14 August 2015
1QFY16 Results Update | Sector:
Automobiles
Amara Raja Batteries
BSE SENSEX
28,067
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val (INRm)/Vol ‘000
Free float (%)
S&P CNX
8,519
AMRJ IN
170.8
995/527
10/17/73
214/279
47.9
CMP: INR972
TP: INR1,099 (13%)
Buy
Revenues disappoint, but EBITDA margins surprise at 18.2% (v/s est.
17.6%)—highest since 4QFY10
AMRJ’s in-line PAT at INR1.2b was driven by strong revenue growth in the automotive
segment and favorable lead prices. FY16 is an inflection year for AMRJ—with new
capacities driving top-line (~22% CAGR) and benign lead prices driving margins
(+240bp by FY17), translating into ~34% EPS CAGR (FY15-17) after muted FY15. Stable
competitive environment, significant FCF generation (~INR7b over FY16-17) and
improving RoE (4pp by FY17 to ~31%)—coupled with potential shift from unorganized
to organized players due to GST—would continue to drive stock re-rating.
n
Net sales grew 11.3% YoY (+7% QoQ) to INR11.5b (v/s est. INR12.5b), driven by
~20% revenue growth in auto (OEM saw higher single digit growth and
replacement was up by ~25%) and 17% growth in 2W (OEM/Replacement both
up by 17% YoY). However, telecom saw lower single digit growth and UPS/
inverter battery segments de-grew of 7%/8% YoY.
n
RM Cost declined 260bp YoY (-30bp QoQ) to 64.2% on account of lower lead cost.
n
EBITDA margins improved 110bp YoY (70bp QoQ) to 18.2% (v/s est. of 17.6%) in
1QFY16, driven by lower RM cost benefit. EBITDA at ~INR2b (v/s est. INR2.2b)
grew ~19% YoY (10.8% QoQ).
n
Lower tax rate of 31.8% boosted adj. PAT to INR1.2b, up 16% YoY (15% QoQ).
Takeaways from management interaction:
a) Telecom market share stable at 60%
despite EXIDE’s market share rising to ~22% in 1QFY16 v/s ~8% in 1QFY15 and AUTO
replacement market share at 27% (v/s 25% last year), b) Lead cost at INR129-130 per
kg (v/s INR132 in 4QFY15, INR140 in 3QFY15); the management expects lead prices to
rise from 2QFY16. c) Upcoming 2W capacity to have 1-2 dedicated lines for HMSI; the
company is also negotiating with other 2W OEMs. d) Capex of INR6b in FY16 (INR3.5b
for tubular battery, INR0.6b for LVRLA and INR0.5b for 2W capacity expansion, and
the rest for regular maintenance).
Valuation and view:
We value AMRJ at ~25x FY17E EPS of INR44 to factor in for
higher visibility of sustained superior competitive positioning and capital efficiencies.
Buy
with a TP of ~INR1,099.
M.Cap. (INR b) / (USD b) 166.1/2.6
Financials & Valuation (INR Billion)
Y/E MAR
Net Sales
EBITDA
Adj PAT
EPS (INR)
Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2015 2016E 2017E
42.1
7.1
4.2
24.3
12.3
99.5
27.2
37.6
39.9
9.8
50.0
8.9
5.2
30.4
24.7
123.3
27.2
37.8
32.0
7.9
62.3
12.0
7.5
44.0
44.9
157.7
31.3
42.6
22.1
6.2
Estimate change
TP change
Rating change
3%
3%
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 11.3% YoY
Net sales (INR m)
28.4
28.0
23.7 19.6
12.0 13.7 10.5
Growth YoY (%)
32.0
23.6
15.1
Exhibit 2: Gross margins up 30bp QoQ
Gross margin (%)
20.5
11.3
32.7
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: EBITDA margin at 18.2% on lower RM cost
EBITDA
17.2
15.1 16.0
13.9
EBITDA (%)
18.2
Exhibit 4: PAT growth restricted on lower other income and
higher tax rate
PAT (INR m)
95
Growth YoY (%)
16.3 17.6 17.4 15.5 17.1 17.4 16.9 17.5
1,233
1,060
1,024
978 946 950
826
1,003
809
1,072
761 720
39
596
30
29 31
39 23
17
16
8 6 8
2
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Lead prices are up ~9% QoQ in INR/tonne
150,000
135,000
120,000
105,000
90,000
75,000
60,000
INR/Tonne
Source: Company, MOSL
Valuation and view
n
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 FY04-15, AMRJ
clocked a CAGR of 34% and 68% 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
2
14 August 2015

