AMARA RAJA BATTERIES LTD - Q2 FY18

Amara Raja Batteries Ltd reported strong sequential double digit growth for PAT & EBDITA in the current September quarter where as yearly number remained in negative territory.  On yearly basis, Revenue & PAT declined 5% & 7% respectively in the current quarter. Revenue stood at Rs. 14275 Mn against Rs. 15080 Mn in Q2 FY17. Net Profit was reported at Rs. 1273 Mn against Rs. 1363 Mn rising 27% sequentially. EBDITA maintained its positive momentum rising both yearly and quarterly by 4% & 21% respectively in the current September quarter. EBDITA was reported at Rs. 2503 Mn in the current quarter compared to Rs. 2417 Mn corresponding quarter previous year. Operating expenditure declined 7% YOY from Rs. 12782 Mn to Rs. 11894 Mn in the current Q2 FY18 and 20% sequentially. Controlled operating expenditure led to healthy EBDITA & Net Profit margins at 17.54% & 8.91% compared to 16.03% & 9.04% respectively same period previous year. EBDITA Margin jumped 151 BP YOY & 518 BP sequentially. Net Profit Margin declined 13 BP as depreciation & Taxation jumped 28% & 9% YOY. Net Profit Margin jumped 294 BP QOQ. Other Income exhibited mild uptick on yearly basis with 2% YOY and stood at Rs. 122 Mn compared to Rs. 120 Mn corresponding period previous year.

The Automotive battery business exhibited strong growth across segments both in four & two wheeler. Tubular battery sales to HUPS segment have witnessed sustained growth driving volume growth in all verticals of the business which has helped the company to report healthy utilization in the current quarter in all product categories across battery automotive battery business. Industrial Battery business reported significant growth except Telecom which continues to witness disruption leading to lower demand for batteries in the Telecom industry. Rising lead prices increasing cost of material for the company is another factor affecting company’s bottom line. Lead prices have escalated about 25% over the past 12 months.

Amara Raja Batteries Ltd expected to perform better in the long run as the Indian economy is spearheading in vehicle growth, expanding telecommunications, restructuring railways, solar energy, IT & ITes, UPS manufacturers and infrastructure sector. The company is expecting continuous demand growth for automotive batteries in both OE and replacement markets. Capacity utilization across most of the product lines has been healthy during the quarter and the company continues to expand capacities to keep up with growing demand. We recommend BUY for the stock for medium term investment with target price of Rs. 875.