16.4% 16.9% 18.8% 18.7% Industry capacity outlook FY12E 20.3 9.0 3.3 26.6 59.2 79% FY13E 23.1 10.6 3.7 27.1 64.6 81% FY14E 25.4 11.7 4.1 27.5 68.7 92% CAGR (14E-11) Comments The replacement cycle has been estimated considering three replacement cycles for each segment each year with time gaps of ~3 years, 6 yr, 8 years and 10 years, respectively. This is in conjunction with varied degree of conversions to replacement sales in each of these cyles

Source: Company, ICICIdirect.com Research *replacement demand has been estimated through a multiple replacement market cycles of varying time lengths for a period of 10 years

ICICI Securities Ltd | Retail Equity Research

Page 4

SWOT analysis of Indian lead acid battery segment


Exhibit 8: SWOT Analysis of Indian lead acid battery segment

Strengths
The unique duopoly structure of the battery industry provides relatively higher pricing power to ARBL and Exide (~90% of organised market share) compared to other ancillary players High barrier to entry due to challenges like branding, OEM tie-ups, technology and distribution network

Weakness
The share (~45%) of unorganised sector in automotive battery business leads to competitive pricing in lower end of spectrum Lead prices, which account for ~80% of total raw material cost are highly volatile in nature

Non-auto sales continue to hold up with UPS sales The import of raw materials is subject to currency risk. compensating for slowdown in other industrial segments The recent weakening of INR is a cause of concern for all players Reducing life span for automotive batteriesm and robust OEM growth in last four years to drive replacement demand The telecom sector (~45% of ARBL's industrial revenues) offtake is expected to remain tepid in view of the slowdown in tower additions in the sector

Opportunities

Threats

The industrial trend is towards higher value added The threat of removal of import duties similar to the tyre maintenance free batteries. Investment being made on industry remains an overhang on the replacement market the technology upgradation front by players could provide demand. fresh lines of sales the industrial segment Reduction in unorganised market share as scrap lead procurement continues to become tougher through regulations If sustainable supply scenario in the power sector improves, the UPS/inverter sales could witness a downfall

Source: Company, ICICIdirect.com Research

Exhibit 9: Herfindahl index


5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Automotive 4883

Duopoly structure lends pricing power


The Indian battery industry is a duopoly in nature with top players viz. Exide and Amara Raja controlling ~90% of the organised market. Batteries remain an important purchase decision for customers. Thus, coupled with power concentration in the hands of top two players (refer Exhibit 9), the pricing power remains strong for the industry. Exide is the market leader in the automotive segment followed by Amara Raja. Also, battery is arguably one of the two components in automobile with certain degree of branding attached. Both Amara Raja and Exide have strong tieups with recognised international players along with established brands over a long run, thus making entry barriers significantly high for the industry. Unlike other component manufacturers, battery makers are able to pass on the rise in input costs, primarily lead, in the replacement market. With OEMs, they have a lead pass through agreements. These contracts are linked to LME prices, such that a rise in cost of production due to lead is passed on to OEMs. This has helped the automotive battery segment to maintain its margins even with volatile lead prices. However, the unorganised sector dominates the price sensitive end of the market (commercial vehicles and tractors), tending to keep pricing at a varying discount to organised players. This segment remains a laggard in terms of pricing flexibility for the twin behemoths.

2687 2052 1377 1611 1436

Aviation

Telecom

Tyres

2 -W

PV

< 2000 Highly competitive, 2000-4000 Moderately competitive, >4000 Least competitive

Source: Company, ICICIdirect.com Research


Herfindahl Index: - This is the measure of the size of various firms in an industry. This acts as an indicator towards the monopolistic or competitive nature of the same Inference: - This comparative analysis of the various sectors reflects strong competitive pressures in telecom and aviation. In the automotive space, the tyre industry is highly competitive while the battery segment seems to be a strong duopoly with high power concentration

ICICI Securities Ltd | Retail Equity Research

Battery

Page 5

Exhibit 10: Realisations move in line with lead price


3.0 2.5 2.0 ($) 1.5 1.0 0.5 0.0 FY07 FY08 Avg. Lead cost/kg FY09 FY10 Avg Realisation /unit FY11 1.4 1932 2.9 2262 2629 2611 2.0 1.6 2180 2.3 3000 2500 2000 1500 1000 500 0 (|)

Source: Company, ICICIdirect.com Research

Exhibit 11: Market share of unorganised battery makers


Unorganised players dominate the lower end of the replacement market (commercial vehicles and tractors) due to the price sensitive nature of the segment. In contrast, the passenger vehicle space is dominated by Exide and Amara Raja
(%) 50 25.0 75 70.0 70.0 60.0 100

25

0 Commercial vehicles Tractors Two Wheeler Passenger Vehicle

Source: Company, ICICIdirect.com Research

Robust OEM sales in last three to four years to fuel growth


The auto sector has witnessed a high growth phase from FY07 onwards. Passenger vehicle sales have clocked growth at 16.3% CAGR for the last five years even as the global slowdown in FY09 marred sales. We anticipate these factors will fuel a strong wave of aftermarket sales from H2FY12E onwards and could touch ~37 million units till FY14E. The estimated registered vehicles in India will touch ~ 14 crore clocking a CAGR of 10.2% (FY04-FY11E). We believe that from growth of both sales and registered vehicles, battery companies would be huge beneficiaries. This presents a huge opportunity for both Exide and ARBL to propel them into a high revenue growth phase. In line with this, the managements have undertaken strong capacity expansion plans to capture this latent demand.

