Weak mix and rising RM costs dent profitability

Company
06 Aug 2024
5 Min read 
  • Amara Rajas (ARENM) stock estimate changes CMP: INR 1,508 TP: INR 1,390 (-8 % ) Neutral TP change Rating change Bloomberg ARENM IN Equity Shares 
  •  1QFY25 financials were weak, with EBITDA margin contracting ~90bp QoQ to 13.7% 
  •  Revenue from the lead acid battery (LAB) business grew ~15% YoY 
  •  Share of traded goods rises to 23% from 12% QoQ, denting margins 
  •  Domestic volume grow s YoY across segments: i) 4W Aftermarket 11%, OE 6-7%; ii) 2Ws Aftermarket: 18 -19%, OE: ~25%; iii) Inverter batteries 15% YoY 
  •  Lithium cell prices have fallen to ~USD65 -70 / kwh due to excess supply available 
  •  ARENM to emerge as one of the beneficiaries of strong outlook in LAB 
  •  Transition to electrification globally and in India is emerging as a big risk for LAB players in the long run 
  •  Valuations fair; reiterate our Neutral rating: While the market seems to be upbeat about Amaras lithium ion foray, we remain circumspect of the returns from the business.
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