28 January 2015
3QFY15 Results Update | Sector: Automobiles
Amara Raja Batteries
BSE SENSEX
29,559
Bloomberg
Equity Shares (m)
52-Week Range (INR)
S&P CNX
8,914
AMRJ IN
170.8
946/321
CMP: INR915
TP: INR1,093 (+19%)
Buy
In-line performance; new capacities, weak lead prices to drive performance
FY16 onwards
M.Cap. (INR b) / (USD b) 156.3/2.5
AMRJ’s performance was in line with EBITDA/PAT of ~INR1.8b/1b, despite higher
other expenses. FY16 is an inflection year for AMRJ, with significant new capacities
1, 6, 12 Rel. Per (%)
3/73/128
driving revenue growth (~23% CAGR) and benign lead prices driving margins (+250bp
Avg Val (INR M)/Vol ‘000 173/309
by FY17E), translating into ~34% EPS CAGR (FY15E-17E) after a muted FY15. Stable
Free float (%)
47.9
competitive environment, significant FCF generation (~INR7b over FY16E-17E) and
improving RoE (4pp by FY17E to ~31%), coupled with potential shift from unorganized
Financials & Valuation (INR Million)
to organized players, due to GST, would continue to drive re-rating of the stock.
y/e MAR
2015E 2016E 2017E
7,246
4,131
24.2
11.6
98.7
27.1
37.8
37.8
9.3
Net Sales
EBITDA
Adj PAT
EPS (INR)
Gr. (%)
BV/Sh.INR
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
42,288 52,893 63,315
9,617 12,383
5,481
32.1
32.7
123.8
28.8
40.7
28.5
7.4
7,468
43.7
36.3
158.0
31.0
44.1
20.9
5.8
Net sales grew 23.6% YoY (+0.1% QoQ) to INR10.7b (est. INR10.2b), driven by
telecom (~29% YoY) and replacement segment (~20% YoY).
RM cost declined by 40bp YoY (-80bp QoQ) to 65.2% on account of favorable mix
and stable lead price (in INR terms).
Other expenses were higher at 13.3% of sales (+90bp/+110bp YoY/QoQ v/s est.
12%), due to higher marketing spend and higher CSR spend.
EBITDA margin declined 50bp YoY/QoQ at 16.9% (v/s est. 17.7%) for 3QFY15.
However, EBITDA at ~INR1.8b (in-line) grew by 20% YoY (-3% QoQ).
PAT grew by 7.7% YoY (2.1% QoQ) to INR1b (v/s est. INR0.98b).
Estimate change
TP change
Rating change
11%
39%
Takeaways from management interaction:
a) Lead prices for 3QFY15 for the company
stood at ~INR121/kg (v/s INR121/kg in 2QFY15), almost flat QoQ, b) capacity
expansion is on track, with four-wheeler battery plant to be operational by end of
current quarter and two-wheeler battery plant by April-May 2015, c) capex of ~INR4b
each for FY15 and FY16 and d) excise duty hike of 2% passed on to customers.
Valuation and view:
We raise FY16E/17E EPS estimates by ~6%/11% to ~INR32/44 to
factor the strong revenue growth and benign lead prices. We value AMRJ at ~25x
FY17E EPS (v/s 20x earlier) to factor the increased visibility of superior competitive
positioning and capital efficiencies. Maintain
Buy
with a target price of ~INR1,093.