Amara Raja Batteries
n
n
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 maintain its market share at current levels (60% currently).
Strong ~34% EPS CAGR over FY15-FY17E, robust return ratios and FCF; Buy:
.
FY16 is inflection year for AMRJ—with new capacities driving top-line (~22%
CAGR) and benign lead prices driving margins (+240bp by FY17), translating into
~34% EPS CAGR (FY15-17E) after muted FY15. Stable competitive environment,
significant FCF generation (~INR7b over FY16-17) and improving RoE (4pp by
FY17 to ~31%)—coupled with potential shift from unorganized to organized
players due to GST would continue to drive stock re-rating. We value AMRJ at
~25x FY17 EPS of INR44 to factor in for higher visibility of sustained superior
competitive positioning and capital efficiencies.
Buy
with TP of ~INR1,099.
Exhibit 6: Valuations trading above historical average, reflecting improving fundamentals
35
28
21
13.9
14
7
0
10.0
9.4
2.0
0.0
26.6
P/E (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
8.0
6.0
4.0
P/B (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
6.9
3.6
2.5
1.8
Source: MOSL
Source: MOSL
Exhibit 7: 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
CMP * Rating
(INR)
2,559
2,714
230
4,578
355
89
20,601
1,223
159
972
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
TP
P/E (x)
(INR) FY15E
FY16E
3,154
2,938
287
1,408
5,298
519
104
24,137
1,379
178
1,099
19.6
17.6
23.4
19.1
25.7
6.8
23.0
56.3
29.5
21.1
32.0
15.2
14.8
14.0
14.1
18.3
6.2
12.4
32.4
22.2
18.1
22.1
EV/EBITDA (x)
FY15E
FY16E
12.4
11.3
14.5
15.3
12.9
3.1
11.4
30.3
15.8
12.5
18.3
9.8
9.7
9.4
12.2
10.1
2.6
6.9
18.2
12.6
10.5
13.3
RoE (%)
FY15E
FY16E
33.0
42.5
25.7
16.9
19.2
26.0
20.0
35.4
25.4
14.3
27.2
36.5
41.7
33.8
18.0
22.7
21.6
30.7
44.7
27.7
14.9
31.3
RoCE (%)
FY15E
FY16E
46.5
59.6
24.8
18.7
26.5
23.7
20.5
38.3
26.5
19.7
37.8
49.1
56.9
34.2
20.2
30.1
23.7
31.5
52.5
30.6
20.4
42.6
1,377 Neutral
14 August 2015
3

