Amara Raja Batteries
BSE SENSEX
26,349
S&P CNX
8,129
5 December 2016
Update
| Sector:
Automobiles
CMP: INR917
TP: INR1,098(+20%)
Buy
On linear growth path with several drivers in place
GST + Demonetization to drive shift towards organized players
We meet with the management of Amara Raja to get an update on the business. Key
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
highlights from our meeting:
AMRJ IN
170.8
1077/773
-6/12/6
156.5
2.3
296
47.9
Demonetization limited impact:
2W batteries impacted more as deferment can happen
due to kick option available. Not much impact on 4W batteries. Channel also gets
impacted due to working capital challenges.
Outlook remains positive:
Sales CAGR of over 15% over next 3 years, with stable
EBITDA margins at ~17%. Sales growth to be driven by share gains in replacement (CVs
& gain from unorganized), 2W OEMs, inverters and new avenues in exports, solar &
motive power.
Financials Snapshot (INR b)
2016 2017E 2018E
Y/E Mar
Sales
46.9
53.8
63.6
EBITDA
8.2
9.1
11.3
NP
4.9
5.3
6.9
EPS (INR)
29
31
40
EPS Gr. (%)
19.8
7.8
30.0
BV/Sh. (INR)
123
149
182
RoE (%)
25.8
22.7
24.2
RoCE (%)
24.2
21.6
23.1
P/E (x)
32.0
29.7
22.8
P/BV (x)
7.4
6.2
5.0
Price increases to off-set cost pressures:
Given ~26% increase in spot lead prices, Exide
has taken 3% price increase and AMRJ has taken 4% in Nov-16 in replacement (v/s cost
increase of 2.5-2.6%). Further price increases would be taken to pass on cost pressures.
At lead prices of USD2,500/Ton (v/s spot rate of USD2,274), total cost increase would
be 12% (as pricing with OEMs and part of industrial segment is indexed to lead prices).
Capacity utilization:
AMRJ is operating at over 90% utilization for 2Ws and 4Ws, 80%
for MVRLA and Tubular battery at ~55% currently (66% by Mar-17).
Capex:
AMRJ to invest ~INR INR4b in FY17 and ~INR6b in FY18 [incl Maintenance capex
of ~INR1.75-2b]. This would be for capacity addition in 2Ws [4m by Jun-18 to 15m] and
4Ws [2.25m by Mar-17 to 10.5m].
Valuation & View:
Favorable competitive environment, significant FCF generation
(~INR5.5b over FY16-19E), stable RoE of 25%, potential shift from unorganized to
organized players due to GST and demonetization would continue to drive stock re-
rating. The stock trades at 22.8x/19.2x FY18/19E EPS. Maintain Buy with a TP of
~INR1098 (25x Sep-18E EPS).
Exhibit 1: Comparative valuation
Auto OEM's
Bajaj Auto
Hero MotoCorp
TVS Motor
M&M
Maruti Suzuki
Tata Motors
Ashok Leyland
Eicher Motors
Auto Ancillaries
Bharat Forge
Exide Industries
Amara Raja Batteries
BOSCH
CMP
(INR)*
2,738
3,224
357
1,181
5,204
440
77
22,742
873
176
917
20,852
Rating
Buy
Neutral
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Neutral
TP
(INR)
3,255
3,288
424
1,534
6,121
606
90
29,163
974
213
1,098
20,937
P/E (x)
FY17E FY18E
19.5
16.4
17.7
15.4
28.5
20.8
17.4
13.8
20.1
16.6
14.7
8.2
15.9
11.9
36.9
25.7
34.9
21.7
29.7
41.1
25.5
17.9
22.8
31.7
EV/EBITDA (x)
RoE (%)
RoCE (%)
EPS CAGR (%)
FY17E FY18E FY17E FY18E FY17E FY18E FY16E-18E
13.5
11.0 30.8
31.8
30.0 30.9
12.7
11.6
10.0 41.4
39.1
40.4 38.3
14.8
17.8
13.3 27.6
30.2
28.5 32.9
37.3
14.4
12.6 14.9
14.8
12.4 12.6
13.6
12.8
10.3 23.2
23.2
31.2 31.1
31.7
4.6
3.2
11.9
18.4
9.1
13.6
20.9
8.4
6.5
23.1
26.2
17.0 20.6
28.7
28.4
21.5 40.7
42.0
27.4 30.9
34.1
16.8
13.4
17.3
32.4
13.7
11.4
13.7
24.3
15.5
14.1
22.7
19.7
19.0
15.1
24.2
24.5
10.7
14.5
21.6
27.9
13.7
15.8
23.1
33.6
10.3
15.9
18.3
9.8
Source: Company, MOSL
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Aditya Vora
(Aditya.Vora@MotilalOswal.com) +91 22 3078 4701 /Venil
Shah
(Venil.Shah@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.