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B. Krishnakumar

Exclusive supplier status for Maruti's Swift could power growth.

LONG-TERM investors can consider equity exposure at the prevailing levels. The recent developments relating to bagging of orders along with the technical backing of Johnsons Control of US would help Amara Raja grow at a steady pace. Though the firm trend in lead price and the highly competitive environment remains a cause for concern, the company appears well-positioned to tide over these factors.

The company is a major player in the valve regulated lead acid (VRLA) batteries that are used in industrial applications such as telecom, power and information technology, among others. It ventured into the automotive battery market in the late 1990s. It has since made a steady progress in the automobile segment, which now accounts for about 55 per cent of the turnover.

The company's performance in the recent years had taken a knock owing to pressure on realisation in the industrial battery market and the growing expenses towards marketing of automotive batteries. Besides, the sharp rise in price of lead, the key raw material, also affected the company's profitability.

The impact of these factors was manifest in the lacklustre performance for the year ended March 2004. The turnover remained stagnant at Rs 163.5 crore (Rs 160.7 crore), while the post-tax earnings dropped by about 81 per cent to Rs 1.4 crore.

Amara Raja has managed to record improved performance in the recent quarters. Efforts to enhance presence in the market along with the stability in the realisation of industrial batteries have had a positive impact. The decision to undertake manufacturing on behalf of other private labels along with a pick-up in exports has also helped the cause.

As a result, for the quarter ended December 2004, the turnover rose 54 per cent to Rs 60.5 crore and the company posted a net profit of Rs 1.42 crore compared to a loss of Rs 1.4 crore in the corresponding year-ago period.

In a recent development, the company has bagged orders to supply batteries for Swift — Maruti's latest offering in the passenger car market.

The company would be the exclusive supplier of batteries for all models of Swift. This along with the bagging of orders for other Maruti models would provide further impetus to growth.

The company is also focussing on the replacement market by expanding its retail outlets across the country. It has also launched batteries across different price segments and is targeting new customers in the original equipment market.

These initiatives would propel demand for automotive batteries, while the industrial battery segment is likely to improve on account of increased activity in the telecom and information technology sectors.

Besides, the company is also targeting the export market and is steadily gaining acceptance in overseas markets as well. To cater to the growing demand, the company is expanding capacity, which is expected to go on stream by December 2005.

Taking into account these factors, Amara Raja appears well-positioned to record improved performance. Investors can consider equity exposures at the prevailing levels. Our "buy" recommendation is on the premise that the buoyancy in the economy and automobile industry would sustain.

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