[Type text]

MSFL Research
Q2FY11 Result Update Amara Raja Batteries
Not rated Telecom exposure hit margins.. !
Reco -
CMP ` 192 Despite continued de-growth from telecom, Automotive segment back the sales growth
Target Price - Amara Raja’s net Sales during the quarter grew at 9% y-o-y to ` 3.92 billion on the back of
Upside Potential - robust double digit growth from the Automotive segment which contributes to~ 50% of the
total revenue. Sequentially the revenue showed a de-growth of 12% a combined effect of
Price Performance
continued pricing pressure from the telecom sector as well as the revenue mix shift towards the
52 wk Hi/Lo 229/138 lower priced OEM segment as compared to Q1FY11. Going ahead we expect the sales to rise
All time Hi/Lo 229/6 on the back of strong OEM sales as well as Amara Raja’s capacity expansion plans to suffice the
6 mnth Average Vol 198539 replacement demand.
Stock Beta 0.86
Margins take a nosedive
Year on Year margins dipped ~900 bps to 14.48%. Owing to large percentage of revenue
(~ 60% of the Industrial segment) coming from the telecom front, the dependency on the
Telecom sector has been high for ARBL. When telecom was on Infraspending spree (FY08-09)
ARBL posted ~40% revenue growth for three years, with ~20% margins. The ongoing
slowdown in telecom has resulted in lower demand, and pricing pressure put on equipment
vendors impacting the volumes and price of VRLA batteries. As a result ARBL experienced the
worst in terms of margins, arising due to a shift in the product mix. Going forward, we expect
the company to gradually start recording better margins sustained at 14-18% levels on the
back of higher volumes coming from automotive segment.

Valuation Profit after Tax at ` 316 million, - 34% growth y-o-y; - 12% growth q-o-q:
FY08 FY09 FY10 Pricing pressure has dragged down net profit of Amara Raja Batteries Ltd to ` 316 million in
P/E (x) 11.6 20.4 9.8 Q2FY11 against a profit of ` 479 million for Q2FY10. This is despite a growth of ~9% in overall
P/BV (x) 3.3 4.0 3.0 sales. Such de-growth is attributed to the rise in lead price which contributes to~ 65% of the
RONW (%) 28% 28% 29% cost of a battery, as well as a change in product mix. Raw material cost as percentage of sales
ROCE (%) 30% 25% 37% rose ~14% Y-o-Y.

Peer Valuation Outlook & Valuation

Exide Inds At CMP ` 192 stock is trading at 11.5x FY11E and 9x FY12E of the consensus earnings. Amara
PE 23.8 Raja has been trading at a discount to Exide, which is expected to continue owing to Exide’s
P/BV 6.1 large network, market dominance and lesser susceptibility to import Lead prices (In house
smelters price ~15% lesser to LME price). Clearly visible from the aggressive expansion plans
Equity Data (4.2mln to 6mln in 4-W and 1.8mln to 5mn in 2-W by mid CY11), is the ARBL’s shifted focus to
Market Cap. (` bn) 16 Automotive segment. The stellar growth in vehicle sales in recent years-(FY04-FY10
Face value (`) 2 CAGR~9.5%) is expected to convert to strong battery demand in replacement market in 3-4
No of shares o/s (mn) 85 years. ARBL seems prepared to reap benefits from the expected rise in demand. We believe
Sep09 Sep10 %ch that Amara Raja is at verge of the structural shift it is undergoing. The revenue from the
Promoters 20.54 20.54 0.00
telecom sector seems to bottom out, going forward we expect a rise both in realization as well
as volume terms. Going forward we expect it to garner growth in all segments, specifically
Foreign Stake 31.52 31.52 0.00
higher margin-Auto replacement. Major risks include a sharp depreciation in Rupee and high
DFI's 14.02 17.78 0.27
volatility in LME lead prices. (Unlike Exide is highly susceptible to import prices).
FII's 3.16 3.26 0.03 Currently we do not have a rating on this stock.
Public 30.76 26.90 - 0.13

Summary Financials
Himanshu Kuriyal ` in Mln FY07 FY08 FY09 FY10
Net Sales 5958 10833 13177 14652
himanshu.kuriyal@msflibg.in
EBITDA Margin 14% 15% 15% 20%
(+ 91 22 2269 0474 / 75)
Net Profit 496 944 805 1670
Adj EPS 5.8 11.0 13.2 18.1
October 27, 2010
Networth 2437 3331 4056 5437
Debt 1407 3163 2859 912
Fixed Assets 1630 2546 3209 3284
Net Current Assets 2188 3955 3417 3120

Institutional Business Group, MSFL

@p-sec, 306, Gresham Assurance House, 132, Mint Road, Fort, Mumbai – 400 001 India
Tel + 91 22 22690474 / 75 www.marwadionline.com