Amara Raja Batteries
BSE SENSEX
24,539
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm/ Vol m
Free float (%)
S&P CNX
7,456
AMRJ IN
170.8
147.1 / 2.2
1132 / 773
5/1/13
265
47.9
2 February 2016
3QFY16 Results Update | Sector: Automobiles
CMP: INR861
TP: INR1,100 (+28%)
Buy
In-line; Highest ever EBITDA margins (18.7% v/s est 17.6%) off-set by
higher taxes
Net sales grew 15% YoY (+6% QoQ) to INR12.25b (in-line), driven by strong
growth in 4W replacement segment (driven by new capacities) and double digit
growth in the industrial segment.
EBITDA margins improved 180bp YoY (+150bp QoQ) to 18.7%, translating into
EBITDA growth of ~27% YoY (+15% QoQ).
RM Cost declined 240bp QoQ (-360bp YoY) to 61.6%, benefitting from lag
impact of ~9% correction in spot lead prices in 2QFY16. However, higher other
expenses (+150bp QoQ) due to higher marketing expense.
However, higher tax rate at 33.3% restricted adj. PAT to INR1.36b (v/s est
~INR1.33b) up 33% YoY (+11% QoQ).
Takeaways from Press Release:
a) Significant investment in brand building was
initiated during 3QFY16, driving further market share gains in aftermarket business
in both 2W and 4W. b) It has started making deeper penetration in the domain of
the unorganized sector. c) Ramping up of new capacities is faster than expected,
enabling it to plan further capacity expansion which would be finalized by March
2016. d) New tubular battery plant is expected to commission operations by end
4QFY16, which would reduce dependence on trading operations in tubular
batteries. e) With improving power situation in the country, it has redesigned its
tubular battery plant making it fungible to produce products for different
applications. It is evaluating new technologies in energy storage space through
which it is realigning its business strategy.
Valuation and view:
We will review our estimates post interaction with
management, however, we see limited change on our estimates. The stock trades
at 21.4x/17.6x FY17/18 EPS. Maintain Buy with a TP of ~INR1,100 (~22.5x FY18E
EPS).
Financials & Valuations (INR b)
Y/E Mar
2015 2016E 2017E
Net Sales
42.1
47.8
56.5
EBITDA
7.1
8.6
10.5
PAT
4.2
5.2
6.9
EPS (INR)
24.3
30.3
40.3
Gr. (%)
12.3
24.4
33.3
BV/Sh (INR)
99.5 135.2 182.9
RoE (%)
27.2
25.8
25.4
RoCE (%)
37.6
36.1
33.6
P/E (x)
35.4
28.5
21.4
P/BV (x)
8.7
6.4
4.7
Estimate change
TP change
Rating change
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
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.

Amara Raja Batteries
Exhibit 1: Net sales growth of 15% YoY
Net sales (INR m)
32.7
28.0
23.7
19.6
10.5
12.0 13.7
15.1
28.4
Growth YoY (%)
31.4
23.6
20.5
10.5 9.2
14.9
Exhibit 2: Gross margins up 360bp YoY
Gross margin (%)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: EBITDA margin at 18.7% on lower RM cost
EBITDA
17.2
15.116.013.916.3
17.617.4
15.5
EBITDA (%)
18.7
17.117.016.917.517.517.2
Exhibit 4: PAT growth at 33% YoY boosted by lower tax rate
and higher other income
PAT (INR m)
1,500
1,000
500
0
39
23
2
29 31
17
95
Growth YoY (%)
39
8
6
8
30
15
22
33
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Benefit of 9% correction in 2QFY16, is reflecting in 3QFY16 performance
150,000
135,000
120,000
105,000
90,000
75,000
60,000
INR/Ton
Source: Company, MOSL
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 FY04-15, 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
2 February 2016

Amara Raja Batteries
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 ~30% EPS CAGR over FY15-FY17E, robust return ratios and FCF; Buy:
FY16 is inflection year for AMRJ—with new capacities driving top-line (~18%
CAGR over FY16-18E) and benign lead prices driving margins (+110bp by FY18),
translating into ~27% EPS CAGR (FY16-18E) after muted FY15. Stable
competitive environment, significant FCF generation (~INR8b over FY16-18) and
stable RoE of 23% —coupled with potential shift from unorganized to organized
players due to GST would continue to drive stock re-rating. The stock trades at
21.4x/17.6x FY17/18 EPS. Maintain Buy with a TP of ~INR1,100 (~22.5x FY17E
EPS).
Exhibit 6: Valuations trading above historical average, reflecting improving fundamentals
35
28
21
14
7
0
11.0
10.0
2.0
0.0
21.6
15.4
4.0
2.7
1.9
P/E (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
8.0
6.0
P/B (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
3.7
4.8
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
BOSCH
CMP * Rating
(INR)
2,363 Buy
2,522 Buy
293 Buy
1,209 Neutral
3,876 Buy
330 Buy
91 Buy
17,197 Buy
815
122
861
17,007
Buy
Buy
Buy
Buy
TP
(INR)
2,876
2,962
370
1,261
4,819
480
103
21,249
966
183
1,100
22,115
P/E (x)
FY15E FY16E
19.2
15.4
16.2
13.6
31.2
18.9
19.1
15.3
23.9
18.5
9.3
7.2
23.7
12.6
51.2
31.5
22.8
16.9
28.5
43.9
19
13.4
21.4
31.8
EV/EBITDA (x)
FY15E FY16E
11.9
10
10.3
8.8
18.4
12
14.6
12.7
11.2
9.7
3.3
2.8
11.4
7.1
27.8
17.8
12.1
10.1
16.8
28.9
10.7
8.2
13.2
21.6
RoE (%)
FY15E FY16E
31.4
34.3
42.8
41.8
24.7
32.6
15.7
15.7
17.6
19.8
18.4
18.8
19.9
30.9
33
40.4
22.2
13.7
25.8
15.6
23
15.4
25.4
18.8
RoCE (%)
FY15E FY16E
45.1
45.9
59.7
57.1
23.6
32
17.3
17.7
24.7
26.4
16.9
17.2
20.9
31.7
35.1
46.4
23.3
18.7
36.1
23
24.8
19.9
33.6
26.6
Source: Company, MOSL
2 February 2016
3

