26 July 2017
Amara Raja Batteries
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Annual Report Update | Sector: Automobiles
CMP: INR847
TP: INR1,095(+29%)
Strengthening products and market presence
Expanding technology and offerings to challenge leader
Buy
AMRJ’s FY17 annual report, themed ‘Expanding Horizons’ highlights initiatives on new
technologies, applications and markets. It has prioritized segments such as e-rickshaws,
renewable energy, motive power products and exports to keep its growth momentum
intact in FY18. Further, it is exploring and evaluating possibilities of foraying into other
technologies even as it continues to strengthen its leadership in the lead-acid space.
Expanding horizons across every aspect of business
FY17 was an important year for AMRJ, as it expanded its horizon across every
aspect of business: (a) Technology – absorbed glass mat batteries, flat plate gel,
tubular gel, etc, (b) Products – batteries for micro-hybrid vehicles, customized
batteries for UPS segment, etc, and (c) Processes. Further, it is exploring products
for renewable energy and e-mobility.
Technological innovations to enhance product offerings
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
AMRJ IN
170.8
1,077/807
-3/-21/-21
144.6
2.2
353.0
47.9
In the lead acid space, AMRJ is targeting to launch flat plate and tubular gel
batteries developed on gel-based platforms in FY18. It expects to launch products
based on EFB (enhance flooded battery) technology for micro hybrid vehicles in
1HFY18. In FY17, it developed products on AGM (absorbed glass mat) platform and
customized batteries for UPS applications. AMRJ expects the domestic battery
industry to grow at a CAGR of 7-9% till 2020.
Key priorities for FY18
Financials Snapshot (INR b)
2017 2018E 2019E
Y/E Mar
Sales
53.2
62.1
73.6
EBITDA
8.5
9.9
11.7
NP
4.8
6.0
7.2
EPS (INR)
28
35
42
EPS Gr. (%)
(2.7)
26.1
19.2
BV/Sh. (INR)
152
181
215
RoE (%)
20.3
21.2
21.3
RoCE (%)
19.4
20.3
20.4
P/E (x)
30.2
24.0
20.1
P/BV (x)
5.6
4.7
3.9
Shareholding pattern (%)
As On
Jun-17 Mar-17 Jun-16
Promoter
52.1
52.1
52.1
DII
10.9
8.9
8.2
FII
19.0
19.7
20.6
Others
18.0
19.4
19.2
FII Includes depository receipts
Implement punch greed technology across segments
Capacity enhancement in 2W and 4W space
Increase in automation levels to handle materials on the shop floor
Expand network and market share in EXID-dominated East and West markets
Strengthen marketing of in-house manufactured tubular batteries for home
UPS and e-rickshaw applications
Establish strong presence in high potential exports markets like Saudi Arabia
and Australia
Launch high warranty and energy-efficient products in industrial segment
Focus on increasing volumes of batteries used in data center applications
Increase focus on renewable energy and motive power segment
Targets to double 2W battery capacity in three years
AMRJ intends to continue its capacity expansion drive, as long-term growth
prospects remain robust. It is establishing a 14m units/year greenfield 2W battery
capacity in four phases over the next five years. This will take its total 2W battery
capacity to 24m units/year. In addition to the recently-commissioned 2.25m
units/year capacity, AMRJ is setting up three additional lines in the 4W segment.
Jinesh Gandhi - Research Analyst
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Deep A Shah - Research Analyst
(Deep.S@MotilalOswal.com);+912261291533/
Jigar Shah - Research Analyst
(Jigar.Shah@MotilalOswal.com);+912239825402
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
 Motilal Oswal Financial Services
Amara Raja Batteries
Stock Performance (1-year)
Focus on new segments to fuel growth
AMRJ is targeting new segments like renewable energy, e-mobility, motive power
and data center applications. It is banking on government schemes like FAME, Auto
Mission Plan II and National Electric Mobility Mission Plan (NEMMP) 2020, which are
expected to drive demand for automotive batteries in the future.
On-boarding new customers across segments
In the 2W battery space, AMRJ commenced supplies to Bajaj Auto (BJAUT) in FY17
and has on-boarded Hero MotoCorp (HMCL) as new customer. In 4Ws, AMRJ is the
sole supplier to Renault Kwid, and has added new platforms from existing
customers. It has also begun supplies to Volvo for its earth-moving vehicles.