Amara Raja Batteries
Story in charts: Robust ~34% EPS CAGR expected over FY15-17E
Exhibit 8: Capacity for various batteries
4W (mn units)
MVRLA (mn units)
2W (mn units)
LVRLA (billion. Amph)
8.4
8.25 8.4
4.7
6
4
1.65
3
3
34.3
25.2
16.0
22.5
24.6
18.7
Exhibit 9: Expect net sales to register a CAGR of ~22% over
FY15-17E
Net sales (INR m)
Growth (%)
3.5
2.25
1.5
4.5
3.5
1.5
FY11
FY12
FY13
FY14
FY15
FY12
FY13
FY14
FY15
FY16E
FY17E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 10: Expect margins to sustain and improve to 19.2%
by FY17E
EBITDA (INR m)
EBITDA margins (%)
Exhibit 11: Strong EPS growth of ~34% over FY15-17E
45.2
EPS
36.2
26.3
12.3
12.6
17.2
FY13
21.7
FY14
24.3
FY15
30.4
FY16E
44.0
FY17E
24.7
Growth (%)
44.9
14.4
15.2
16.3
16.8
17.9
19.2
FY12
FY13
FY14
FY15
FY16E
FY17E
FY12
Source: Company, MOSL
Source: Company, MOSL
Exhibit 12: FCF to turn positive in FY16E/17E
CFO
Capex
FCF
Exhibit 13: Return ratios to remain strong
RoCE (%)
37.8
29.3
41.2
31.1
40.9
30.6
RoE (%)
37.6
27.2
37.8
27.2
42.6
31.3
-809
-1,463
-434
-3,986
-6,000
-3,500
FY12
FY13
FY14
FY15
FY16E
FY17E
FY12
FY13
FY14
FY15
FY16E
FY17E
Source: Company, MOSL
Source: Company, MOSL
14 August 2015
4

Amara Raja Batteries
Exhibit 14: 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
FY15
27,760
24.9
4,008
10.9
19,065
21.9
4,688
58
17,105
24.2
2,396
30.0
42,466
24.9
FY16E
35,373
27.4
4,929
23.0
23,061
21.0
7,383
58
18,584
8.7
2,918
21.8
49,972
17.7
FY17E
45,931
29.8
6,240
26.6
28,451
23.4
11,241
52
21,680
16.7
3,250
11.4
62,260
24.6
Source: Company, MOSL
14 August 2015
5

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
PBT after EO Exp.
Tax Rate (%)
Reported PAT
PAT Adj for EO items
Change (%)
FY10
14,645
11.5
11,760
2,885
19.7
429
2,455
79
2,546
34.4
1,670
1,670
107.5
FY11
17,611
20.3
15,037
2,574
14.6
417
2,157
31
2,204
32.8
1,481
1,481
-11.3
FY12
23,645
34.3
20,249
3,396
14.4
465
2,931
25
3,186
32.5
2,151
2,151
45.2
FY13
29,614
25.2
25,099
4,515
15.2
661
3,854
10
4,218
32.0
2,867
2,929
36.2
FY14
34,367
16.0
28,764
5,603
16.3
646
4,957
7
5,367
31.5
3,674
3,701
26.3
FY15
42,113
22.5
35,023
7,091
16.8
1,340
5,751
2
6,099
32.6
4,109
4,158
12.3
(INR Million)
FY16E
49,972
18.7
41,047
8,925
17.9
1,691
7,234
9
7,625
32.0
5,185
5,185
24.7
FY17E
62,260
24.6
50,288
11,972
19.2
1,982
9,990
9
10,731
30.0
7,511
7,511
44.9
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
E: MOSL Estimates
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
0.0
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
0.0
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
0.0
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
0.0
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
-0.2
FY15
171
16,825
16,996
368
741
18,106
14,414
4,970
9,444
863
161
13,414
4,181
5,541
2,222
1,469
5,775
1,521
2,616
1,639
7,638
18,106
0.5
(INR Million)
FY16E
171
20,888
21,059
445
773
22,277
20,277
6,661
13,616
1,000
161
16,920
4,880
6,575
3,721
1,744
9,420
1,953
3,104
4,363
7,500
22,277
0.0
FY17E
171
26,774
26,945
445
773
28,163
23,777
8,644
15,133
1,000
161
24,150
6,018
8,192
7,768
2,172
12,282
2,517
3,867
5,898
11,869
28,163
0.0
14 August 2015
6

