Results ahead of estimates: Amara Raja Batteries Ltd (ARBL)’s 3QFY2016 results
have come in ahead of our estimates, driven by a strong operating performance.
On the expected lines, the company’s top-line grew by a healthy 16% yoy to
Rs1,225cr. The Automotive segment, forming about 55% of revenues, grew in
double digits on back of market share gains in both the OEM as well as the
replacement segment. The Industrial segment also reported a double-digit
growth, led by the telecom sub-segment (telecom forms about 50% of the overall
Industrial segment’s revenues). Given soft lead prices and a better product mix,
the company’s margins improved by 240bp yoy to 18.7%, coming in higher than
our estimate of 17.4%. The margins for the quarter are the highest ever in the last
six years. Given the robust operating performance, the net profit at Rs136cr, came
in ahead of our estimate of Rs126cr.
Outlook and Valuation: ARBL is likely to continue gaining market share in the
automotive battery segment. The strategy followed by automotive OEMs of
sourcing from multiple vendors as against having a single vendor is likely to
benefit ARBL. Further, with the company’s strengthening distribution network in
the Western and Eastern markets, we expect replacement sales to grow in strong
double digits, going forward. We also expect the Industrial segment growth to be
in healthy double digits over FY2017-2018, given that the telecom players are
resorting to aggressive network expansion, and also with ARBL entering tubular
battery manufacturing. We expect ARBL to record a healthy top-line CAGR of 17%
over FY2015 to FY2017. Also, given the softness in lead prices, margins are
expected to remain at elevated levels. We expect ARBL to clock 24% earnings
CAGR over the next two years. We maintain our positive view on the stock and
reiterate our Buy rating on the stock with a target price of Rs1,039 (based on 28x
FY2017 earnings).
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