Amara Raja Batteries: Small Cap

 

Result Update
CMP Rs. 514	Target Rs. 615 (12 Months)	Return 20%

Formidable player in the battery industry

Amara Raja Batteries Ltd (ARBL) is India’s second largest Lead-acid battery manufacturer. Its segment includes 70% from automotive & rest from industrial with market leadership in the Telecom segment. During Q1FY23, ARBL revenue grew by 39%YoY on the back of robust demand from aftermarket, OEM and industrial business (especially in the UPS and Telecom sector). Though, higher materials price and increase in freight cost have negatively affected the margin and thereby, PAT grew by marginal 6% YoY. Investment for technological up-gradation in the lithium ion project for 2W/3W batteries is progressing as per the schedule and started supplying lithium battery pack to 3W applications. We believe, respite in the lead price to limit margin dilution and expected to expand from current level owing to pick up in the auto sector. ARBL is a formidable player in the battery industry with strong balance sheet. The stock has corrected 34% from its 52 week high and trading below its historical avg. We value ARBL at 14x FY24E EPS.