Buy Amara Raja Batteries; target of Rs 863: Emkay Global Financial

Emkay Global Financial's report on Amara Raja Batteries

Q2 revenue grew 14% yoy to Rs19.4bn (est.: Rs18.4bn) and came in above estimates on robust 2W/4W replacement growth of 11%/16% and market share gains in 2W OEM segment. AMRJ’s market share with Hero MotoCorp and TVS Motors saw an increase. EBITDA margin expanded 30bps to 17.6% (est.: 17.5%), supported by a marginal fall in lead prices, better mix, cost-control measures and the reversal of a provision related to BSNL receivables. In Q2, AMRJ was able to retain the benefits of lower lead prices. Robust replacement demand, coupled with a pick-up in OEM/industrial segments, is expected to support revenue performance going ahead. AMRJ’s market share gains are also expected to continue.

Outlook

We expect revenue/earnings CAGR of 10%/14% for FY20-23E, with an average ROCE of 24% and FCF of Rs5.7bn/year. We maintain our Buy rating with a revised TP of Rs863 (Rs803 earlier), based on 15x FY23E EPS (Sep’22E EPS earlier).

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