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Reiterate ADD on Amara Raja Batteries - Pent-up demand leads to healthy 2Q - HDFC Securities

Posted On: 2020-10-29 05:51:20

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

Amara Raja reported a healthy quarter as revenue grew 14% YoY, driven by pent-up demand. The growth was across automotive segment (2W/4W replacement sales and higher home inverter sales) as well as industrial (higher telecom, UPS segment). While margins expanded to 17.6% on improved operating leverage, we believe that profitability will be lower in 2H as lead prices are firming up. Further, revenue growth is expected to moderate as the home inverter demand is seasonal. Amara Raja will continue to gain market share from the unorganised segment in the near term. However, the co's future technology partnerships (after the exit of Johnson Controls) and its ability to foray into alternate battery chemistries will determine growth opportunities in the longer term. Reiterate ADD with a TP of Rs 840 at 19x Sep-22 EPS. We raise our FY22/23E estimates by ~3% to factor in the better-than-expected results.

2QFY21 financials: Amara Raja 2QFY21 performance was ahead of our expectations. Revenue grew to Rs 19.3bn (+14% YoY) due to pent-up demand. EBITDA margin at 17.6% expanded 35bps YoY due to improved operating leverage - other operating expenses ratio fell 180bp YoY to 11.1% of sales. However, PAT declined 8% YoY owing to lower tax expense in the base quarter, given the shift to a new tax regime in FY20.

Key takeaways: (1) Automotive segment: The replacement segment grew in double digits as the aftermarket sales witnessed strong demand post the initial lockdown periods. Further, the organised sector continued to gain market share from SMEs. Home inverter sales were also sharply higher YoY; (2) Industrial: Demand growth was led by the telecom and commercial UPS market segments due to requirements for keeping the data network uptimes near to 100%. The industrial segment accounts for ~30% of the overall mix; (3) Exports of automotive and industrial batteries also witnessed an uptick as geographies opened up across the globe.

Shares of AMARA RAJA BATTERIES LTD. was last trading in BSE at Rs.743.6 as compared to the previous close of Rs. 744.5. The total number of shares traded during the day was 20925 in over 1209 trades.

The stock hit an intraday high of Rs. 747.2 and intraday low of 731.7. The net turnover during the day was Rs. 15514255.

Source: Equity Bulls

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