Exploring India-like export markets to de-risk India exposure
AMRJ is expanding its presence in key markets such as South-East Asia, the Middle
East, Australia and Africa. Its exports grew 48% in FY17 and it targets to raise the
contribution of exports from 6.8% of revenue in FY17. For South-East Asian markets,
AMRJ is targeting telecom and UPS batteries for volume growth.
Double-digit revenue growth in automotive segment (60% of revenue)
In FY17, automotive segment revenue grew in double digits, led by healthy growth
in the 4W and 2W OEM space. AMRJ commenced supplies to BJAUT and will soon
start supplies to HMCL to further boost 2W OEM revenue. On the replacement side,
AMRJ continued its growth momentum, led by strengthening of brands, expansion
of network, and varied product offerings.
Telecom and UPS segments moderated industrial segment growth
AMRJ has highlighted that the entry of Reliance Jio with lithium-ion batteries has
impacted volume off-take for replacement batteries. Additionally, lead inflation
presented challenges in the telecom and UPS segments. However, preferred
supplier status with major OEMs, after sales service, and strong performance of
brands like
PowerStack, Quanta
and
QRS
supported sales.
Valuation and view
With stable competitive environment and demand recovery, we estimate 17.6%
Revenues CAGR, 17.3% EBITDA CAGR and 22.6% PAT CAGR over FY17-19. FCF
generation (INR8.2b over FY17-19E) and RoE of 21% coupled with potential shift
from unorganized to organized players due to GST would continue to drive stock
re-rating. The stock trades at 24x FY18E and 20.1x FY19E EPS. Maintain
Buy
with
a target price of ~INR1,095 (25x June 2019E EPS).
26 July 2017
2
 Motilal Oswal Financial Services
Amara Raja Batteries
Story in charts: Earnings to grow at a CAGR of 22.6% over FY17-19
Exhibit 1: AMRJ projects global battery market at USD17.3b by 2021
Source: Company
Exhibit 2: Expect revenue CAGR of 17.7% over FY17-19
25.2
16.0
9.7
Net sales (INR m)
22.5
15.1
16.7
18.5
18.1
Growth (%)
Exhibit 3: Autos account for 68% of FY17 revenue pie
Industrial
40%
Automotive
60%
FY13
FY14
FY15
FY16
FY17 FY18E FY19E FY20E
Source: Company, MOSL
Source: Company
26 July 2017
3
 Motilal Oswal Financial Services
Amara Raja Batteries
Exhibit 5: Capacity build-up to drive growth – 2W capacity to
be >2x by FY22
4W (mn units)
2W (mn units)
Exhibit 4: Exports’ share at just 6.8% of revenue in FY17
Exports
7%
Domestic
93%
Source: Company
FY12
FY13
FY14
FY15
FY16
FY17
FY18E FY22E
Source: Company
Exhibit 6: Increase in retail network also driving revenue
and market share
Retailers (nos.)
Exhibit 7: Growth in channel partners significant in past
three fiscals
Channel partners (nos.)
1,200+
152
FY07
FY10
FY14
FY17
Source: Company
FY07
200
295
FY10
FY14
FY17
Source: Company
Exhibit 8: Competing head-to-head with EXID – market share across segments
AMRJ
60
49
35
22
28
35
30
36
12
32
34
EXID
70
Telecom
UPS
4W OEM
4W replacement
2W OEM
2W replacement
Source: Company, Industry
26 July 2017
4
 Motilal Oswal Financial Services
Amara Raja Batteries
Exhibit 9: Optimum utilization of capacities
Indicative utilization (%)
95
90
90
10.4
85
17.2
2W
4W
LVRLA
MVRLA
FY13
21.7
FY14
23.9
FY15
28.8
FY16
FY17
