Amara Raja Batteries
In-line; sales up ~17% YoY (est. of +13% YoY), EBITDA margins at 17.2%
Motilal Oswal values your support in
the Asiamoney Brokers Poll 2016 for
Amara Raja Batteries’ (AMRJ) 1QFY17 net sales grew 17% YoY (+13% QoQ) to
India Research, Sales and Trading team.
INR13.2b, driven by 30% YoY growth in both 2W and 4W replacement
We
request your ballot.
Bloomberg
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, (INR m)
Free float (%)
AMRJ IN
170.8
154.8 / 2.4
1,132/773
6/-11/-5
305
47.9
BSE SENSEX
27,860
S&P CNX
8,592
11 August 2016
1QFY17 Results Update | Sector: Automobiles
CMP: INR906
TP: INR1,038 (+15%)
Buy
Financials & Valuations (INR b)
Y/E Mar
2016 2017E 2018E
Sales
46.9
55.5
66.1
EBITDA
8.2
9.7
11.7
NP
4.9
5.7
7.1
EPS (INR)
28.7
33.4
41.5
EPS Gr. (%)
17.7
16.6
24.4
BV/Sh. (INR)
123.0 150.9 185.6
RoE (%)
25.8
24.4
24.7
RoCE (%)
24.2
23.1
23.6
P/E (x)
31.6
27.1
21.8
P/BV (x)
7.4
6.0
4.9
markets, coupled with 15% YoY growth in the UPS segment. Telecom vertical
was flat YoY.
EBITDA margin declined 50bp YoY (+90bp QoQ) to 17.2%, translating into
EBITDA growth of ~14% YoY (+19% QoQ) to ~INR2.3b (est. of ~INR2.3b).
RM cost increased 360bp QoQ (+130bp YoY) to 66.2%, primarily as slower
ramp-up in its new capacity resulted in higher purchases from third party.
Other expenses fell sharply by ~410bp QoQ (-80bp YoY), driven by
normalization of marketing and CSR spend from 4QFY16 levels.
Adj. PAT grew 6.8% YoY to ~INR1.3b (est. of ~INR1.4b).
Expansion plans for 2W batteries:
AMRJ is expanding its 2W battery capacity
in four phases staggered over a period of four years – taking its existing annual
capacity of 11m units to 25m units – with the first phase comprising three lines
adding capacity of 4m units by Jan-17. Earlier, it had announced expansion of
its annual 4W battery capacity from 8.25m units to 11m units.
Takeaways from management interaction:
a) Capacity utilization for recently
commissioned 2W/4W plants stood at 85-86% in 1QFY17. b) Capex for FY17/18
expected to be ~INR6b/5b for capacity expansion of 4W (by 2.4m units or ~28% in
FY17) and 2W (by 4m units or ~36% by Mar-Jun’18).
Valuation and view:
The stock trades at 27.1x/21.8x FY17/18E EPS. Maintain
Buy
with a target price of ~INR1,038 (~25x FY18E EPS).