ICICI Securities Ltd | Retail Equity Research

Page 6

The auto industry has exhibited robust growth across segments over the last five years even when sales were hit by a global slowdown in 2008-09. This phenomenal growth is expected to translate into strong replacement demand

Exhibit 12: Automobile production CAGR for last five years


2 Wheeler Tractor M&HCV LCV 3 Wheeler Utility Vehicle Cars 0 2 4 6 8 13.0 15.2 18.6 (%) 10 12 14 16 18 20 12.0 10.8 9.4 18.9

Source: Company, ICICIdirect.com Research

Stronger economic activity, higher disposable incomes and easy financing have led to a strong increase in the registered vehicle base, which augurs well for replacement market

Exhibit 13: Increasing base of registered vehicles fuelling strong replacement battery demand
17.5 14.0 (crore vehicles) 10.5 7.0 3.5 0.0 FY08E FY09E FY10E FY11E
160.0

6.7

7.3

8.0

9.0

10.0

10.9

11.9

13.0

14.3

FY03

FY04

FY05

FY06

Source: All India Federation of Motor Vehicles Department,, ICICIdirect.com Research, Company Annual report

Exhibit 14: Automobile domestic sales trend (in million units)


The overall sales volumes remained flattish during the global slowdown in FY09. However, sales volumes have got ramped up in the last two years across segments. The PV segment grew at an exceptional 27.5% CAGR over FY09-11 while two wheeler sales grew at 25. 9% CAGR over FY09-11
6.8 5.3 FY11 FY10 FY09 FY08 FY07 FY06 25.2 19.5 15.5 15.5 13.8 11.4 0.0 117.9 93.7 74.4 72.5 78.7 70.5 40.0 60.0 80.0 100.0 120.0 140.0 Two Wheelers

3.5 3.6

4.7 4.0

Passenger Vehicles

4.9 3.6

3.8 3.5

20.0

5.3 4.4

Commercial Vehicles

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

FY07

Three Wheelers

Page 7

Shortening of replacement cycle to benefit industry


As mentioned earlier, the strong OEM demand is expected to provide strong replacement sales. However, we believe these sales could yet become further buoyant as the average lifespan of batteries come down. This belief grows from the fact that the share of electric start vehicles in the two-wheelers segment has significantly grown from FY06-07 to ~80% of the market at present. This has led to higher usage of the installed set of batteries, thus reducing their usable lifespan. This resulted in development of higher capacity batteries yielding higher realisation. Moreover, as the battery replacement decision cannot be delayed, the shortening of battery lifespan is inevitable. We expect this electric start based two wheelers to be a key trigger for the replacement market as the growth in overall sales marked a shift in the last ~two years. We believe, on an average, a three year time cycle would come into place for vehicle replacements that is estimated to cumulatively provide an automotive replacement of ~65-70 million units till FY14E at a growth of ~19% CAGR for FY14E-11.
Exhibit 15: Two-wheelers constitute bulk of total registered vehicles in India*
Passenger vehicles 14 % Commercial vehicles 6% Others 7% Two wheelers 73 %

Source: All India Federation of Motor Vehicles Department, ICICIdirect.com Research, as on Q4FY10

As mentioned earlier, there exists a compulsory need to replace old batteries. Also, batteries serve more than just the basic purpose of lighting. The rise in use of electrical equipment like central locking, power windows, etc is more demanding on batteries. Moreover, due to higher cranking frequency for an electric start version, the average life of two wheeler batteries should effectively reduce although the lifespan is dependant on the usage rate.
Exhibit 16: Battery lifespan of vehicles
Vehicle Category Cars & Utility Vehicles Commercial Vehicles (LCV and MHCV) Two Wheelers* Tractors FY06 4-5 years 3-4 years 4-5 years 3-3.5 years FY11 3-4 years 3-3.5 years 2-3 years 2-3 years

Source: Company, ICICIdirect.com Research* Two Wheelers post FY07 witnessed electric start revolution, All these numbers are estimates on back of historical research, channel check.

ICICI Securities Ltd | Retail Equity Research

Page 8

Valuations lend credence to battery segment attractiveness


Our liking for the battery business stems from strong business matrices and replacement market opportunities. It is also supported by attractive relative valuations across other players in the auto component segment. We have elucidated a few technical aspects and analysed peers on those parameters assigning equal weights.
Exhibit 17: Cross segmental valuation matrix
Mcap (| cr) Battery segment Exide Industries Amara Raja Batteries Ltd Tyres Apollo Tyres MRF Tyres Other segments Motherson Sumi Bosch Ltd * SKF India * Bharat Forge 5847 21420 2992 5888 17.8 21.3 14.3 29.1 11.3 17.0 7.8 12.5 1.5 0.7 1.9 0.9 33 21 19 9 10 14 13 3 11.9 15.5 11.9 14.3 4 6 5 8 3041 2989 6.8 10.6 4.4 5.3 1.4 0.5 24 19 9 8 11.8 10.2 3 7 9987 1737 16.5 8.8 10.1 5.3 0.9 1.4 27 29 15 14 19.8 16.4 2 1 PE (x) EV/EBITDA (x) Div yield (%) RoE (%) RoCE (%) EBITDA margin (%) Overall rating

Source: Company, ICICIdirect.com Research, Bloomberg, Historical multiples are on 3 year rolling basis * Calendar Year ending(CY)

It becomes obvious that the battery segment remains among the top performers in terms of returns generation on a consistent basis driven through strong operational metrics and reflected through high return ratios On valuation multiples like PE and EV/EBITDA, Exide enjoys a premium in comparison to its closest competitor ARBL owing to its strong leadership position. However, on cross segmental terms, ARBL is clearly one of the most attractive bets Post individual rankings on the parameters, the battery sector remains the leader with top slots taken up by the two majors of the segment. This lends strength to our argument of looking at the battery business with a higher degree of comfort if were to be investing in the automotive components industry

