Markets

Broker's call: Amara Raja Batteries (Buy)

| Updated on February 03, 2020 Published on February 04, 2020

Emkay Global

Amara Raja Batteries (Buy)

CMP: ₹785.85

Target: ₹856

Despite the steep fall in OEM (original equipment manufacturer) revenues and lower realisations, Amara Raja Batteries’ Q3FY20 revenues grew marginally by 3 per cent yoy to ₹1,750 crore (estimated: ₹1,730 crore) on positive growth in the Replacement and Industrial segments.

EBITDA margin expanded 130 bps y-o-y to 16.2 per cent (estimated: 14.9 per cent) due to lower-than-expected raw material costs. Benign mix in automotive/two-wheeler as well as industrial segments, better sourcing, and the use of low-cost inventories supported margins during the quarter.

We increase FY21/22E EPS forecast by 6 per cent/7 per cent to ₹42.7/₹47.6, led by higher volume and margin assumptions. Post revision, we expect revenue/earnings CAG₹ at 9 per cent/19 per cent for FY19-22E, with an average ROCE of 23 per cent and FCF of ₹400 crore.

The stock currently trades at a P/E of 17x/16x on FY21/22 estimates. We maintain our ‘Buy’ rating with a revised target price of ₹856, up from ₹784 earlier, based on 18x FY22E EPS (December 21E EPS earlier).

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Published on February 04, 2020
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