Amara Raja Batteries
Amara Raja| Story in charts: Robust ~27% EPS CAGR expected over FY16-18E
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
FY13
3
3
34.3
25.2
16.0
22.5
13.6
Exhibit 9: Expect net sales to register a CAGR of ~18% over
FY16-18E
Net sales (INR m)
Growth (%)
3.5
2.25
1.5
FY11
4.5
3.5
1.5
FY12
18.0
17.3
FY14
FY15
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 10: Expect margins to sustain and improve to 19% by
FY18E
EBITDA (INR m)
15.2
16.3
16.8
EBITDA margins (%)
17.9
18.6
19.0
Exhibit 11: Strong EPS growth of ~27% over FY16-18E
45.2
36.2
26.3
12.3
12.6
17.2
FY13
21.7
FY14
24.3
FY15
30.3
FY16E
40.3
FY17E
48.9
FY18E
24.4
EPS
Growth (%)
33.3
21.2
14.4
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
FY12
Source: Company, MOSL
Source: Company, MOSL
Exhibit 12: FCF to turn positive in FY16E-18E
CFO
Capex
FCF
Exhibit 13: Return ratios to remain strong
RoCE (%)
37.8
29.3
41.2
31.1
40.9
30.6
37.6
27.2
RoE (%)
36.1
25.8
33.6
25.4
30.9
23.1
-809
-1,463
-434
-3,986
-6,000
-3,500
-3,500
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
Source: Company, MOSL
Source: Company, MOSL
2 February 2016
4

Amara Raja Batteries
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2011
17,611
20.3
2,574
14.6
417
2,157
31
78
0
2,204
723
32.8
0
1,481
1,481
-11.3
2011
171
6,289
6,459
1,000
205
7,664
5,388
2,237
3,151
375
161
7,472
2,847
3,057
451
1,117
3,496
2,028
1,468
3,977
7,664
2012
23,645
34.3
3,396
14.4
465
2,931
25
280
0
3,186
1,036
32.5
0
2,151
2,151
45.2
2012
171
8,064
8,235
855
220
9,310
6,213
2,667
3,546
315
161
9,493
2,666
3,197
2,292
1,339
4,206
2,145
2,061
5,288
9,310
2013
29,614
25.2
4,515
15.2
661
3,854
10
466
-92
4,218
1,351
32.0
0
2,867
2,929
36.2
2013
171
10,427
10,598
881
195
11,674
6,803
3,214
3,589
1,030
161
12,925
2,929
3,807
4,108
2,082
6,030
3,537
2,493
6,895
11,674
2014
34,367
16.0
5,603
16.3
646
4,957
7
455
-39
5,367
1,692
31.5
0
3,674
3,701
26.3
2014
171
13,456
13,627
843
301
14,772
9,955
3,860
6,096
1,447
161
13,691
3,350
4,528
2,946
2,867
6,623
3,435
3,188
7,068
14,771
2015
42,113
22.5
7,091
16.8
1,340
5,751
2
423
-73
6,099
1,990
32.6
0
4,109
4,158
12.3
2015
171
16,825
16,996
741
368
18,106
14,414
4,970
9,444
863
161
13,414
4,181
5,541
2,222
1,469
5,775
4,136
1,639
7,638
18,106
2016E
47,831
13.6
8,585
17.9
1,448
7,137
9
500
0
7,628
2,456
32.2
0
5,172
5,172
24.4
2016E
171
22,929
23,100
773
368
24,241
20,277
6,419
13,858
1,000
161
16,426
4,578
6,293
3,885
1,669
7,204
4,802
2,402
9,222
24,241
2017E
56,464
18.0
10,527
18.6
1,762
8,765
9
750
0
9,505
2,614
27.5
0
6,891
6,891
33.3
2017E
171
31,062
31,233
773
368
32,375
23,777
8,181
15,596
1,000
161
23,826
5,443
7,429
8,984
1,970
8,209
5,784
2,425
15,617
32,375
(INR Million)
2018E
66,251
17.3
12,574
19.0
2,042
10,532
9
1,000
0
11,523
3,169
27.5
0
8,354
8,354
21.2
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
(INR Million)
2018E
171
40,922
41,093
773
368
42,234
27,277
10,223
17,054
1,000
161
33,750
6,428
8,717
16,293
2,312
9,731
6,804
2,927
24,019
42,234
2 February 2016
5