ICICI Securities Ltd | Retail Equity Research

Page 9

We expect that robust growth in the auto battery segment along with demand sustenance from the industrial battery space to be the key driver for ARBLs revenues over the next few years. Also, structurally positive outlook for domestic auto demand and a stronger replacement demand augurs well for Amara Raja in coming years. Capacity expansion and strong OEM relationships will be the key drivers for business. Furthermore, a strong brand image in the minds of consumer and extensive dealer network will propel growth. The topline growth will be aided by the healthy demand for industrial batteries driven by significant power shortfall in the country and increased investment in the railway sector. Subsequently, we estimate ARBLs revenues to post growth at 22.4% CAGR over FY11-13E at | 2,638 crore. Sales volumes are expected to rise to ~8 million units in the automotive space and 1376 MnAH units in the VRLA segment. In the overall sense we expect battery sales to touch ~12mn units by FY13E at ~20% CAGR FY13E-11.
Exhibit 18: ARBLs battery volume sales forecast
14 12 10 (mn units) 8 6 4 2 0 FY09 FY10 FY11 Sales volume FY12E Growth FY13E 5.0 22.0 8.1 6.5 28.8 24.7 10.0 24.2 18.6 11.9 35 30 25 (%) 20 15 10 5 0

Investment Rationale

Source: Company, ICICIdirect.com Research

Exhibit 19: Volume projections and assumptions


Volumes Automotive segment (mn) OEM % growth (YoY) Replacement % growth (YoY) Industrial segment (MnAH)* % growth (YoY) 995 3.4 0.9 2.2 132% 2.9 -14% 1126 13% 4.0 85% 2.8 -4% 1232 9% 4.9 21% 3.2 13% 1376 12% FY10 FY11 FY12E FY13E

Source: Company, ICICIdirect.com Research * Industrial battery sales are in MnAH(million ampere hours)

Strong player despite late entrance, smaller size


The company enjoys a healthy market share of ~25% in the four wheeler OEM space and ~30% in the replacement segment in the overall organised market. In the two-wheeler organised aftermarket segment, the company has grasped an impressive ~18% market share in the organised market within three years from launch. This is despite the lack of a presence as a supplier to two-wheeler OEMs. Amara Raja has successfully carved a niche for itself in the aftermarket due to strong product performance and brand image in the mind of consumers.

ICICI Securities Ltd | Retail Equity Research

Page 10

Strong brand recall & wide distribution network key strengths


The Amaron brand of battery is well established in various countries across the Indian sub-continent. It took various initiatives like the launch of batteries with a 60-month warranty (pro-rata) for the first time in Indias automotive replacement market. Amara Raja ventured into the two wheeler battery space in May 2008 through its Amaron Pro Bike Ride brand and was immensely successful in establishing a positive brand image. ARBLs brand equity can be gauged from the fact that without any OEM presence in the two wheeler space the company still manages to have ~18% market share in the organised replacement segment. To maintain and enhance its product image, ARBL maintains ad spends in line with industry standards.
Exhibit 20: ARBL's advertisement spend ranks similar to market leaders*
28 21 (| crore) 14 0.5 7 0 Exide Amara Raja HBL Power Tudor 1.3 1.4 1.2 1.0 0.8 0.6 0.2 0.6 0.4 0.2 0.0

Advertisement expenses - LHS

% of net sales - RHS

Source: Company, ICICIdirect.com Research *FY11 advertisement expenditure

Brand recognition is one aspect. However, another necessary lever for sales remains a strong distribution network. ARBL has the second largest web of touch points with 240 franchised distributors, about 18,000 retailers in the Amaron format and 800 exclusive retail partners in the PowerZone format spread across semi-urban and rural locations in collaboration with 2,000 service hubs. The management plans to double this network in the next two years. The uniqueness in the operation lies in the two-tier distribution network it follows unlike market leader Exide. The company sells its brand like Amaron to end consumers through multi brand retail outlets (small repair shops), which do not have any dedicated ARBL specific sales. However, this help in providing deeper penetration. Exide, in comparison, considering its huge product positioning, follows a dedicated model. We believe this two-tier format would help ARBL in entering newer markets in a guerrilla style without any dedicated network. However, it also entails a risk of loss of end sales if the touch point interest were to turn rogue.

ICICI Securities Ltd | Retail Equity Research

Page 11

Exhibit 21: ARBL plans to double its existing dealer network


45000 40000 No. of touch points 35000 30000 25000 20000 15000 10000 5000 0 Exide FY11 Amara Raja FY11 Amara Raja FY13E 18000 Expansion ~2x by FY13E 40000 36000

Source: Company, ICICIdirect.com Research

Technological edge a key differentiator


Over the years, the company has a rich tradition of being a pioneer on several technological forefronts. ARBL has a highly sophisticated R&D structure in place, which churns out path-breaking products from time to time. This serves as a key differentiator between the organised and unorganised players. The automotive batteries business unit commenced operations in 2001 with technology from Johnson Controls Inc, JV partner and the worlds largest manufacturer of automotive batteries.
Exhibit 22: Key technological landmarks
Year 1996 Events Supplied first ever VRLA battery used by Indian Railways - 1100Ah for air-conditioning

2007

Launched new look Amaron product range (PRO, FLO, GO, Black and Fresh) Introduced the innovative Amaron Pro Bike Rider battery with VRLA technology for the two-wheeler segment (60 month warranty)

2008

Source: Company, ICICIdirect.com Research

Capacity ramp up to assist in tapping opportunities


The company has embarked on a structural shift in its strategy, which is evident from its capex plans. The focus is shifting from the industrial segment to the robust automotive space. The industry wide slowdown in the telecom segment has also been a key catalyst for the same. ARBL is currently undergoing large capacity additions in both the four-wheeler battery plant (4.20 million units to 5.60 million units per annum) and the two-wheeler battery plant (3.60 million units to 5 million units per annum) that will be completed by Q2FY12. Before entering into a contract with an OEM, it must have a capacity of ~1 million set aside for the OEMs. The capacity expansion plan in the two-wheeler segment by ARBL reflects the managements strategy of entering the OEM segment. We believe ARBL would be able to cater to the strong growth opportunities post expansion. The company is expected to expand its capacity to ~11.7 million units by FY14E (refer Exhibit 7). This would equip ARBL to address the rising demand from both the OEM and replacement markets simultaneously, assisting in garnering a higher market share from OEMs who currently primarily source from Exide.

