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.

Amara Raja Batteries
Automotive – growth to be driven by market share gains in replacement
Replacement market to grow 7-8% (vs 10% growth earlier), due weak OEM sales
in last few years.
AMRJ is targeting to grow 15-20% (including exports) due to market share gain
in CVs, 2Ws (likely to add HMCL in OEM) and focusing PowerZone brand in
urban markets (v/s earlier focus on just rural and semi-urban markets).
2W replacement market is growing at 12%, whereas AMRJ is growing at 15-20%.
AMRJ is expected to outpace 2W replacement market growth.
Inverter batteries: With new tubular plant, its dependence on outsourced
batteries has reduced to just 2%. AMRJ’s inverter offers some benefits, which
will be marketed when season starts in 4Q. Despite improvement in power
availability, there hasn’t been drop in inverter business. There is scope to gain
share from the unorganised segment which has market share of ~50%.
AMRJ is gaining market share in all the auto segments. In 4Ws, AMRJ has ~28%
market share (v/s EXID’s 30%) and in 2Ws it has 28-30% market share (v/s 32%
for EXID). It is now gaining market share in the CVs segment.
GST + Demonetization to help drive shift from unorganized (30-35% of Auto
replacement market) to organized.
E-rickshaws: An E-rickshaw battery is a lucrative market with market size of
~INR5-6b and largely dominated by unorganized players. While E-rickshaws are
concentrated in parts of north and east India, acceptance in other markets
would expand the addressable market. AMRJ has limited presence in this
market due to capacity constraints.
Industrial segment – Newer avenues to growth
Industrial segment is expected to grow at lower double digits over 3-5 years,
driven by new avenues of growth.
Telecom batteries are expected to be driven by replacement demand only and
hence are expected to grow under 5%. Reliance Jio’s entry did initially help
boost growth due to tower sharing resulting in additional demand.
It has over 50% market share in Telecom segment (EXID and HBL are key
competitors) and ~35% market share in UPS (balance with EXID and imports).
Li-ion competition in Telecom batteries:
Jio using it in ~65k towers (of total
450k towers in India). Commercial and technical viability is question mark
currently for li-ion batteries as cost higher (v/s Lead-acid) by 4x for Jio (upto 6x
for other players).
New areas of growth:
Solar power storage, motive power and exports of
telecom & UPS to Africa & S. Asia (exports to be 15-16% of industrials in next 3
year vs 5-6% currently).
Tubular batteries:
Tubular battery plant, which started operations in Mar-16,
was initially for home inverter batteries. However, this plant is fungible for solar
power storage batteries and motive power (negligible for AMRJ currently, but
~50% of industrial segment for global players).
Others
Demonitization 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.
2
5 December 2016

Amara Raja Batteries
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.
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).
Exports is a focus area:
AMRJ is focusing on exports as one of the growth drivers
for both automotive and industrial batteries. It is focusing on markets like South
Asia and Africa. With China curbing lead acid battery exports, there is
opportunity for players like AMRJ to target exports to countries were Johnson
Control is not present.
Li-ion technology:
AMRJ can access Li-ion technology of Johnson control, for
which it needs to enter into a new agreement. It is also free to access
technology from other companies.
Like EXID, AMRJ also plans to introduce punched grid technology starting with
2w batteries. It will help in lowering cost through higher automation.
Capacity utilization:
Over 90% for 2Ws and 4Ws, 80% for MVRLA and Tubular
battery at ~55% currently (66% by Mar-17).
Capex:
FY17 INR4b, FY18: INR6b [incl Maintenance capex of ~INR1.75-2b].
Capacity addition in 2Ws [4m by Jun-18 to 15m] and 4Ws [2.25m by Mar-17 to
10.5m].
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 FY04-16, 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
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 ~18% EPS CAGR over FY16-FY19E, robust return ratios and FCF; Buy:
FY16 is inflection year for AMRJ—with new capacities driving top-line (~16%
CAGR over FY16-19E) and margins improvement (+70bp by FY19), translating
into ~18% EPS CAGR (FY16-19E). Our estimates doesn’t factor in for any benefit
3
5 December 2016

Amara Raja Batteries
of GST and demonetization on market share gains from unorganized players.
Favorable competitive environment, significant FCF generation (~INR5.5b over
FY16-19) 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 22.8x/19.2x FY18/19E EPS. Maintain Buy with a TP of
~INR1,098 (25x Sep-18E EPS).
Exhibit 2: Valuations trading above historical average, reflecting improving fundamentals
42
35
6.0
28
21
14
7
0
13.4
11.5
2.0
0.0
19.5
25.4
4.0
4.6
3.2
2.3
5.5
P/E (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
8.0
P/B (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
Source: MOSL
Source: MOSL
5 December 2016
4

