Amara Raja's lead-acid demand drives earnings beat as lithium-ion returns remain uncertain

Investment View and Valuation

Motilal Oswal Financial Services retains a Neutral rating on Amara Raja following its August 11, 2026 results update. The broker views the 1QFY27 earnings beat positively and has raised its FY27E and FY28E EPS estimates, but considers the stock fairly valued because of concerns over the eventual returns from the lithium-ion initiative.

The target price is Rs 944, compared with a CMP of Rs 970. It is based on 15 times standalone FY28E EPS, plus Rs 92 per share for the New Energy investment.

1QFY27 Financial Performance

Amara Raja reported standalone 1QFY27 revenue of Rs 4,041 crore, up 20.6 per cent year on year and 13 per cent above Motilal Oswal's estimate. Lead-acid battery revenue rose 22 per cent year on year to about Rs 4,000 crore, while New Energy revenue increased 73 per cent to Rs 200 crore.

Higher input costs constrained profitability. EBITDA rose 5 per cent year on year to about Rs 407 crore, in line with the broker's estimate, but EBITDA margin declined about 140 basis points year on year to 10.1 per cent, below the estimated 11.1 per cent. PAT grew about 5 per cent year on year to Rs 200 crore, 6 per cent above the broker estimate, as stronger revenue offset weaker margins.

Amara Raja invested Rs 150 crore in the New Energy business during 1QFY27, taking cumulative investment to Rs 1,650 crore.

Lead-Acid Business Outlook

Domestic automotive revenue grew more than 20 per cent, supported by healthy OEM demand and double-digit aftermarket growth. Home Energy revenue increased more than 30 per cent on the back of a strong summer season, while the Industrial Battery business maintained momentum, including double-digit revenue growth in the UPS segment. Exports remained under pressure from geopolitical uncertainty and shifting global trade dynamics.

Management expects the lead-acid business to deliver high single-digit to low-double-digit medium-term revenue growth through volume growth and selective pricing. Amara Raja has implemented a 3 per cent lead-acid price increase and expects another 2-3 per cent increase to offset commodity inflation.

Management also expects traded-battery contribution to decline as in-house capacity becomes available. Replacing traded products with internally manufactured batteries should support gross margins.

Industry Growth Drivers

Motilal Oswal expects Amara Raja to benefit from a steadier lead-acid battery outlook. Automotive industry growth over the past three years is expected to support replacement demand. Industrial demand excluding telecom should benefit from rising data-centre power-backup requirements and a recovery in thermal power generation.

The broker sees growth visibility in these areas for the next five to six years, supported by Amara Raja's positions in automotive and industrial lead-acid batteries.

New Energy Expansion and Valuation Risk

New Energy remains the central valuation risk. The lithium-ion Gigafactory is expected to commence commercialisation in 2QCY27 with initial capacity of 2GWh. Equipment for the 2GWh NMC line is expected in Q3FY27.

Amara Raja plans to spend Rs 250-300 crore on a 10GWh BESS plant, targeted for commercialisation in CY26. Management expects roughly 5GWh utilisation within six months of commissioning, subject to demand and orders. BESS operating margin is expected to be 5-6 per cent initially, improving to 7-8 per cent with localisation.

The company has planned FY27 capex of Rs 1,700 crore, of which about Rs 450 crore was incurred in 1QFY27, largely for New Energy.

Broker Estimates

Motilal Oswal has increased its FY27E and FY28E revenue estimates by 5.8 per cent and 7.3 per cent, respectively, and its EPS estimates by 5.6 per cent and 8.4 per cent.

Key Risks

• Limited OEM market access due to existing partnerships.
• Greenfield execution and validation risk.
• Low lithium-ion margins and uncertain long-term technology viability.
• Possible future funding needs for the planned Rs 9,500 crore, 16GWh lithium-ion cell project.