ICICI Securities Ltd | Retail Equity Research

Page 12

ARBLs installed production capacity was raised by 16.5% in FY11 to 0.95 crore units and is expected to get ramped up to ~1.4 crore units by FY13E

Exhibit 23: Investment in manufacturing capacity to cater to higher domestic battery demand
1.6 1.4 (Crore batteries) 1.2 1.0 0.8 0.6 0.4 0.2 0.0 FY08 FY09 FY10 Installed Capacity FY11 FY12E FY13E 0.5 0.4 0.7 0.5 0.8 0.6 1.0 0.8 1.3 1.0 1.4 1.2

Sales Volume

Source: Company, ICICIdirect.com Research

Exhibit 24: ARBL has a diverse client base in auto OEM segment
Passenger vehicles
ARBLs diverse client list in the Auto and Industrial segment de-risks it to a certain extent from a slowdown in a particular sector

Commercial vehicles Tata Motors Ashok Leyland Mahindra & Mahindra Swaraj Mazda

Tractors Tafe

Industrial BTIL Indus Towers DB Power VIOM networks Tower Vision Indian Railways Emerson Numeric

Maruti Suzuki Tata Motors Honda Hyundai General Motors Ford India Fiat Hindustan Motors

Source: Company, ICICIdirect.com Research

Telecom growth loses steamSteady state growth possible


The industrial segment of Amara Raja witnessed robust sales in FY07-09 due to a surge in demand from the telecom segment with increasing number of towers. ARBL is a preferred supplier to all major telecom infrastructure and service providers and enjoys ~45% market share in the telecom segment, which contributes ~45% of its industrial revenue. However, the telecom segment saw a downturn from late FY10. To overcome this large exposure in the telecom segment, ARBL diversified into other allied industrials, auto. This resulted in a change in volume mix for ARBL with total share of telecom reducing to 20% in FY11 from 40% in FY10. We believe the telecom segment may see a recovery as tenancy increases with the 3G roll-out and with stable replacement cycle persisting. However, it is improbable to expect this segment to grow multi-fold. We concur with the managements long-term stable growth rates of ~6-8%.

ICICI Securities Ltd | Retail Equity Research

Page 13

Exhibit 25: Revenue break-up of industrial segment


Railway & Others 17% Power 38%

Telecom 45%

Source: Company, ICICIdirect.com Research

Exhibit 26: Market share enjoyed by ARBL in industrial battery segment


ARBL enjoys market leadership in the telecom segment (45%) with a strong presence in the UPS and railways segments at 35% and 40% market share, respectively
60.0 45.0 30.0 15.0 0.0 UPS Telecom Railways 45 35 40

Source: Company, ICICIdirect.com Research

UPS segment to lead industrials as power sector continues to be challenged


India still faces a substantial power deficit with several cities facing daily power cuts of as long as 10-12 hours. The government has cut down its ambitious plans of new power capacity to 70 GW in the XIIth Plan even as it has fallen short by ~20% from the revised target of 62GW in the XIth Plan. India's power generation capacity - including state, central and private utilities - is around ~ 180,000 MW while grid-connected captive capacities add another ~25,000 MW. However, the situation in the power generation, transmission has improved with peak load deficit at ~10% YTD (refer Exhibit 26). Still, lately with uncertainty prevailing in the southern region it has again shot above 14%. The shortfall in the actual capacity addition amid higher planned targets for capacity expansion remains the main crux of the problem. Coal supply disruption, probable defaults and delays towards payments from the state electricity boards are some challenges plaguing the power sector. We believe this inconsistent supply would remain a key growth driver for demand and would reflect in robust growth in the UPS/inverters segment in coming years. We expect the growth in manufacturing, telecom, IT/ITeS, BFSI and retail sectors along with an increasing need for individual households to have continuous power backup solutions owing to the afore stated unreliability in supply. Amara Raja is the market leader in medium VRLA product

ICICI Securities Ltd | Retail Equity Research

(%)

Page 14

segment for commercial UPS applications and benefits from long-term supplier relationship with national OEMs such as Emerson, Numeric, Delta, etc. It enjoys ~ 1/3 market share in the UPS segment with the power backup segment constituting nearly 35% of ARBLs industrial battery segments revenues. We concur with the managements view of growth at ~12-15% CAGR for the next five years on a normalised basis.
Exhibit 27: Aggressive power capacity addition targets in XI-XII Plans
135 100 90 (GW) 45 0 Upto XI Plan Planned targets XI-XII Plans Targets Actual / Estimated 62 70 50

Source: CEA, ICICIdirect.com Research

Exhibit 28: Continued power shortage* driving demand for inverters


20 15 10 (%) 5 0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 YTD FY12 12.3 13.8 16.6 11.8 12.2 11.2 11.7 11.9 13.3 14.0 9.8

Peak load deficit (%)

Source: CEA, ICICIdirect.com Research, *measured by peak power deficit

Railways to provide welcome growth opportunities


Indian Railways provides a steady income flow to ARBL, constituting 15% of the companys industrial battery segments revenues. The government had announced its plans to acquire ~18,000 wagons during FY11-12E to operate new trains (and modernise the existing network) and expansion of the metro network in several Indian cities. According to the Economic Survey of India, more than | 20,000 crore will be spent on building and expanding the metro network in select Indian cities over FY10-12E. This presents significant growth opportunities for Amara Raja in this space. In Indian Railways, Amara Rajas products are used in more than 40% of two and three tier air-conditioned coaches. They also support train lighting and signalling & telecom (S&T) power supply solutions. Going ahead, the railway mission 2020 presents several new revenue streams for battery makers like ARBL. This would include powering the non-air conditioning compartments, etc. to name a few.