Amara Raja Batteries
Amara Raja| Story in charts: Robust ~18% EPS CAGR expected over FY16-19E
Exhibit 3: Capacity for various batteries
4W (mn units)
MVRLA (mn units)
8.4
6.0
3.0
2W (mn units)
LVRLA (billion. Amph)
8.3 8.4
3.0
8.4
10.8
3.0
34.3
25.2
16.0
22.5
11.4
14.7
Exhibit 4: Expect net sales to register a CAGR of ~16% over
FY16-19E
Net sales (INR m)
Growth (%)
3.5
2.3
1.5
FY11
4.5
3.5
1.5
FY12
4.7
4.0
1.7
FY13
18.3
FY14
FY15
FY16
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Expect margins to sustain and improve to 18% by
FY18E
EBITDA (INR m)
15.2
16.3
16.7
EBITDA margins (%)
Exhibit 6: Strong EPS growth of 18.5% over FY16-18E
45.2
EPS
36.2
26.3
19.8
10.4
12.6
17.2
FY13
21.7
FY14
23.9
FY15
28.7
FY16
7.8
30.9
FY17E
40.1
FY18E
Growth (%)
17.4
14.4
16.8
17.7
30.0
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY12
Source: Company, MOSL
Source: Company, MOSL
Exhibit 7: FCF to turn positive in FY18E
CFO
Capex
FCF
Exhibit 8: Return ratios to remain strong
RoCE (%)
29.3
25.5
31.1
28.0
30.6
28.0
26.7
24.9
RoE (%)
25.8
24.2
24.2
23.1
22.7
21.6
-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
5 December 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 (%)
Less: Mionrity Interest
Net Profit
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
0
2,151
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
0
2,929
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
0
3,701
FY15
46,372
4,258
42,113
22.5
46,372
35,095
7018
16.7
1,340
5,678
2
423
6,099
73
6,026
33.0
4,036
4,084
10.4
9.7
0
4,084
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
19.8
10.4
0
4,894
FY17E
60,253
6,456
53,797
14.7
60,253
44,736
9,061
16.8
1,858
7,203
35
475
7,643
0
7,643
31.0
5,274
5,274
7.8
9.8
0
5,274
(INR Million)
FY18E
70,000
6,364
63,636
18.3
70,000
52,349
11,287
17.7
2,318
8,969
33
650
9,586
0
9,586
28.5
6,854
6,854
30.0
10.8
0
6,854
FY19E
80,747
7,341
73,406
15.4
80,747
60,083
13,323
18.1
2,751
10,572
28
850
11,394
0
11,394
28.5
8,146
8,146
18.9
11.1
0
8,146
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
FY17E
171
25,239
25,410
665
725
26,799
25,346
7,841
17,505
1,000
161
15,032
6,190
6,791
767
1,284
6,899
2,506
2,834
1,560
8,133
26,799
(INR Million)
FY18E
171
30,974
31,144
761
725
32,630
30,846
10,159
20,687
1,000
161
18,916
6,974
8,033
2,390
1,519
8,134
2,964
3,352
1,818
10,782
32,630
FY19E
171
37,790
37,961
875
725
39,560
35,846
12,910
22,936
1,000
161
24,888
7,843
9,267
6,026
1,752
9,424
3,419
3,866
2,139
15,463
39,560
5 December 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
Gross Fixed Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Working Capital Turnover (Days)
Growth (%)
Sales
EBITDA
PAT
Leverage Ratio (x)
Current Ratio
Debt/Equity
FY12
12.6
15.3
48.2
1.9
17.4
72.8
59.9
19.0
6.6
45.7
0.2
29.3
25.5
29.9
3.8
41.2
45
15
46
34.3
31.9
45.2
2.3
0.1
FY13
17.2
21.0
62.0
2.5
17.6
53.4
43.6
14.8
5.2
34.0
0.3
31.1
28.0
40.6
4.4
36.1
42
19
34
25.2
33.0
36.2
2.1
0.1
FY14
21.7
25.4
79.8
3.6
19.3
42.3
36.0
11.5
4.5
27.6
0.4
30.6
28.0
40.9
3.5
35.6
43
17
44
16.0
24.1
26.3
2.1
0.1
FY15
23.9
31.8
99.5
3.6
18.4
38.3
28.9
9.2
3.7
22.1
0.4
26.7
24.9
30.3
2.9
36.2
44
23
47
22.5
25.3
10.4
2.3
0.0
FY16
28.7
36.8
123.0
4.3
17.8
32.0
24.9
7.4
3.3
19.1
0.5
25.8
24.2
26.7
2.4
46.8
41
26
49
11.4
16.4
19.8
2.2
0.0
FY17E
30.9
41.8
148.8
4.3
16.7
29.7
22.0
6.2
2.9
17.3
0.5
22.7
21.6
22.4
2.1
42.0
41
17
50
14.7
10.9
7.8
2.2
0.0
FY18E
40.1
53.7
182.3
5.5
16.3
22.8
17.1
5.0
2.4
13.7
0.6
24.2
23.1
23.8
2.1
40.0
42
17
48
18.3
24.6
30.0
2.3
0.0
FY19E
47.7
63.8
222.3
6.5
16.3
19.2
14.4
4.1
2.1
11.4
0.7
23.6
22.6
24.6
2.0
39.0
42
17
47
15.4
18.0
18.9
2.6
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
FY17E
7,643
1,858
-440
2,369
-1,063
5,629
-6,000
-371
475
-5,525
76
-35
-881
-839
-736
1,888
1,152
FY18E
9,586
2,318
-617
2,732
-1,025
7,529
-5,500
2,029
650
-4,850
96
-33
-1,119
-1,056
1,623
1,152
2,776
FY19E
11,394
2,751
-822
3,247
-1,046
9,030
-5,000
4,030
850
-4,150
114
-28
-1,330
-1,244
3,636
2,776
6,411
5 December 2016
7

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