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Jay Shah
(Jay.Shah@MotilalOswal.com); +91 22 3078 4701
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Amara Raja Batteries
Exhibit 1: Net sales growth of 23.6% YoY
Net sales (INR m)
32.7
28.4
28.0
23.7 19.6
15.1
12.0 13.7 10.5
Growth YoY (%)
32.0
23.6
Exhibit 2: Revenue mix improving in favor of telecom
4W
100
75
50
25
0
3QFY14
2QFY15
3QFY15
Source: Company, MOSL
2W
Auto Others
Telecom
UPS
Industrial Others
Source: Company, MOSL
Exhibit 3: Gross margins up 80bp QoQ
Gross margin (%)
Exhibit 4: EBITDA margin decline on higher promotion
and CSR spends
EBITDA
17.2
15.1 16.0 13.9 16.3
EBITDA (%)
17.6 17.4
15.5
17.1 17.4 16.9
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: PAT growth restricted on lower other income
and higher tax rate
PAT (INR m)
95
720
761
39
809
596
23
29
2
31
39
17
8
6
8
Growth YoY (%)
1,060 1,003 1,024
978 946 950
826
Exhibit 6: Lead prices are down ~10% QoQ in INR/tonne
175,000
150,000
125,000
100,000
75,000
50,000
INR/tonne
Source: Company, MOSL
Source: Company, MOSL
28 January 2015
2

Amara Raja Batteries
Valuation and view
Industry structure remains duopoly, but AMRJ is a strong No. 2:
While the
industry structure remains largely duopoly, AMRJ has emerged as a formidable
challenger to leader EXIDE, with market leadership in telecom (46% share) and
UPS (32%) segments, and a fast gaining share in Autos. Over FY04-14, AMRJ
clocked a CAGR of 35% and 75% in net sales and PAT respectively, far exceeding
EXID’s 20% CAGR each in net sales and PAT. This has been driven through a
combination of technological innovations (first to introduce maintenance-free,
factory charged, extended warranty batteries), witty advertising and unique
distribution model (franchisee based) supported with operational efficiency-led
competitive pricing.
AMRJ – gearing up to be leader:
AMRJ is gearing up to be a leader through i)
consolidating in existing areas, ii) entering new business opportunities within
battery space, mainly home UPS, Solar and Motive Power and iii) aided by
capacity and network expansion. Company aims to increase its share in the OEM
and replacement segments to 40% (from current 30%) and 30% (from current
24%) respectively over the medium term. In the telecom segment, AMRJ
expects to further consolidate its leadership with 52-53% share from the current
46%.
Strong ~34% EPS CAGR over FY15-FY17E, robust return ratios and FCF; Buy:
FY16 is inflection year for AMRJ, with significant new capacities driving top-line
growth (~23% CAGR) and benign lead prices driving margins (+250bp by FY17),
translating into ~34% EPS CAGR (FY15-17E) after muted FY15. Stable
competitive environment, significant FCF generation (~INR7b over FY16-17) and
improving RoEs (4pp by FY17 to ~31%), coupled with potential shift from
unorganized to organized players due to GST would continue to drive re-rating
of the stock. We are upgrading our FY16/17 EPS estimates by ~6%/11% to
~INR32/44 to factor in for strong revenue growth and benign lead prices. We
now value AMRJ at ~25x FY17 EPS (v/s 20x earlier) to factor in for increasing