ICICI Securities Ltd | Retail Equity Research

Page 15

Lead prices stability on longer term a key positive for investment


Exhibit 29: Global lead outlook

Usage:

The International Lead and Zinc Study Group expects the global usage of refined lead metal to increase by 6.1% to 10.15 million tonnes (MT) in 2011 and a further 4% to 10.56 MT in 2012

Despite being adversely affected by a slowdown in automotive sales and the widespread closure of battery
production facilities for environmental reasons, the end-demand for lead-acid batteries is still rising. China continues to lead global motor vehicles with sales rising 3% YoY to 10.5 mn units in the seven months from January to July 2011. However, it is anticipated that demand in the US will rise by 2.3% in 2011 and 2.2% in 2012. In Europe, the outlook is similarly subdued with usage predicted to be flat in 2012 after growth of 4.6% in 2011

Supply:

Increases in global lead mine production of 7.8% in 2011 and 6.2% in 2012 will be mainly a consequence of higher output in China, India and Mexico and the opening of new mines in Tajikistan and Uzbekistan.This will lead to an increase in world refined lead metal production of 7.3% in 2011 to 10.34 MT and up to 10.65 MT in 2012

World Refined Lead Metal Balance:


ILZSG expects the global refined lead market to remain in surplus for CY11E and CY12E. The extent of the surplus in 2011 is forecast at 188,000 tonnes and in 2012 at 97,000 tonnes
Source: ILZSG, ICICIdirect.com Research

This international study provides us belief towards a strong supply situation in terms of refined lead for CY11E and CY12E, which would outstrip the demand requirement during the same period. We believe lead prices have started to move downwards from H1FY12 and could follow the trend, going ahead. The stability in input prices would help the complete industry. However, non-dependence on in-house smelting would benefit ARBL incrementally more than Exide. With more dependence on LME/external lead sources, ARBL is more sensitive to global prices in comparison to Exide. Therefore, the delta in margins for ARBL would be higher.
Exhibit 30: Lead prices historical movement
140 120 100 (|/Kg) 80 60 50.9 40 20 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY07 FY08 FY09 Lead prices FY10 FY11 FY12* 55.4 71.5 77.2 83.7 61.3 58.3 89.7 125.9 125.4 107.9 115.9 96.2 73.8 94.1 90.1 102.7 95.9 107.9 113.4 112.1

116.5

Source: Company, ICICIdirect.com Research * FY12 numbers are on YTD basis

ICICI Securities Ltd | Retail Equity Research

Page 16

Risks and concerns


Volatile lead prices an overhang on margins
Lead and lead alloy prices that account for ~87% of the total cost have been highly volatile, of late. Unlike its peer Exide, Amara Raja does not have access to lead supplies from in-house smelters, thereby making it susceptible on the margin front. Lead prices surged (~17.2% YoY) putting pressure on margins. However, in the longer term, prices are expected to remain stable. Along with this, crude oil volatility also affects the synthetic input cost for making battery containers, thus impacting profits.
Exhibit 31: Lead price movement and EBITDA margin trend
3000 2500
15.6 12.9

2387

18 2574
14.5

2531

2445
15.7

16 14 12 8 6 4 2 0
(%)

2000
($/tonne)

1945

2039

1500 1000 500 0 Q1FY11 Q2FY11 Q3FY11 Avg. Lead cost Q4FY11 Q1FY12 Q2FY12 EBIDTA margins (RHS)
13.9 14.5

10

Source: Company, ICICIdirect.com Research

As per our sensitivity analysis, the impact of lead price volatility is enormous considering no price pass through at the same instant. We have estimated a volatile 10-15% movement on lead prices on either side. Keeping other things constant, this could lead to an EPS volatility in the range of +/-71% in FY13E, vis--vis our base case.
Exhibit 32: Lead price sensitivity to earnings
Lead price change -15% -10% -5% 0% 5% 10% 15% EBITDA margin (%) FY12E FY13E 22.9 23.5 20.5 20.5 16.5 17.6 14.3 14.6 11.1 11.7 8.2 8.7 5.0 5.8 Margin change (%) FY12E FY13E 8.6 8.9 6.2 5.9 2.2 3.0 -3.2 -2.9 -6.1 -5.9 -9.3 -8.8 EPS (|) FY12E 36.0 31.9 25.0 21.0 15.6 10.4 4.8 FY13E 44.4 38.2 32.2 26.0 19.9 13.8 7.7 EPS change (%) FY12E FY13E 71.4 70.8 51.9 46.9 19.0 23.8 -25.7 -23.5 -50.5 -46.9 -77.1 -70.4

Source: Company, ICICIdirect.com Research * These estimates are based on the assumption that there is no pass through of prices

On the margins front also, the delta on either side always remains high with a +/-10% change in lead prices potentially leading to a rise in margins to up to ~24% and even falling to ~9% for FY13E with our base case at ~15% for FY13E. Thus, in our view, though the lead price outlook is expected to be stable for FY13E considering the demand supply scenario, any sharp rise on account of global uncertainty could leave ARBLs financials vulnerable.