Exhibit 10: Earnings to clock CGAR of 20.3% over FY17-19
36.2
26.3
20.4
28.0
(2.7)
35.3
42.1
51.7
EPS
Growth (%)
26.1
19.2
22.8
FY18E FY19E FY20E
Source: SIAM, MOSL
Source: Company, MOSL
Exhibit 11: Return profile to remain stable
31.1
28.0
30.6
28.0
24.2
RoCE (%)
26.0
25.2
23.9
20.3
19.4
21.2
20.3
21.3
20.4
21.9
21.0
RoE (%)
Exhibit 12: Increase in FCF led by higher profits
CFO
Capex
FCF
FY13
FY14
FY15
FY16
FY17
FY18E FY19E FY20E
Source: Company, MOSL
FY13
FY14
FY15
FY16
FY17
FY18E FY19E FY20E
Source: Company, MOSL
Exhibit 13: Distributor-led model saves marketing cost for
AMRJ
AMRJ
3.1
3.4
2.7
2.4
EXID
3.3
Exhibit 14: Increase in warranty costs led by lead cost
inflation
AMRJ
2.7 2.8
1.6
2.9
2.8
EXID
2.7
1.4
2.5
1.2
0.5
0.8
0.6
0.7
1.1
0.5
Source: Company, MOSL
Source: SIAM, MOSL
26 July 2017
5
 Motilal Oswal Financial Services
Amara Raja Batteries
Exhibit 15: P/E and P/B band
40
32
24
16
8
0
15.0
12.4
22.3
23.3
4.0
2.0
0.0
P/E (x)
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
P/B (x)
8.0
6.0
5 Yrs Avg(x)
15 Yrs Avg(x)
10 Yrs Avg(x)
4.8
3.4
4.5
2.4
Source: MOSL
Source: MOSL
Exhibit 16: 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
Endurance Tech
CMP
(INR)
2,845
3,707
570
1,390
7,515
456
105
28,377
1,120
217
847
24,188
913
Rating
Buy
Neutral
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Neutral
Buy
TP
(INR)
3,281
3,818
606
1,580
8,483
631
118
31,326
1,330
286
1,095
23,738
1,025
P/E (x)
FY18E FY19E
20.7
17.4
19.6
18.6
35.0
22.0
20.8
17.4
25.7
19.8
14.7
7.1
20.3
15.1
32.9
25.7
29.7
22.4
24.0
37.2
29.9
22.5
18.2
20.1
31.6
23.5
EV/EBITDA (x)
FY18E FY19E
14.9
12.3
12.6
12.1
23.1
15.1
15.0
12.9
15.9
12.6
4.3
2.7
10.2
7.7
26.7
22.0
17.6
14.3
14.3
24.9
14.5
14.1
11.7
11.8
21.2
12.1
RoE (%)
Div Yield (%) EPS CAGR (%)
FY18E FY19E FY18E FY19E
FY17-19E
22.2
24.0
2.3
2.8
11.2
34.6
31.5
2.4
2.4
8.5
28.6
35.2
0.5
0.8
48.5
14.1
14.6
1.4
1.4
21.3
20.8
22.8
1.1
1.3
23.6
16.5
27.3
0.1
0.1
80.2
23.2
27.0
1.9
2.1
23.7
40.8
38.0
0.5
0.6
34.0
19.8
14.8
21.2
21.1
22.4
22.3
15.9
21.3
21.9
23.6
0.8
1.0
0.6
0.9
0.4
0.9
1.0
0.8
1.1
0.8
37.8
21.1
22.6
27.3
28.6
Source: Company, MOSL
26 July 2017
6
 Motilal Oswal Financial Services
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
35,095
7018
16.7
1,340
5,678
2
423
6,099
73
6,026
33.0
4,036
4,084
10.4
9.7
FY16
51,843
5,666
46,178
9.7
51,843
37,948
8,230
17.8
1,407
6,823
55
459
7,226
0
7,226
32.0
4,916
4,916
20.4
10.6
FY17
59,814
6,642
53,172
15.1
59,814
44,672
8,499
16.0
1,912
6,587
58
492
7,022
0
7,022
31.9
4,785
4,785
-2.7
9.0
FY18E
69,525
7,449
62,076
16.7
69,525
52,181
9,895
15.9
1,751
8,144
51
650
8,743
0
8,743
31.0
6,032
6,032
26.1
9.7
(INR Million)
FY19E
82,397
8,828
73,569
18.5
82,397
61,879
11,690
15.9
2,219
9,471
46
850
10,275
0
10,275
30.0
7,193
7,193
19.2
9.8
FY20E
97,287
10,424
86,863
18.1
97,287
72,901
13,962
16.1
2,629
11,333
46
1,150
12,437
0
12,437
29.0
8,830
8,830
22.8
10.2
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
17,674
17,845
368
741
18,954
12,434
2,989
9,444
863
189
13,394
4,181
5,541
2,222
1,450
4,935
2,660
1,458
817
8,459
18,955
FY16
171
20,988
21,159
538
725
22,421
14,851
1,330
13,520
1,229
200
14,559
6,016
5,922
1,503
1,119
7,087
3,493
2,665
929
7,472
22,421
FY17
171
25,760
25,931
815
690
27,436
18,156