Amara Raja Batteries
Financials and Valuations
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2011
8.7
11.1
37.8
2.3
30.9
99.3
77.5
22.8
8.4
57.4
0.3
24.9
31.4
2.3
59
57
23
0.1
2011
2,574
56
-1,138
-776
146
861
0
861
0
-612
-612
0
17
-21
-419
-422
-174
625
451
2012
12.6
15.3
48.2
1.9
17.4
68.4
56.3
17.9
6.2
42.9
0.2
29.3
37.8
2.5
41
45
15
-0.2
2012
3,396
233
120
-1,026
262
2,985
0
2,985
0
-727
-727
0
-271
84
-222
-409
1,848
444
2,292
2013
17.2
21.0
62.0
2.5
17.6
50.2
41.0
13.9
4.9
31.9
0.3
31.1
41.2
2.5
36
42
19
-0.3
2013
4,578
108
-94
-1,366
129
3,355
0
3,355
0
-1,194
-1,194
0
3
-17
-323
-336
1,825
2,283
4,108
2014
21.7
25.4
79.8
3.6
19.3
39.8
33.9
10.8
4.2
25.9
0.4
30.6
40.9
2.3
36
43
17
-0.2
2014
5,629
-435
-1,315
-1,606
514
2,788
0
2,788
-3,314
-134
-3,448
0
-87
-14
-430
-531
-1,192
4,138
2,946
2015
24.3
32.2
99.5
3.6
18.0
35.4
26.8
8.7
3.5
20.5
0.4
27.2
37.6
2.3
36
43
13
-0.1
2015
7,140
174
-1,475
-1,922
-35
3,882
0
3,882
0
-3,810
-3,810
0
-112
-84
-552
-748
-675
2,897
2,221
2016E
30.3
38.8
135.2
4.5
18.0
28.5
22.2
6.4
3.0
16.8
0.5
25.8
36.1
2.0
35
42
14
-0.1
2016E
8,585
0
80
-2,456
0
6,210
0
6,210
0
-5,500
-5,500
0
32
-9
-932
-910
-200
2,221
2,021
2017E
40.3
50.7
182.9
6.1
18.0
21.4
17.0
4.7
2.5
13.2
0.7
25.4
33.6
1.7
35
42
15
-0.3
2017E
10,527
0
-1,297
-2,614
0
6,615
0
6,615
0
-2,750
-2,750
0
0
-9
-1,242
-1,251
2,614
2,021
4,635
2018E
48.9
60.9
240.6
7.3
18.0
17.6
14.2
3.6
2.0
10.5
0.9
23.1
30.9
1.6
35
42
15
-0.4
Cash Flow Statement
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
(INR Million)
2018E
12,574
0
-1,093
-3,169
0
8,313
0
8,313
0
-2,500
-2,500
0
0
-9
-1,506
-1,515
4,298
4,635
8,933
2 February 2016
6

Amara Raja Batteries
Corporate profile
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.
Source: MOSL/Bloomberg
Exhibit 1: Sensex rebased
Exhibit 2: Shareholding pattern (%)
Promoter
DII
FII
Others
Sep-15
52.1
8.7
20.2
19.0
Jun-15
52.1
9.2
18.8
19.9
Sep-14
52.1
8.8
18.1
21.1
Exhibit 3: Top holders
Holder Name
Franklin Templeton Investment Funds
ICICI Prudential Value Discovery Fund
Smallcap World Fund INC
HDFC Trustee Company Ltd - A/c HDFC Mid -
Cap Opportunities Fund
NA
% Holding
2.4
1.8
1.3
1.1
0.0
Source: Capitaline
Note: FII Includes depository receipts
Source: Capitaline
Exhibit 4: Top management
Name
Ramachandra N Galla
Jayadev Galla
M R Rajaram
Designation
Chairman
Vice Chairman & M.D.
Company Secretary
Exhibit 5: Directors
Name
Bruce A Ronning Jr.
Nagarjun Valluripalli
Shu Qing Yang
Bhairavi Tushar Jain
Name
N Sri Vishnu Raju
Raymond J Brown
T R Narayanaswamy
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Brahmayya & Co
Chevuturi Associates
Deloitte Haskins & Sells LLP
E Phalguna Kumar & Co
Sagar & Associates
Type
Statutory
Statutory
Statutory
Statutory
Cost Auditor
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
FY18
MOSL
forecast
30.0
40.3
50.9
Consensus
forecast
29.2
37.1
44.2
Variation (%)
2.8
8.7
15.1
Source: Bloomberg
2 February 2016
7

Disclosures
This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be distributed by it and/or its
affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report
Amara Raja Batteries
or
does not constitute an offer, invitation
inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to
you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into account the particular investment
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