ICICI Securities Ltd | Retail Equity Research

Page 17

Sharp depreciation in rupee


A large chunk of Amara Rajas lead requirement (~60%) is met through imports from Korea and Australia while 20% is obtained from Hindustan Zinc and the rest 20% from local recycling smelters. The depreciation of the INR (|) is a cause for concern as ARBL remains a net importer of raw materials. However, the presence of pass through contracts provides the company the cushion of pass through for forex uncertainty.
Exhibit 33: Rupee volatility remains a concern
54 52 50 48 46 44 42 40 44.5 Unexpectedly sharp currency depreciation 53.5

Sep-09

Sep-10

Mar-09

May-09

Nov-09

May-10

Nov-10

Sep-11

Jul-09

Jul-10

Jan-09

Jan-10

Jul-11

Mar-10

Mar-11

Source: Company, RBI, ICICIdirect.com Research

In FY11, the average US$/INR rate was 45.6, a 3.9% appreciation from the average rate in FY10 at 47.4. In the current fiscal FY12 till date, the US$/INR has been on an average at 46.7 but the currency has weakened drastically since August 2011 (refer Exhibit 28 above) touching an all-time low of 53.5 in December 2011. The outlook on the same remains bleak as the RBI is keen to leave price determination to market forces. Thus, with the weak fiscal position, INR is expected to remain under pressure in the near term.

Large exposure to waning telecom segment


The telecom industry has entered a slowdown phase after having witnessed phenomenal growth in FY07-10. With telecom companies undertaking cost cutting measures to safeguard its revenues, the demand for batteries from the telecom space is likely to witness a contraction. With the telecom segment contributing ~30% of Amara Rajas revenues, the pricing pressure on telecom batteries could impact earnings. However, the management is actively looking at reducing exposure in the segment and the proportion of revenues has come down to ~25% by FY13-14E.

ICICI Securities Ltd | Retail Equity Research

May-11

Page 18

Nov-11

Jan-11

Financials
Revenues to rise at a 22.4% CAGR in FY11-13E
We expect ARBLs revenues to grow at 22.4% CAGR during FY11-13E to | 2,654 crore driven by sustained battery demand from the auto OEM and replacement segments (due to large base of registered vehicles and ARBLs strong position in the organised market). Growth will also be boosted by the robust demand for industrial batteries. Further, ARBL benefits from strong brand equity and distribution network (refer Exhibit 19 and 20). In FY11, ARBLs revenue growth was a healthy 19.6% YoY at | 1,771 crore.
Exhibit 34: CAGR of 22.4% in ARBLs revenues over FY11-13E
3,000 2,216 (| crore) 2,000 1,109 606 1,321 1,481 1,771 2,654

1,000

0 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

Source: Company, ICICIdirect.com Research

EBITDA margins to trend higher


The duopoly nature of the industry lends a substantial degree of pricing power to Amara Raja. In the absence of in-house smelter facility compared to its peer Exide, Amara Raja witnessed a decline in EBITDA/battery in FY11 (down 29% YoY) due to high lead prices. Going ahead, we expect it to improve its EBITDA/battery at |315/ battery from FY11 aided through an enriched product mix and higher replacement market sales.
Exhibit 35: Costs and revenue metrics per battery
ARBLs EBITDA/battery has declined by ~29% in FY11 owing to higher lead prices during the fiscal
2,300 (|) 1,800 1,718 1,300 800 FY09 FY10 Revenue/battery FY11 FY12E FY13E EBITDA/battery RM Cost/battery 1,423 1,463 1,526 1,478 200 397 2,800 2,611 444 2,262 2,180 2,218 2,214 400 325 (|) 300 500

315

318

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 19

The EBITDA margin grew over FY07-10 but higher lead prices took their toll on the margin in FY11 (down 517 bps YoY)

Exhibit 36: EBITDA margin comparison of Aman Raja with its peers
25 20 (EBITDA %) 15 10 5 FY07 FY08 FY09
Exide

23.4 19.6 16.2 16.1 15.2 7.6 18.6 19.7 14.5 14.5 14.3 11.2 17.8 14.6 11.2

16.5 14.4 13.7

16.5 15.8 14.2

FY10

FY11
Amara Raja

FY12E

FY13E
HBL Power

Source: Company, ICICIdirect.com Research, Bloomberg estimate for HBL

Given the companys inherent strengths, we believe that improvement of margins from the current level is a reasonable assumption. We expect the company to report EBITDA margin of 14.3% and 14.6% in FY12E and FY13E, respectively. Consequently, we estimate ARBLs EBITDA to grow at a 23.2% CAGR over FY11-13E to touch | 386.6 crore from | 254.6 crore in FY11.

Profitability to sustain
The company is expected to register a bottomline growth of 22.5% CAGR over FY11-13E driven by higher demand for batteries and lead prices cooling off, going ahead. The companys expansion plan and strategic shift towards a higher revenue mix from the auto segment is set to drive growth. The profitability fro ARBL is in direct cognisance with the strong operating performance, we expect it to touch PAT of | 222 crore by FY13E.
Exhibit 37: PAT expected to grow at a CAGR of 22.5% over FY11-13E
250 200 150 100 50 0 FY07 FY08 FY09 PAT FY10 FY11 FY12E FY13E 47 94 80 7.9 8.7 8.4 11.4 167 8.4 148 8.2 181 8.4 222 12 10 8 6 4 2 0

PAT margin (%) (RHS)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 20

Return ratios to marginally improve


Return ratios are expected to remain healthy with rising profitability. Return ratios witnessed a decline in FY11 and are expected to remain at similar levels in FY12E primarily due to the significant investment to boost the manufacturing capacity but are expected to improve going ahead in FY13E with increasing utilisations and higher profitability. The RoCE is expected to reach 31.8% in FY13E with RoNW to clock 23.3% levels.
Exhibit 38: ARBL expected to sustain high return ratios
45.0 36.0 27.0 (%) 18.0 9.0 0.0 FY07 FY08 FY09
RoCE

