Result Update: Amara Raja Batteries Ltd (Q2 FY14)
Rajesh Desai
CMP Rs315, Target Rs350, Upside 11.1%
² Amara Raja Batteries Ltd (ARBL) reported a topline growth of 12.3% yoy but witnessed a sequential decline of 9.7% to Rs8,071mn. This was lower than our expectations.
² The automotive segment reported a double digit revenue growth on back of strong volume growth in the replacement market for both two-wheelers and four-wheelers. OEM market hit by macro concerns continued to remain weak.
² For the two-wheeler segment, supplies to HMSI which commenced in Q1 FY14 has picked up in line with strong sales registered by HMSI in the past few months.
² Industrial segment has reported double digit revenue growth despite capacity constraints. While OEM demand in UPS sector is under stress, replacement market has been strong.
² With regards to the capacity expansion programs, while enhancement at the two-wheeler plant is witnessing some delays (now expected to go on stream by January 2014), greenfield plant for four-wheeler batteries is progressing as per schedule (slated to commence operations by Q2 FY15). The medium VRLA battery capacity expansion project has seen four months delay and is likely to commence operation in January 2014.The expansion of large VRLA capacity is likely to be completed by February 2014.
² Operating profit surged by 20.4% yoy and OPM expanded by 118bps yoy and 132bps qoq. Price hikes and soft commodity prices helped margin expansion. Margins were much ahead of expectations and resultantly profit growth was higher at 34.9% yoy.
² We see decent visibility in terms of volume growth for ARBL on the back of back of strong sales of VRLA batteries made to OE’s in FY10 and FY11. We build in revenue CAGR of 21% over FY13-15E owing to robust replacement demand and forecast 20% PAT CAGR over the same period. Assigning a P/E of 14x to FY15E EPS we achieve a revised price target of Rs350 and thereby maintain BUY on the stock.
Result table
(Rs m) | Q2 FY14 | Q2 FY13 | % yoy | Q1 FY14 | % qoq |
Net sales |
8,071 |
7,187 |
12.3 |
8,938 |
(9.7) |
|
Material costs |
(5,262) |
(4,720) |
11.5 |
(5,969) |
(11.8) |
|
Personnel costs |
(392) |
(302) |
29.8 |
(385) |
1.7 |
|
Other overheads |
(997) |
(986) |
1.2 |
(1,130) |
(11.7) |
|
Operating profit |
1,420 |
1,180 |
20.4 |
1,454 |
(2.3) |
|
OPM (%) |
17.6 |
16.4 |
118 bps |
16.3 |
132 bps |
|
Depreciation |
(154) |
(132) |
16.8 |
(145) |
6.2 |
|
Interest |
(1) |
(7) |
(92.4) |
(0) |
42.9 |
|
Other income |
74 |
70 |
5.0 |
96 |
(23.6) |
|
Extra ordinary items |
- |
(94) |
|
- |
|
|
PBT |
1,339 |
1,018 |
31.6 |
1,405 |
(4.7) |
|
Tax |
(393) |
(317) |
24.2 |
(427) |
(7.9) |
|
Effective tax rate (%) |
29.4 |
31.1 |
(175) bps |
30.4 |
(102) bps |
|
Reported PAT | 946 | 701 | 34.9 | 978 | (3.3) |
Ann. EPS (Rs) | 22.1 | 16.4 | 34.9 | 22.9 | (3.3) |
Source: Company, India Infoline Research
Cost analysis
As a % of net sales | Q2 FY14 | Q2 FY13 | bps yoy | Q1 FY14 | bps qoq |
Material costs |
65.2 |
65.7 |
(48) |
66.8 |
(159) |
|
Personnel Costs |
4.9 |
4.2 |
66 |
4.3 |
54 |
|
Other overheads |
12.4 |
13.7 |
(136) |
12.6 |
(28) |
|
Total costs |
82.4 |
83.6 |
(118) |
83.7 |
(132) |
Source: Company, India Infoline Research
Financial Summary
|
Y/e 31 Mar (Rs m) |
FY12 |
FY13 |
FY14E |
FY15E |
Revenues | 23,645 | 29,614 | 36,156 | 43,387 |
yoy growth (%) |
34.3 |
25.2 |
22.1 |
20.0 |
|
Operating profit |
3,396 |
4,516 |
5,883 |
7,243 |
|
OPM (%) |
14.4 |
15.2 |
16.3 |
16.7 |
|
Reported PAT |
2,151 |
2,959 |
3,655 |
4,344 |
|
yoy growth (%) |
45.2 |
37.6 |
23.5 |
18.8 |
|
|
|
|
|
|
|
EPS (Rs) |
12.6 |
17.3 |
21.4 |
25.4 |
|
P/E (x) |
25.0 |
18.2 |
14.7 |
12.4 |
|
Price/Book (x) |
6.5 |
5.1 |
3.9 |
3.1 |
|
EV/EBITDA (x) |
15.4 |
11.2 |
8.8 |
7.2 |
|
Debt/Equity (x) |
0.1 |
0.1 |
0.1 |
0.1 |
|
RoE (%) |
29.3 |
31.4 |
30.1 |
27.9 |
|
RoCE (%) |
37.8 |
41.2 |
41.0 |
38.7 |
Source: Company, India Infoline Research
Warm Regards,
India Infoline Research Team
CA. Rajesh Desai