Amara Raja BESS expansion and lithium cells underpin medium-term battery growth

Investment View and Valuation

In its August 13, 2026 result update on Amara Raja Energy & Mobility, Anand Rathi Research maintained its HOLD rating and raised its target price to Rs1,080 from the report's CMP of Rs969. The broker considers the stock reasonably valued at 16x FY28E earnings.

The investment case is supported by favourable automotive and industrial lead-acid battery demand, scope for market-share gains, medium-term margin improvement, and emerging opportunities in battery energy storage systems (BESS) and lithium-ion cells.

Q1 FY27 Financial Performance

Amara Raja's standalone Q1 FY27 revenue rose 21 per cent year on year to Rs40.4 billion, broadly in line with Anand Rathi's Rs40.1 billion estimate and 7.7 per cent above consensus of Rs37.5 billion. EBITDA of Rs4.07 billion was also broadly in line with the broker's Rs4.04 billion forecast, while the EBITDA margin was 10.1 per cent, in line with the estimate but 125 basis points below consensus.

Gross margin declined to 28.5 per cent because of an adverse traded-revenue mix and higher input costs. Other expenses increased 29 per cent year on year to Rs5.2 billion, reflecting higher marketing, warranty, logistics and manufacturing-enhancement expenses.

New Energy revenue increased 73 per cent year on year to Rs2.09 billion, while its EBIT loss narrowed to Rs221 million from Rs352 million in Q1 FY26.

Lead-Acid Battery Demand and Growth Outlook

Management indicated healthy lead-acid battery demand across key segments. Q1 FY27 automotive volumes grew 35 per cent for two-wheeler OEMs, 24 per cent for four-wheeler OEMs and 15 per cent in the aftermarket. Industrial volumes rose 2 per cent, home-energy volumes increased 60 per cent and UPS volumes grew 10 per cent. Exports fell 20 per cent because of weakness in West Asia.

Management expects medium-term revenue CAGR of 9-10 per cent. It implemented a 3 per cent aftermarket price increase in June 2026, with a further 2-3 per cent increase expected in August 2026. Price increases for business-to-business customers remain under negotiation and are expected to be passed through in Q2 or Q3 FY27.

Anand Rathi expects lead-battery revenue to grow at an 11 per cent CAGR over FY26-FY28E, supported by volume growth, price hikes, improved net pricing, new tubular batteries and a recycling plant.

Margin Outlook and Earnings Estimates

Near-term margins face pressure from higher alloy, sulphuric acid and plastic costs, increased brand-promotion spending and higher warranty provisions. Manufacturing and capacity-enhancement costs reduced margin by 90 basis points in Q1 FY27, although management expects these investments to improve competitiveness.

The broker reduced FY27E and FY28E EPS estimates by 7.7 per cent and 5.3 per cent, respectively, mainly to reflect higher input costs and other expenses. It forecasts standalone revenue and EBITDA CAGR of 11 per cent and 15 per cent, respectively, over FY26-FY28E.

New Energy and Lithium-Ion Cell Opportunity

New Energy is a significant future driver. Amara Raja plans gradual commissioning of lithium-ion cell manufacturing from FY28E. Its 60 MWh annual customer-qualification facility and 2 GWh NMC cell plant are being constructed with Rs20 billion of capex and are expected to be ready by Q1 FY28E. Giga 1 commercialisation is targeted in H1 FY28E.

The company is prioritising energy-storage cells over EV cells because of their quicker demand potential. At an 8-10 GWh scale, management targets an EBITDA margin of 10-11 per cent and low-double-digit return on capital employed. Larger customer wins and sustainable profitability remain key monitorables.

BESS Expansion and Valuation Components

The approved 10 GWh BESS assembly facility has initial capex of Rs2.5-3 billion. Management expects utilisation to reach 5 GWh within six to seven months of commissioning, supported by domestic EPC demand and potential exports.

Anand Rathi estimates BESS revenue potential of up to Rs45 billion by FY30E and values BESS at Rs146 per share, increased from Rs73 per share. The target price values the parent at 12x FY28E EPS, ARACT's net present value at Rs210 per share, and BESS at Rs146 per share.

Key Downside Risks

• Weaker lead-battery growth.
• Lower lithium-ion cell or BESS orders.
• Adverse commodity prices.