38.5 28.3 16.8 19.3 20.0 30.7 23.9 19.8 22.9 23.1 23.3 28.7 30.1 31.7

FY10

FY11
RoNW

FY12E

FY13E

Source: Company, ICICIdirect.com Research

Valuations
The price earnings based methodology is used to value ARBL at | 234/ share with PE multiple of 9x on FY13E EPS of | 26.0. The multiple rationale has been derived through analysis of historical discounts to market leader Exide

ARBL along with Exide are the two major players in the battery sector. We feel a PE methodology on relative terms is an effective valuation method. We have assigned 9x multiple to ARBLs business, which is at a discount of ~35% to Exide (valued at 14x FY13E core business multiple). We have analysed the historical discount from FY06 (Refer Exhibit 40). Though the average discount for FY06-12 (YTD) is ~50%, we have witnessed an uptick in ARBLs valuations. The market seems to have grown up to the prospect of strong business growth coupled with earnings growth closer to the market leader. Even on the return ratios front, ARBL has improved its profile leading to further support towards higher valuation multiples. We, however, believe our 35% discount is justifiable considering the scale, brand and aftermarket reach that Exide enjoys. At the CMP of | 203, the stock is trading at 9.6x FY12E EPS of | 21.1 and 7.8x FY13E of | 26.0. We have arrived at our target price of | 234 with a 9x multiple on FY13E EPS of | 26.0. This discounts the stock attractively at 4.2x FY13E EV/EBITDA and 1.8x FY13E P/BV. We are initiating coverage on the stock with a BUY rating implying an upside potential of 15% from current levels.

Exhibit 39: Peer Valuation


Country Exide Industries # Amara Raja Batteries Ltd HBL Power Exide Technologies* GS Yuasa Corp ** CMP (|) M.Cap (| cr)

PE (x) FY11 FY12E 17.3 9.8 11.2 9.5 15.0 FY13E 12.2 8.0 8.4 3.4 11.9 FY11 9.7 7.1 14.5 6.5 9.6 12.7 11.9 29.2 15.5 19.4

EV/EBITDA (x) FY12E 11.9 5.7 8.0 4.0 7.6 FY13E 8.1 4.4 7.2 3.8 5.9 FY11 3.7 2.8 0.9 2.1 2.1

P/B (x) FY12E 3.2 2.3 NA 0.5 1.6 FY13E 2.7 1.9 NA 0.3 1.4 FY11
1.9 1.0 0.4

Market Cap/Sales(x)

FY12E
1.7 0.8 0.4 0.07 0.6

FY13E
1.5 0.7 0.3 0.07 0.6

India India India USA Japan

117.5 203.4 16.8 2.8 447.0

9987.0 1737.0 425.0 21.6 18486.8

0.30 0.8

Source: Company, Reuters, ICICIdirect.com Research *,**CMP in USD,Yen and Market Cap in Mn USD Mn Yen,, # Core business multiples

ICICI Securities Ltd | Retail Equity Research

Page 21

Exhibit 40: One-year forward P/E discount chart for ARBL vis--vis Exide
The historic average P/E discount is ~50%. In recent times, the gap, at present, has hovered at ~30% levels down from the H1FY12 average of ~47%. This can partially be attributed to negative surprises on Exides front as well as the consistent performance of ARBL
80 70 60 50 (%) 40 30 20 10 0
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Sep-11
12000 10000 8000 6000 Feb-11 Apr-11 Sep-11 Dec-10 May-11 Mar-11 Aug-11 Nov-10 Nov-11 Dec-11
88 78 68 20 (x) 15 10 5 0 Mar-06 Jul-06 Mar-07 Jul-07 Mar-08 Jul-08 Mar-09 Jul-09 Mar-10 Jul-10 Mar-11 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Jul-11 Nov-11 58 48 38 28 18 8 (%)

Current discount

Avgerage 5-yr discount

Source: Company, ICICIdirect.com Research

Exhibit 41: ARBL share price vs. BSE Auto Index


270 250 230 210 190 170 150 Jan-11 Jun-11 Oct-11 Jul-11

Amara Raja (LHS)

BSE Auto Index (RHS)

Source: Bloomberg, ICICIdirect.com Research

The ARBL vs. BSE Sensex multiple ratio has witnessed a significant improvement since FY08 with discount falling from ~70% to ~30%

Exhibit 42: One year forward PE - ARBL vs. BSE Sensex


30 25 The rise in AMRj's multiple has been progressive with its business performance corraborated through stock price outperformance

Amara Raja

Sensex

Discount ratio

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 22

Table and ratios


Profit and loss statement
(| Crore) (Year-end March) Net Sales Growth (%) Total Operating Expenditure EBITDA Growth (%) Interest PBDT Depreciation Less: Exceptional Items PBT Growth (%) Total Tax PAT before MI PAT Growth (%) EPS (|) FY09 1,313.2 21.2 1,313.2 199.6 29.2 18.2 189.4 34.6 32.2 122.7 (16.0) 42.2 80.5 80.5 (14.9) 9.4 FY10 1,464.5 11.5 1,464.5 287.3 44.0 6.8 297.6 42.9 254.6 107.6 87.6 167.0 167.0 107.6 19.6 FY11 1,761.1 20.3 1,761.1 254.6 (11.4) 1.5 262.7 41.7 221.0 (13.2) 72.9 148.1 148.1 (11.3) 17.3 FY12E 2,205.5 25.2 2,214.1 316.4 24.3 2.1 316.6 47.9 268.7 21.6 88.1 180.6 180.6 21.9 21.1 FY13E 2,638.0 19.6 2,653.9 387.1 22.3 1.0 386.1 54.3 331.7 23.4 109.5 222.3 222.3 23.1 26.0