Amara Raja Batteries
Financials and valuations
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)
Creditor (Days)
Working Capital Turnover (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
FY10
9.8
12.3
31.8
1.5
17.4
FY11
8.7
11.1
37.8
2.3
30.9
FY12
12.6
15.3
48.2
1.9
17.4
FY13
17.2
21.0
62.0
2.5
17.6
FY14
21.7
25.4
79.8
3.6
19.3
44.9
38.2
12.2
4.8
29.3
0.4
35.2
38.4
2.2
54.2
52
34
62
2.0
0.2
24.9
31.4
2.3
59.0
57
23
73
2.1
0.2
29.3
37.8
2.5
41.2
45
15
46
2.3
0.1
31.1
41.2
2.5
36.1
42
19
34
2.1
0.1
30.6
40.9
2.3
35.6
43
17
44
2.1
0.1
FY15
24.3
32.2
99.5
3.6
18.0
39.9
30.2
9.8
3.9
23.2
0.4
27.2
37.6
2.3
36.2
43
13
47
2.3
0.0
FY16E
30.4
40.3
123.3
5.5
21.6
32.0
24.2
7.9
3.3
18.3
0.6
27.2
37.8
2.2
35.6
42
14
28
1.8
0.0
FY17E
44.0
55.6
157.7
7.9
21.6
22.1
17.5
6.2
2.6
13.3
0.8
31.3
42.6
2.2
35.3
42
15
24
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
Free Cash Flow
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
1,628
338
-177
-1,908
-68
-68
-2,044
-78
703
625
FY11
2,204
417
9
776
-1,138
716
-667
195
54
-612
17
-21
-419
-422
-174
625
451
FY12
3,187
470
-28
1,026
120
2,723
-809
2,176
82
-727
-271
84
-222
-409
1,848
444
2,292
FY13
4,218
577
-110
1,366
-94
3,225
-1,463
1,892
269
-1,194
3
-17
-323
-336
1,825
2,283
4,108
FY14
5,366
637
-808
1,606
-1,315
2,273
-434
2,354
299
-3,448
-87
-14
-430
-531
-1,192
4,138
2,946
FY15
6,099
1,245
-29
1,922
-1,475
3,917
-3,986
-104
176
-3,810
-112
-84
-552
-748
-675
2,897
2,221
(INR Million)
FY16E
7,625
1,691
-391
2,440
1,637
8,123
-6,000
2,123
400
-5,600
108
-9
-1,122
-1,023
1,500
2,221
3,721
FY17E
10,731
1,982
-741
3,219
-321
8,432
-3,500
4,932
750
-2,750
0
-9
-1,625
-1,634
4,048
3,721
7,769
14 August 2015
7

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 15: Sensex rebased
1,100
950
800
650
500
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Amara Raja Batt.
Sensex - Rebased
Exhibit 16: Shareholding pattern (%)
Jun-15
Promoter
DII
FII
Others
52.1
14.4
13.6
19.9
Mar-15
52.1
9.0
18.0
20.9
Jun-14
52.1
9.5
16.9
21.5
Exhibit 17: Top holders
Holder Name
Franklin Templeton Investment Funds
ICICI Prudential Value Discovery Fund
HDFC Trustee Company Ltd - A/c HDFC Mid - Cap
Smallcap World Fund INC
Dr Upendranath N
% Holding
2.5
1.8
1.4
1.3
1.1
Note: FII Includes depository receipts
Exhibit 18: 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 19: Directors
Name
Ramachandra N Galla
Jayadev Galla
Raymond J Brown*
T R Narayanaswamy*
N Sri Vishnu Raju*
*Independent
Name
Nagarjun Valluripalli*
Shu Qing Yang
Bruce A Ronning Jr.
Bhairavi Tushar Jain
Exhibit 20: Auditors
Name
Chevuturi Associates
E Phalguna Kumar & Co
Sagar & Associates
Type
Statutory
Statutory
Cost Auditor
Exhibit 21: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
MOSL
forecast
30.4
44.0
Consensus
forecast
31.1
39.4
Variation
(%)
-2.3
11.6
14 August 2015
8

Amara Raja Batteries
NOTES
14 August 2015
9

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Amara Raja Batteries
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AMARA RAJA BATTERIES
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