visibility of sustained superior competitive positioning and capital efficiencies.
Buy with TP of ~INR1,093.
Exhibit 7:
Revised forecast (Consol)
(INR M)
Net Sales
EBITDA (%)
Net Profit
EPS (INR)
Rev
42,288
17.1
4,131
24.2
FY15E
Old
41,676
17.5
4,046
23.7
Chg (%)
1.5
-1.8
2.1
2.1
Rev
52,893
18.2
5,481
32.1
FY16E
Old
51,954
17.7
5,147
30.1
Chg (%)
1.8
2.5
6.5
6.5
Rev
63,315
19.6
7,468
43.7
FY17E
Old
61,969
18.4
6,725
39.4
Chg (%)
2.2
6.3
11.1
11.1
28 January 2015
3

Amara Raja Batteries
Exhibit 8: Valuations trading above historical average, reflecting improving fundamentals
35
28
21
14
7
0
12.1
8.5
8.7
P/E (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
31.5
8.0
6.0
4.0
2.0
1.6
0.0
3.1
2.2
P/B (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
7.8
10 Yrs Avg(x)
Source: MOSL
Source: MOSL
Exhibit 9: Comparative
Valuation
CMP * Rating
(INR)
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
2,397
2,865
312
1,314
3,725
589
68
16,341
Buy
Buy
Buy
Neutral
Buy
Buy
Buy
Buy
TP
(INR)
2,832
3,375
289
1,318
4,616
581
61
16,473
1,154
190
1,093
P/E (x)
FY15E
FY16E
20.2
20.6
38.3
21.1
31.5
10.1
173.9
71.0
35.6
29.4
37.8
15.8
16.2
21.5
16.8
21.6
7.8
25.8
41.8
25.5
21.6
28.5
EV/EBITDA (x)
FY15E
FY16E
12.9
14.4
22.6
16.9
16.0
4.2
22.2
41.9
17.9
18.0
21.5
10.1
11.4
13.5
14.4
11.5
3.3
11.6
25.1
13.7
13.1
16.2
RoE (%)
FY15E
FY16E
33.5
45.1
24.8
17.0
14.7
25.1
2.3
27.8
22.5
14.0
27.1
36.4
46.9
34.7
16.5
18.5
25.2
13.4
36.8
25.8
16.6
28.8
RoCE (%)
FY15E
FY16E
47.0
62.0
27.9
17.7
18.1
27.0
6.0
27.6
21.9
19.5
37.8
50.4
66.0
41.2
17.9
23.2
27.3
13.2
39.8
26.9
23.4
40.7
1,016 Buy
198 Buy
915 Buy
28 January 2015
4

Amara Raja Batteries
Corporate profile: Amara Raja Batteries
Company description
Commencing operations in 1992, AMRJ has become
India’s
second-largest
lead-acid
battery
manufacturer (next to market leader EXID), with
market leadership in telecom and UPS segments. It is
reckoned as one of the pioneers in VRLA (valve
regulated lead acid) batteries. Johnson Control USA
(JC) is an equal partner and acquired 26% equity in
AMRJ in 1997.
Exhibit 10: Sensex rebased
Amara Raja Batt.
1,050
850
650
450
250
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Sensex - Rebased
Exhibit 11: Shareholding pattern (%)
Dec-14
Promoter
DII
FII
Others
52.1
8.7
18.2
21.0
Sep-14
52.1
9.5
16.9
21.5
Dec-13
52.1
12.8
13.4
21.8
Exhibit 12: Top holders
Holder Name
ICICI Prudential Value Discovery Fund
HDFC Trustee Company Ltd - A/c HDFC Mid - Cap
Franklin Templeton Investment Funds
Dr Upendranath N
Smallcap World Fund INC
% Holding
1.8
1.5
1.5
1.5
1.3
Note: FII Includes depository receipts
Exhibit 13: Top management
Name
Ramachandra N Galla
Jayadev Galla
S V Raghavendra
Srinivasa Rao Ganga
Rajesh Jindal
Chairman
Vice Chairman & M.D.
Chief Financial Officer
Chief Marketing Officer,
Industrial Battery Division
Chief Marketing Officer,
Automotive Battery Division
Designation
Exhibit 14: Directors
Name
Ramachandra N Galla
Jayadev Galla
P Lakshmana Rao*
Raymond J Brown*
T R Narayanaswamy*
*Independent
Name
N Sri Vishnu Raju*
Nagarjun Valluripalli*
Shu Qing Yang
Bruce A Ronning Jr.
Exhibit 15: Auditors
Name
Chevuturi Associates
E Phalguna Kumar & Co