Estimate change
TP change
Rating change
Quarterly performance
Y/E March (INR m)
Net Sales
YoY Change (%)
RM Cost (% of sales)
Staff Cost (% of sales)
Other Exp (% of sales)
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT before EO expense
PBT
Rate (%)
Adj PAT
YoY Change (%)
E: MOSL Estimates
1Q
11,306
9.9
64.9
4.9
12.4
2,001
17.7
328
13
136
1,796
1,796
31.9
1,223
15.4
(INR Million)
FY16
2Q
3Q
4Q
11,583 12,251 11,697
9.2
14.9
9.7
64.0
61.6
62.7
5.0
5.0
5.3
13.8
14.7
15.7
1,987 2,286 1,908
17.2
18.7
16.3
343
355
372
0
3
1
116
113
97
1,760 2,041 1,632
1,760 2,041 1,632
30.4
33.3
33.5
1,226 1,362 1,086
22.2
33.0
6.2
1Q
13,208
16.8
66.2
5.0
11.6
2,273
17.2
441
14
90
1,908
1,908
31.5
1,307
6.8
FY17
2QE
3QE
4QE
13,726 14,579 13,941
18.5
19.0
19.2
65.5
65.5
65.2
4.9
4.8
5.2
12.0
12.0
12.2
2,418 2,580 2,434
17.6
17.7
17.5
465
485
500
3
3
1
110
125
151
2,060 2,217 2,083
2,060 2,217 2,083
31.0
31.0
30.5
1,422 1,530 1,447
16.0
12.3
33.2
FY16
46,907
11.4
63.2
4.2
12.0
8,169
17.4
1,399
5
457
7,222
7,222
32.2
4,894
22.5
FY17E
55,455
18.2
65.6
4.3
12.7
9,705
17.5
1,891
21
475
8,268
8,268
31.0
5,705
16.6
FY17
1Q
12741
13%
63
5
14
2286
18
410
0
150
2026
2026
30
1418
16
VAR (%)
3.7
300bp
-10bp
-210bp
-0.6
-70bp
7.5
6,900.0
-40.3
-5.8
-5.8
-7.8
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Venil Shah
(Venil.Shah@MotilalOswal.com); +91 22 3982 5445
/Aditya Vora
(Aditya.Vora@MotilalOswal.com); +91 22 3078 4701
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 grew at a robust 17% YoY
Net sales (INR m)
31.4
28.4
12
13.7
15.1
10.5
23.6 20.1
9.9
9.2
Growth YoY (%)
Exhibit 2: Gross margins declined 350bp QoQ as RM cost
rises
Gross margin (%)
14.9
9.7
16.8
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: EBITDA margins jump 90bp to 17.2%
EBITDA
EBITDA (%)
Exhibit 4: Muted PAT growth at 7% YoY
1,600
1,200
800
400
0
29
31
17
8
6
8
24
15
6
7
22
PAT (INR m)
39
Growth YoY (%)
33
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Spot lead prices are ~1% lower QoQ in 1QFY17, impact of which will be reflected
with a quarter lag in 1QFY17
150,000
135,000
120,000
105,000
90,000
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
2
11 August 2016

Amara Raja Batteries
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 maintain its market share at current levels (60% currently).
Strong ~20% EPS CAGR over FY16-FY18E, robust return ratios and FCF; Buy:
FY16 is inflection year for AMRJ—with new capacities driving top-line (~19%
CAGR over FY16-18E) and benign lead prices driving margins (+30bp by FY18),
translating into ~20% EPS CAGR (FY16-18E). Stable competitive environment,
significant FCF generation (~INR2.6b over FY16-18) and stable RoE of 25% —
coupled with potential shift from unorganized to organized players due to GST
would continue to drive stock re-rating. The stock trades at 27.1x/21.8x FY17/18
EPS. Maintain Buy with a TP of ~INR1,038 (~25x FY18E EPS).
