Emkay Global has given a buy rating to Amara Raja Batteries with a 12-month target price of Rs 732 based on 15 times FY22E EPS.
Amara Raja’s Q4FY20 revenue grew marginally by 1 per cent year on year to Rs 15.8 billion against brokerage estimate of Rs 14.3 billion), while adjusted PAT grew strongly by 15 per cent to Rs 1.4 billion against brokerage estimate of Rs 1 billion), above estimates due to higher-than expected replacement revenues, operating margin and other income.
The brokerage expects the company to outpace industry growth over next 1-2 years, led by market share gains. It maintains buy rating, with a revised target price of Rs 732, up from Rs 624 earlier.
Investment Rationale
According to the brokerage, in the duopoly batteries’ market, Amara Raja continues to be a formidable second player behind Exide Industries. Excellent franchise model and operational efficiency have enabled Amara Raja to deliver a strong performance, and the brokerage expects the momentum to persist. The FY21E EPS has been reduced by 8 per cent to Rs 33.6, due to reduction in revenue estimates, while FY22E EPS has been increased by 17 per cent to Rs 48.8, due to higher revenue and margin assumptions.
The brokerage has introduced FY23E EPS of Rs 56.2, factoring in revenue growth of 12 per cent and EBITDA margin of 16.8 per cent. Post revision, we expect revenue/earnings CAGRs at 9 per cent/12 per cent for FY20-22E, with an average ROCE of 23 per cent and FCF/year of Rs 4.5 billion.
Although the shift toward EVs remains a structural risk, penetration of electrical vehicles (EVs) could be gradual. Other risks are lower-than-expected growth in OEM/replacement demand in the auto segment, continuation of weak demand for telecom batteries, higher competitive intensity, and adverse currency/commodity prices.
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1581.39 crore, down -9.51 per cent from last quarter sales of Rs 1747.52 crore and up .94 per cent from last year's same quarter sales of Rs 1566.73 crore. The company reported net profit after tax of Rs 137.30 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 28.06 per cent stake in the company as of March 31, 2020, while FIIs held 20.91 per cent, DIIs 11.61 per cent and public and others 39.42 per cent.