Dolat Capital Market has given Accumulate recommendation for Amara Raja Batteries with a target price of Rs. 1024 in its research report issued on Feb 16, 2021

Dolat Capital Market’s research report on Amara Raja Batteries

Amara Raja reported in-line revenue performance in Q3FY21, while EBITDA margin contracted 60bp YoY owing to lower gross margin and weaker mix (Increase 2W OEM revenue). Our channel checks indicate, AMRJ has taken 3-4% price hikes across segments to offset the raw material cost inflation, hence margin to inch up in 4Q. Strong pickup in replacement demand (led by increasing preference of personal mobility, traction in used car sales, pick up in logistics movement) and revival in demand from OEMs will continue to aid revenue growth. The inverter segment has shown promising growth due to the ongoing work from home situation and replacement demand continues to be strong owing to increasing penetration. Moreover, the unorganized players are getting squeezed out of the market in battery segment due to 1) inability to cater to the new launches by the OEMs which come with advanced fitments and upgraded technology and 2) challenging to source lead (key raw material), as there is no inventory of used batteries in the market, which is positive for organized players (both volume and price).

Outlook

We maintain our positive view on Amara Raja due to: 1) increase in production capacity which will help gain market share in the OEM segment (new business orders in 2W from RE, Hero and HMSI); 2) sharp demand recovery in the automotive OEM and replacement market; 3) low channel inventory is expected to support both, dispatches and pricing and 4) strong prospects of the industrial batteries, owing to increasing demand for UPS and telecom batteries. The company has announced a capex of Rs 5bn to setting up a Lead recycling plant and 50MW power plant. Under the PLI scheme, management is exploring investment opportunities in the advanced and futuristic energy storage technologies for emerging markets. We anticipate Revenue/PAT growth of 12/15% CAGR over FY21-23E and recommend Accumulate with TP of Rs 1,024 (20x FY23E EPS).

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