Balance sheet
(| Crore) (Year-end March) Equity Capital Reserve and Surplus Total Shareholders funds Secured Loan Unsecured Loan Deferred Tax Liability Sources of Funds Total Gross Block Less Accumulated Depreciation Net Block Net Intangible Assets Liquid Investments Inventory Debtors Loans and Advances Cash Total Current Assets Total Current Liabilities Net Current Assets Application of funds FY09 17.1 388.5 405.6 207.8 78.0 18.3 709.7 427.1 145.7 281.3 47.1 160.8 207.8 87.0 109.9 565.6 184.3 381.3 709.7 FY10 17.1 526.6 543.7 27.3 63.9 21.6 656.5 488.9 185.3 303.6 2.1 16.1 217.6 242.3 108.7 85.2 653.7 319.1 334.7 656.5 FY11 17.1 628.9 646.0 24.0 71.0 20.5 761.5 536.4 223.1 313.3 1.8 16.1 284.7 305.7 111.3 77.8 779.4 349.1 430.3 761.5 FY12E 17.1 764.6 781.7 19.0 91.0 18.5 910.3 646.4 270.5 375.8 1.3 16.1 319.6 382.8 164.2 80.9 947.5 430.5 517.0 910.3 FY13E 17.1 937.1 954.2 14.0 81.0 20.5 1,069.7 696.4 324.4 372.0 0.9 46.1 374.3 457.9 165.3 170.4 1,167.8 517.0 650.8 1,069.7

ICICI Securities Ltd | Retail Equity Research

Page 23

Cash flow statement


(| Crore) (Year-end March) Profit after Tax Depreciation Cash Flow before working capital changes Net Increase in Current Assets Net Increase in Current Liabilities Net cash flow from operating activities (Purchase)/Sale of Fixed Assets Net Cash flow from Investing Activities Inc / (Dec) in Equity Capital Inc / (Dec) in Loan Funds Inc / (Dec) in Loan Funds Net Cash flow from Financing Activities Net Cash flow Cash and Cash Equivalent at the beginning Closing Cash/ Cash Equivalent FY09 80.5 34.6 115.0 90.7 (17.8) 188.0 (127.0) (156.6) 5.7 (18.8) (11.6) (38.4) (7.0) 116.9 109.9 FY10 167.0 42.9 210.0 (112.9) 134.8 231.9 (67.4) (33.0) (180.5) (14.1) (223.7) (24.7) 109.9 85.2 FY11 148.1 41.7 189.8 (133.1) 30.0 86.8 (51.1) (52.2) (3.3) 7.1 (41.9) (7.4) 85.2 77.8 FY12E 180.6 47.9 228.5 (164.9) 81.4 145.0 (110.0) (112.0) (5.0) 20.0 (29.8) 3.2 77.8 80.9 FY13E 222.3 54.3 276.6 (130.9) 86.5 232.2 (50.0) (78.0) (5.0) (10.0) (64.8) 89.4 80.9 170.4

Ratios
(Year-end March) Per Share Data EPS Cash EPS BV Operating profit per share Operating Ratios EBITDA / Total Operating Income PAT / Total Operating Income Return Ratios RoE RoCE RoIC Valuation Ratios EV / EBITDA P/E EV / Net Sales Sales / Equity Market Cap / Sales Price to Book Value Turnover Ratios Asset turnover Debtors Turnover Ratio Creditors Turnover Ratio Solvency Ratios Debt / Equity Current Ratio Quick Ratio 1.9 6.3 14.0 2.1 6.0 10.6 2.5 5.8 11.7 2.6 5.8 11.7 2.7 5.8 11.7 FY09 9.4 13.5 47.5 23.4 FY10 19.6 24.6 63.7 33.6 FY11 17.3 22.2 75.6 29.8 FY12E 21.1 26.8 91.5 37.1 FY13E 26.0 32.4 111.7 45.3

15.2 6.1

19.6 11.4

14.5 8.4

14.3 8.2

14.6 8.4

19.8 23.9 18.1

30.7 38.5 28.1

22.9 28.7 20.9

23.1 30.1 21.8

23.3 31.7 24.8

9.3 21.6 1.4 3.2 1.3 4.3

6.0 10.4 1.2 2.7 1.2 3.2

6.8 11.7 1.0 2.7 1.0 2.7

5.5 9.6 0.8 2.8 0.8 2.2

4.2 7.8 0.6 2.8 0.7 1.8

0.7 3.1 2.5

0.2 2.0 1.8

0.1 2.2 2.0

0.1 2.2 2.0

0.1 2.3 1.9

ICICI Securities Ltd | Retail Equity Research

Page 24

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps / midcaps, respectively, with high conviction; Buy: > 10%/ 15% for large caps / midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 7th Floor, Akruti Centre Point, MIDC Main Road, Marol Naka, Andheri (East) Mumbai 400 093 research@icicidirect.com ANALYST CERTIFICATION
We /I, Karan Mittal MBA Nishant Vass MBA(FINANCE) Aman Daga MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

pankaj.pandey@icicisecurities.com

Disclosures:
ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and employees (ICICI Securities and affiliates) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. ICICI Securities and affiliates expect to receive compensation from the companies mentioned in the report within a period of three months following the date of publication of the research report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. It is confirmed that Karan Mittal MBA Nishant Vass MBA(FINANCE) Aman Daga MBA research analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business. ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. It is confirmed that Karan Mittal MBA Nishant Vass MBA(FINANCE) Aman Daga MBA research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use of information contained in the report prior to the publication thereof. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

ICICI Securities Ltd | Retail Equity Research