Exhibit 6: Revised estimates
(INR M)
Net Sales
EBITDA (%)
Net Profit
EPS (INR)
Rev
55,455
17.5
5,705
33.4
FY17E
Old
55,643
17.5
5,921
34.7
Chg (%)
-0.3
0bp
-3.6
-3.6
Rev
66,057
17.7
7,095
41.5
FY18E
Old
65,780
17.1
7,157
41.9
Chg (%)
0.4
60bp
-0.9
-0.9
Source: MOSL
Exhibit 7: Valuations trading above historical average, reflecting improving fundamentals
35
28
21
14
7
0
12.6
10.9
18.1
4.0
2.0
0.0
3.0
2.2
P/E (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
25.0
8.0
6.0
4.4
P/B (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
5.6
Source: MOSL
Source: MOSL
11 August 2016
3

Amara Raja Batteries
Exhibit 8: Comparative valuation
CMP
(INR)*
Rating
TP
(INR)
2,944
3,666
323
1,724
5,509
558
118
27,244
921
205
1,038
24,766
P/E (x)
FY17E FY18E
19.9
18.0
24.2
19.4
22.2
13.7
13.4
35.9
29.4
19.6
27.1
45.0
16.2
15.4
18.5
14.4
17.7
8.8
10.3
26.5
21.9
17.0
21.8
35.2
EV/EBITDA (x)
FY17E FY18E
13.8
11.7
14.7
16.0
12.9
4.4
7.4
28.8
14.8
12.4
15.9
30.7
11.4
9.9
11.4
12.7
10.7
3.6
5.9
23.4
12.0
10.7
13.0
25.9
RoE (%)
FY17E FY18E
31.2
41.5
27.1
15.4
20.3
14.5
29.8
40.9
16.9
15.3
24.4
19.3
33.0
39.9
28.7
17.8
21.6
19.2
31.0
40.1
20.0
15.5
24.7
21.2
RoCE (%)
EPS CAGR (%)
FY17E FY18E FY16E-18E
30.4
40.5
28.0
12.9
27.6
12.2
21.9
26.1
11.6
15.8
23.1
27.6
32.2
39.1
30.2
15.1
28.9
14.2
25.2
27.9
14.5
16.2
23.6
28.2
15.5
16.4
33.0
23.9
33.5
24.1
47.2
30.5
14.4
18.6
20.4
33.1
Source: MOSL
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
2,845
3,304
297
1,421
4,883
502
87
22,282
808
175
906
24,741
Buy
Neutral
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
11 August 2016
4

Amara Raja Batteries
Amara Raja| Story in charts: Robust ~20% EPS CAGR expected over FY16-18E
Exhibit 9: Capacity for various batteries
4W (mn units)
MVRLA (mn units)
2W (mn units)
LVRLA (billion. Amph)
8.4 8.25 8.4 8.25
8.4
6
3
3
3
34.3
25.2
16.0
22.5
11.4
19.1
Exhibit 10: 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
4.7
4
1.65
FY13
18.2
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 11: Expect margins to sustain and improve to 18% by
FY18E
EBITDA (INR m)
15.2
16.3
16.8
EBITDA margins (%)
Exhibit 12: Strong EPS growth of ~20% over FY16-18E
45.2
EPS
36.2
26.3
12.3
12.6
17.2
FY13
21.7
FY14
24.3
FY15
17.7
16.6
33.4
FY17E
41.5
FY18E
24.4
Growth (%)
17.4
17.5
17.7
14.4
28.7
FY16
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY12
Source: Company, MOSL
Source: Company, MOSL
Exhibit 13: FCF to turn positive in FY16E-18E
CFO
Capex
FCF
Exhibit 14: Return ratios to remain strong
RoCE (%)
29.3
25.5
31.1
28.0
30.6
28.0
27.2
25.3
RoE (%)
25.8
24.2
24.4
23.1
24.7
23.6
-809
-1,463
-434
-3,986
-5,069
FY16
-6,000
FY17E
-5,500
FY18E
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY12
FY13
FY14
FY15
Source: Company, MOSL
Source: Company, MOSL
11 August 2016
5

Amara Raja Batteries
Financials and Valuations
Standalone - Income Statement
Y/E March
Gross Revenues
Less: Excise Duty
Net Sales
Change (%)
Gross operating income
Total Expenditure
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT bef. EO Exp.
EO Expense/(Income)
PBT after EO Exp.