3,257
14,899
2,403
1,467
17,077
8,170
5,705
1,709
1,494
8,410
4,184
3,285
941
8,667
27,436
FY18E
171
30,682
30,853
903
725
32,480
24,558
5,008
19,550
1,000
1,467
20,928
8,504
6,660
4,020
1,744
10,464
4,885
3,835
1,744
10,464
32,480
(INR Million)
FY19E
171
36,551
36,722
1,005
725
38,452
29,558
7,227
22,331
1,000
1,467
25,905
8,062
7,893
7,883
2,067
12,251
5,790
4,545
1,917
13,654
38,452
FY20E
171
43,757
43,928
1,130
725
45,782
34,558
9,855
24,703
1,000
1,467
33,058
9,519
9,320
11,779
2,440
14,445
6,836
5,366
2,244
18,613
45,782
26 July 2017
7
 Motilal Oswal Financial Services
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
FY13
17.2
21.0
62.0
2.5
17.6
FY14
21.7
25.4
79.8
3.6
19.3
FY15
23.9
31.8
104.5
3.6
18.4
FY16
28.8
37.0
123.9
4.3
17.7
29.4
22.9
6.8
3.1
17.5
0.5
29.3
25.5
29.9
3.8
41.2
45
15
46
34.3
31.9
45.2
2.3
0.1
31.1
28.0
40.6
4.4
36.1
42
19
34
25.2
33.0
36.2
2.1
0.1
30.6
28.0
40.9
3.5
35.6
43
17
44
16.0
24.1
26.3
2.1
0.1
26.0
24.2
29.4
3.4
36.2
44
23
54
22.5
25.3
10.4
2.7
0.0
25.2
23.9
26.4
3.1
47.6
42
28
47
9.7
17.3
20.4
2.1
0.0
FY17
28.0
39.2
151.8
4.25
18.2
30.2
21.6
5.6
2.7
16.9
0.5
20.3
19.4
21.7
2.9
56.1
35
29
48
15.1
3.3
-2.7
2.0
0.0
FY18E
35.3
45.6
180.6
5.41
18.4
24.0
18.6
4.7
2.3
14.3
0.6
21.2
20.3
23.5
2.5
50.0
35
29
38
16.7
16.4
26.1
2.0
0.0
FY19E
42.1
55.1
215.0
6.5
18.4
20.1
15.4
3.9
1.9
11.8
0.8
21.3
20.4
24.5
2.5
40.0
35
29
29
18.5
18.1
19.2
2.1
0.0
FY20E
51.7
67.1
257.2
7.9
18.4
16.4
12.6
3.3
1.5
9.6
0.9
21.9
21.0
27.0
2.5
40.0
35
29
29
18.1
19.4
22.8
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
-3,731
-943
294
-3,437
-99
-14
-430
-543
-1,192
4,138
2,946
FY15
6,099
1,245
-29
1,922
-1,475
3,917
-4,062
-180
176
-3,886
-36
-84
-552
-672
-675
2,897
2,222
FY16
7,226
1,407
-43
2,181
-738
5,672
-4,904
637
24,156
-3,938
772
-5
-1,614
-847
757
746
1,503
FY17
7,022
1,912
-3
2,024
-1,137
5,771
-4,305
1,224
27,395
-5,294
748
-3
0
745
981
784
1,765
FY18E
8,743
1,751
-599
2,710
515
7,699
-5,000
2,699
650
-4,350
122
-51
-1,110
-1,039
2,310
1,709
4,019
(INR Million)
FY19E
10,275
2,219
-804
3,083
672
9,280
-5,000
4,280
850
-4,150
103
-46
-1,323
-1,267
3,863
4,019
7,883
FY20E
12,437
2,629
-1,104
3,607
-1,063
9,293
-5,000
4,293
1,150
-3,850
124
-46
-1,625
-1,547
3,896
7,883
11,779
26 July 2017
8
 Motilal Oswal Financial Services
Amara Raja Batteries
NOTES
26 July 2017
9
 Motilal Oswal Financial Services
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The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
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Amara Raja Batteries
Disclosure of Interest Statement
Analyst ownership of the stock
A graph of daily closing prices of securities is available at
www.nseindia.com, www.bseindia.com.
Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary
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Contact No.:022-30801085.
Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
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Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth
management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities
Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products
Amara Raja Batteries
No
26 July 2017
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