Amara Raja Batteries: Charging Capacity

In its Q3FY13 scorecard, Amara Raja Batteries (ARB) has announced an impressive set of numbers yet again. The stellar performance of ARB over the years led us to recommend it in our magazine Dalal Street Investment Journal (Vol. 28 Issue No. 4, dated Jan 28 – Feb 10, 2013), when it was trading at a price of Rs 295 per share. Since our recommendation, the stock has already yielded returns of 7.46%, thanks to the Q3FY13 result announcement.

In the quarter under review, ARB saw its revenues growing by 23.67% to Rs 759.15 crore as compared to the corresponding period in the previous year. This performance came in although the Indian automobile industry has been fairly dazed.

In the terms of volumes, ARB reported to have seen double-digit growth in the automotive battery business. This has been driven by robust sales in the replacement market over the last few quarters. We expect this trend to continue considering the fact that sales to Original Equipment Manufacturers (OEM) were robust in FY09-10. Moreover, the company is set to commence supply to two-wheeler OEMs in a couple of months, which will further boost volumes and revenues.

In the industrial segment, sales were driven by the growth in the telecom sector. Through partnerships, ARB has managed to keep a sustained level of growth in terms of domestic and export sales to telecom service providers.

Despite a slowdown in the automobile segment and a massive upswing in lead prices, the company has managed to maintain its margins and profitability over the last few quarters even when its competitors like Exide have seen massive downward pressure on their margins. In fact, the stability shown by ARB was one of the key reasons for our recommendation.

That ARB looks set to continue its growth momentum becomes evident from its capacity expansion plans. Capital investment of Rs 304 crore to expand capacities in the Medium valve regulated lead-acid (VRLA), four-wheeler and two-wheeler product lines has already been approved. Apart from this, the board approved augmentation of its Large VRLA and four-wheeler product line capacity over the next 16-18 months, amounting to a total infusion of Rs 440 crore to cater to growing demand in the long term. However, the company has still managed to maintain a debt-free status, with cash levels of over Rs 350 crore as of Dec 31, 2012.

All of the above factors have been positive for the company’s prospects and form the basis for our recommendation of the scrip. We continue to maintain our positive outlook on ARB.

To read the basis of our recommendation of ARB click here.