Amara Raja Batteries - 2QFY2016 Result Update - Angel Broking

Amara Raja Batteries (ARBL)'s 2QFY2016 results have come in line with estimates. The top-line continued to grow in double digits, but the growth was slightly moderated given the decrease in realization. Realization declined on account of passing of lower lead prices to consumers and due to slowdown in the UPS segment. Still, ARBL managed to keep its margins above the 17% mark. The net profit grew in robust double-digits, and came in line with estimates.

Top-line maintains double-digit growth: ARBL's revenues grew a healthy 9% yoy to Rs. 1,158cr on back of a robust 21% yoy growth in the automotive segment. The industrial segment was a bit subdued, growing by 5% yoy, due to slowdown in the UPS segment.

Margin improvement and lower depreciation boosts profitability: For the quarter, ARBL's net profit grew a robust 22% yoy to Rs. 122.6cr. Margin improvement due to soft lead prices coupled with lower depreciation expenses boosted the profits.

Outlook and Valuation: ARBL is likely to continue gaining market share in the automotive battery segment. The strategy followed by automotive OEMs of sourcing from multiple vendors as against having a single vendor is likely to benefit ARBL. Further, given the strengthening distribution network in the Western and Eastern markets, replacement sales are also expected grow in strong double digits, going forward. We also expect the industrial segment to recover from 2HFY2016, given the network expansion by telecom players and with ARBL entering into tubular battery manufacturing. We expect ARBL to record a healthy top-line CAGR of 19% over FY2015 to FY2017. Also, given the softness in lead prices, margins are expected to remain at elevated levels. We expect ARBL to clock 27% earnings CAGR over the next two years. Hence, we have a positive view on the stock and maintain our Buy rating with a target price of Rs. 1,039 (based on 28x FY2017 earnings).

Shares of AMARA RAJA BATTERIES LTD. was last trading in BSE at Rs.881.4 as compared to the previous close of Rs. 888.4. The total number of shares traded during the day was 53880 in over 1350 trades.

The stock hit an intraday high of Rs. 896 and intraday low of 876. The net turnover during the day was Rs. 47453879.

Source : Equity Bulls

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