Tax Rate (%)
Reported PAT
PAT Adj for EO items
Change (%)
Margin (%)
FY12
26,029
2,384
23,645
34.3
26,029
20,249
3396
14.4
465
2,931
25
280
3,186
0
3,186
32.5
2,151
2,151
45.2
9.1
FY13
33,110
3,496
29,614
25.2
33,110
25,099
4515
15.2
661
3,854
10
466
4,310
92
4,218
32.0
2,867
2,929
36.2
9.9
FY14
38,372
4,005
34,367
16.0
38,372
28,764
5603
16.3
646
4,957
7
455
5,405
39
5,367
31.5
3,674
3,701
26.3
10.8
FY15
46,372
4,258
42,113
22.5
46,372
35,023
7091
16.8
1,340
5,751
2
423
6,171
73
6,098
32.6
4,108
4,158
12.3
9.9
FY16
52,418
5,511
46,907
11.4
52,418
38,738
8,169
17.4
1,399
6,770
5
457
7,222
0
7,222
32.2
4,894
4,894
17.7
10.4
FY17E
61,000
5,545
55,455
18.2
61,000
45,750
9,705
17.5
1,891
7,814
21
475
8,268
0
8,268
31.0
5,705
5,705
16.6
10.3
(INR Million)
FY18E
72,662
6,606
66,057
19.1
72,662
54,375
11,682
17.7
2,388
9,293
21
650
9,923
0
9,923
28.5
7,095
7,095
24.4
10.7
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
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
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
2,616
1,521
1,639
7,638
18,106
FY16
171
20,846
21,016
588
725
22,330
19,147
5,984
13,163
1,199
161
14,560
6,017
5,922
1,503
1,120
6,754
3,301
2,471
983
7,806
22,330
(INR Million)
FY17E
171
25,598
25,769
671
725
27,165
25,346
7,874
17,471
1,000
161
15,855
6,381
7,001
1,150
1,324
7,323
2,583
2,921
1,819
8,532
27,165
FY18E
171
31,534
31,705
770
725
33,200
30,846
10,263
20,583
1,000
161
19,962
6,696
8,339
3,350
1,577
8,506
3,077
3,479
1,950
11,456
33,200
11 August 2016
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
RoIC
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Working Capital Turnover (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
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
FY15
24.3
32.2
99.5
3.6
18.0
37.2
28.2
9.1
3.6
21.6
0.4
29.3
25.5
29.9
2.5
41.2
45
15
46
2.3
0.1
31.1
28.0
40.6
2.5
36.1
42
19
34
2.1
0.1
30.6
28.0
40.9
2.3
35.6
43
17
44
2.1
0.1
27.2
25.3
30.9
2.3
36.2
44
23
47
2.3
0.0
FY16
28.7
36.8
123.0
4.3
17.8
31.6
24.6
7.4
3.3
18.9
0.5
25.8
24.2
26.7
2.1
46.8
41
26
49
2.2
0.0
FY17E
33.4
44.5
150.9
4.6
16.7
27.1
20.4
6.0
2.8
15.9
0.5
24.4
23.1
24.3
2.0
42.0
42
17
49
2.2
0.0
FY18E
41.5
55.5
185.6
5.6
16.3
21.8
16.3
4.9
2.3
13.0
0.6
24.7
23.6
24.8
2.0
37.0
42
17
45
2.3
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
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
FY16
7,222
1,399
-452
2,327
-887
4,954
-5,069
-115
457
-4,612
203
-5
-874
-675
-333
2,221
1,888
(INR Million)
FY17E
8,268
1,891
-454
2,563
-1,078
6,063
-6,000
63
475
-5,525
83
-21
-953
-891
-352
1,888
1,536
FY18E
9,923
2,388
-629
2,828
-723
8,130
-5,500
2,630
650
-4,850
99
-21
-1,158
-1,080
2,200
1,536
3,736
11 August 2016
7

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 (%)
Jun-16
Promoter
DII
FII
Others
52.1
8.2
20.6
19.2
Mar-16
52.1
9.1
20.1
18.8
Jun-15
52.1
9.2
18.8
19.9
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Franklin Templeton Investment Funds
ICICI Prudential Value Discovery Fund
Smallcap World Fund, Inc
% Holding
2.7
1.9
1.2
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
N Sri Vishnu Raju*
Raymond J Brown*
T R Narayanaswamy*
Raphael John Shemanski
Name
Nagarjun Valluripalli*
Shu Qing Yang
Bhairavi Tushar Jain
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Brahmayya & Co
Deloitte Haskins & Sells LLP
Sagar & Associates
Type
Statutory
Statutory
Cost Auditor
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY18
MOSL forecast
33.4
41.5
Consensus
forecast
34.5
41.8
Variation
(%)
-3.1
-0.7
Source: Bloomberg
FY17
11 August 2016
8

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