Sagar & Associates
Type
Statutory
Statutory
Cost Auditor
Exhibit 16: MOSL forecast v/s consensus
EPS (INR)
FY15
FY16
FY17
MOSL forecast
24.2
32.1
43.7
Consensus
forecast
24.9
31.1
39.5
Variation (%)
-2.8
3.3
10.6
28 January 2015
5

Amara Raja Batteries
Amara Raja| Story in Charts: Robust ~34% EPS CAGR expected over FY15-17E
Exhibit 17: New capacities to drive strong growth
4W (mn units)
MVRLA (mn units)
2W (mn units)
LVRLA (billion. Amph)
8.4
4.7
6
4
1.65
3
34.3
25.2
16.0
23.1
25.1
19.7
Exhibit 18: Expect net sales to register a CAGR of ~23%
over FY15-17E
Net sales (INR m)
Growth (%)
3.5
2.25
1.5
4.5
3.5
1.5
FY11
FY12
FY13
FY14
FY12
FY13
FY14
FY15E
FY16E
FY17E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 19: Expect margins to sustain and improve
to 19.6% by FY17E
EBITDA (INR m)
EBITDA margins (%)
Exhibit 20: Strong EPS growth of ~34% over FY15-17E
45.2
EPS
36.2
26.3
11.6
12.6
17.2
FY13
21.7
FY14
24.2
FY15E
32.1
FY16E
43.7
FY17E
Growth (%)
32.7
36.3
14.4
15.2
16.3
17.1
18.2
19.6
FY12
FY13
FY14
FY15E
FY16E
FY17E
FY12
Source: Company, MOSL
Source: Company, MOSL
Exhibit 21: FCF to turn positive in FY16E/17E
CFO
Capex
FCF
Exhibit 22: Return ratios to remain strong
RoCE (%)
37.8
29.3
41.2
31.1
40.9
30.6
RoE (%)
37.8
27.1
40.7
28.8
44.1
31.0
-809
-1,463
-3,570
-5,000
-5,000
-2,000
FY12
FY13
FY14
FY15E
FY16E
FY17E
FY12
FY13
FY14
FY15E
FY16E
FY17E
Source: Company, MOSL
Source: Company, MOSL
28 January 2015
6

Amara Raja Batteries
Key Operating Metrics
Revenue Model
Automotive (INR m)
Growth YoY (%)
OEM (INR m)
Growth YoY (%)
Replacement (INR m)
Growth YoY (%)
Two-wheelers (INR m)
Growth YoY (%)
Industrial (INR m)
Growth (%)
Others (Traded)
Growth (%)
Net revenue (INR m)
Growth (%)
14,645
17,611
20.3
FY10
8,414
10.8
1,497
21.1
6,432
5.9
485
68
6,412
14.9
0
FY11
10,725
27.5
2,098
40.1
7,871
22.4
756
56
7,569
18.0
65
FY12
13,358
24.6
2,562
22.1
9,540
21.2
1,257
66
9,212
21.7
881
1,254.1
23,645
34.3
FY13
16,983
27.1
3,019
17.9
12,249
28.4
1,714
36
11,523
25.1
2,586
193.4
29,614
25.2
FY14
22,229
30.9
3,613
19.7
15,640
27.7
2,976
74
13,768
19.5
1,843
-28.7
34,001
14.8
FY15E
27,563
24.0
3,976
10.0
18,899
20.8
4,688
58
17,105
24.2
2,396
30.0
42,288
24.4
FY16E
35,435
28.6
5,191
30.6
22,860
21.0
7,383
58
20,512
19.9
2,918
21.8
52,893
25.1
FY17E
43,452
22.6
6,490
25.0
26,884
17.6
10,078
37
23,660
15.4
3,351
14.8
63,315
19.7
28 January 2015
7

Amara Raja Batteries
Financials and valuations
Standalone - Income Statement
Y/E March
Net Sales
Change (%)
Total Expenditure
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT after EO Exp.
Tax Rate (%)
PAT Adj for EO items
Change (%)
FY10
14,645
11.5
11,760
2,885
19.7
429
2,455
79
170
2,546
34.4
1,670
107.5
FY11
17,611
20.3
15,037
2,574
14.6
417
2,157
31
78
2,204
32.8
1,481
-11.3
FY12
23,645
34.3
20,249
3,396
14.4
465
2,931
25
280
3,186
32.5
2,151
45.2
FY13
29,614
25.2
25,099
4,515
15.2
661
3,854
10
466
4,218
32.0
2,929
36.2
FY14
34,367
16.0
28,764
5,603
16.3
646
4,957
7
455
5,367
31.5
3,701
26.3
FY15E
42,288
23.1
35,042
7,246
17.1
1,268
5,978
9
225
6,194
33.3
4,131
11.6
(INR Million)
FY16E
52,893
25.1
43,275
9,617
18.2
1,790
7,827
9
400
8,218
33.3
5,481
32.7
FY17E
63,315
19.7
50,932
12,383
19.6
1,926
10,456
9
750
11,197
33.3
7,468
36.3
Standalone - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Deferred Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Other Current Liabilities
Provisions
Net Current Assets
Appl. of Funds
FY10
171
5,266
5,436
216
912
6,565
4,911
1,854
3,057
227
161
6,311
2,176
2,423
625
1,087
3,191
1,376
281
1,535
3,120
6,565
FY11
171
6,289
6,459
205
1,000
7,664
5,388
2,237
3,151
375
161
7,472
2,847
3,057
451
1,117
3,496
1,091
937
1,468
3,977
7,664
FY12
171
8,064
8,235
220
855
9,310
6,213
2,667
3,546
315
161
9,493
2,666
3,197
2,292
1,339
4,206
949
1,196
2,061
5,288
9,310
FY13
171
10,427
10,598
195
881
11,674
6,803
3,214
3,589
1,030
161
12,925
2,929
3,807
4,108
2,082
6,030
1,577
1,960
2,493
6,895
11,674
FY14
171
13,456
13,627
301
843
14,772
9,955
3,860
6,096
1,447
161
13,691
3,350
4,528
2,946
2,867
6,623
1,577
1,858
3,188
7,068
14,771
FY15E
171
16,688
16,859
382
773
18,013
15,402
5,127
10,275
1,000
161
14,550
4,081
5,572
1,370
3,527
7,972
2,073
2,286
3,613
6,578
18,014
(INR Million)
FY16E
171
20,975
21,146
489
773
22,408
20,402
6,918
13,484
1,000
161
18,075
5,046
6,969
1,648
4,412
10,312
2,752
2,859
4,701
7,763
22,408
FY17E
171
26,817
26,988
634
773
28,395
22,402
8,844
13,558
1,000
161
26,733
5,978
8,342
7,132
5,281
13,057
3,372
3,422
6,263
13,676
28,395
28 January 2015
8

Amara Raja Batteries
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
FY10
9.8
12.3
31.8
1.5
17.4
93.5
74.4
28.7
10.7
54.3
0.2
35.2
38.4
2.2
54.2
52
2.0
0.2
FY11
8.7
11.1
37.8
2.3
30.9
105.5
82.3
24.2
8.9
60.9
0.3
24.9
31.4
2.3
59.0
57
2.1
0.2
FY12
12.6
15.3
48.2
1.9
17.4
72.7
59.7
19.0
6.5
45.6
0.2
29.3
37.8
2.5
41.2
45
2.3
0.1
FY13
17.2
21.0
62.0
2.5
17.6
53.3
43.5
14.7
5.2
33.9
0.3
31.1
41.2
2.5
36.1
42
2.1
0.1
FY14
21.7
25.4
79.8
3.2
17.6
42.2
35.9
11.5
4.5
27.5
0.4
30.6
40.9
2.3
35.6
43
2.1
0.1
FY15E
24.2
31.6
98.7
4.4
21.8
37.8
28.9
9.3
3.7
21.5
0.5
27.1
37.8
2.3
35.2
43
1.8
0.0
FY16E
32.1
42.6
123.8
5.8
21.8
28.5
21.5
7.4
2.9
16.2
0.6
28.8
40.7
2.4
34.8
43
1.8
0.0
FY17E
43.7
55.0
158.0
7.9
21.8
20.9
16.6
5.8
2.4
12.1
0.9
31.0
44.1
2.2
34.5
43
2.0
0.0
Standalone - Cash Flow Statement
Y/E March
Net P/L Before Tax and E/O Items
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(inc)/dec in FA
Others
CF from Investments
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
FY10
2,546
430
61
785
-260
1,992
-515
338
-177
-1,908
-68
-68
-2,044
-78
703
625
FY11
2,204
417
9
776
-1,138
716
-667
54
-612
17
-21
-419
-422
-174
625
451
FY12
3,187
470
-28
1,026
120
2,723
-809
82
-727
-271
84
-222
-409
1,848
444
2,292
FY13
4,218
577
-110
1,366
-94
3,225
-1,463
269
-1,194
3
-17
-323
-336
1,825
2,283
4,108
FY14
5,405
646
-448
1,692
-1,335
2,575
-3,570
455
-3,115
-9
-7
-645
-661
-1,162
4,108
2,946
FY15E
6,194
1,268
-216
2,063
-1,085
4,098
-5,000
225
-4,775
10
-9
-900
-899
-1,576
2,946
1,370
(INR Million)
FY16E
8,218
1,790
-391
2,737
-907
5,974
-5,000
400
-4,600
107
-9
-1,194
-1,096
278
1,370
1,648
FY17E
11,197
1,926
-741
3,729
-430
8,224
-2,000
750
-1,250
146
-9
-1,627
-1,490
5,484
1,648
7,132
28 January 2015
9

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