**Mr. S V Raghavendra, CFO, Mr. Rajesh Jindal, VP & CMO of Automotive division,& Mr Srinivasa Rao Ganga, VP & CMO of Industrial division,addr the call.Highlights by Capital Mkt****
Amara Raja Batteries has registered 9% growth in net sales revenue to Rs 1158.29 crore for the second quarter ended September 2015. The growth was powered by demand from original equipment manufacturers and sales in the aftermarket.The Company's Automotive Battery business continued its robust growth across all verticals. The four wheeler batteries volume grew phenomenally backed by improved sales in replacement battery segment in both of our preferred brands of Amaron and PowerZoneTM. The volume growth momentum in two wheeler batteries in both Amaron and PowerZoneTM brands continued, further adding to the performance of the business unit. During the quarter, sale to OEM sector grew aided by growth in the OEM production of automobiles. The Company growth in aftermarket and OEM beyond the industry growth helped in gaining market share in both four and two wheeler segments. The Company continued trading operations in tubular batteries to sustain the growth, during a quarter which is treated as an offseason for the inverter business.
The Company's Industrial Battery business registered moderate volume growth over Q2 of previous financial year, in a challenging & competitive market conditions. The growth in demand from telecom sector is primarily driven by data growth and the drive for energy optimization by Tower Companies. The demand for UPS batteries is moderate. Increased Imports due to our country's Preferential Free Trade Agreements with ASEAN are a concern since the raw materials continue to attract higher import duty. Amidst these challenges, the industrial battery business improved the overall performance by virtue of its "preferred supplier status" with all major customers, efficient after sales service, customer relationship management, optimal product mix and consistent product performance of its flagship brands PowerStack, Quanta and QRS Series batteries. The Company has progressively started providing total solutions to customers enabling it to forge strategic alliances.
The Company 4W business grew 21% YoY while the 2W business grew 20% YoY in Q2FY16. On segment wise growth- 4W OEM rose 17% YoY and 4W Replacement grew 22% YoY, meanwhile, 2W OEM grew 15% YoY and 2W Replacement grew 24% YoY.
During the quarter, prices of major raw materials have been lower but the gains were partly offset by sharp depreciation of rupee against dollar. The reduced prices were passed on to the customers as per the contractual obligations resulting in marginal reduction in topline. However, the realization per unit for certain products and services have been better on account of cost improvements and better value proposition to various customers. The operating cash flow generation remained strong driven by improved profitability. The Company continues to have healthy liquidity position. The major projects of two wheeler expansion, inverter tubular batteries unit, LVRLA expansion are progressing quite well and are on track.
The Company capacity utilization for the 4W and 2W segment stood at 85% and 90%, respectively, in Q2FY16. 4W capacity has increased from 6 million to 8.25 million. Further increase in capacity to10million is possible in a short time frame of ~5 months when the need arises. 2W capacity will increase from the current 8.4 million to 11 million by end of the year. The Company expects that with the above mentioned capacity expansion it is well placed in the automotive segment to meet demand until early FY18
The Company capacity utilization for the LVRLA and MVRLA stood at 98% and 80%, respectively. LVRLA capacity will increase 20% to 1.4 billion AHby FY16 end. MVRLA capacity is 800-850 million AH with no plans of capacity expansion. However, incase of requirement, capacity can be added in a short time frame.
The Company plans aninvestment of ~Rs 500 crorein the tubular battery plant with total capacity of 1.5 million units. First phase with capacity of 0.9 million units is likely to be commissioned by end of thisyear and the remainder 0.5 million will be setup by December 2016. The Company presently sources tubular batteries from smallerplayers and plans to reduce or end sourcing fromthese players once its own plant ramps-up. Also, with its own capacity in place, the Company expects profitability from the segment is likely to increase by 400-500 bps. The Company expects the plant to achieve full capacity utilization of the initial 0.9 million units by end of FY17E.As per management estimates, the inverter market in India is ~8 million units. Currently,Company sells ~0.36 million units through the trading route.
The Company Powerzone brand priced ~10% lower than Exide and is growing at ~25%.Powerzone is positioned as a brand somewhere between the small/unorganized/localbrands and established brands like Exide/Amaron. In terms of margins it is not significantlydilutive, owing to its single level distribution model vs two-level distribution model forAmaron
The Company automotive replacement segment market share increased to~27% from 25%in FY15 while Exide's market share stood at 30%. The Company market sharein telecom segment stood at ~60% and in UPS segment stood at ~33%.
The Company plans Capex of ~Rs 600 crore for FY16Ecapex of ~Rs 300 crore for FY17.
The Company guides slowdown in replacement growth to 7-8% in medium term owing to poor OEM sales in the last 4 years. Telecom segment is likely to grow at ~8% driven by tower additions, in a bid to improve voiceclarity/calldrop scenario and on replacement demand. Industrial segment is likely to grow in double digit driven by revival in business cycle.

Q2 Results continued to be mediocre. EBIDTA margin has seen slight improvement to 3.8% sequentially from 2.1%. Y-o-Y sales growth at 5% with both India and KME growth slowing down. 35 new Kaya Skin Bars opened this quarter though. No. of customers contracted in Kaya India while they grew marginally in KME.
In short, the struggle for the company continues.

Motilal Oswal Target 185

Results Overview- Above est. quarter; EBITDA margin expansion by 180bp leads to PAT growth of 40% Revenues at INR 366cr, +19% YoY were 2% above our estimate of INR 360cr. The expanded PFI capacity of 4,000 tons commenced operations during the quarter in addition to the existing capacity of 14,400 tons. This contributed to incremental growth from PFIs which was affecting revenue growth since the last four quarters. We believe revenue growth should accelerate moving into 2HFY16.EBITDA at INR 68.9cr, +32% YoY was 13% above our estimate of INR 60.8cr. EBITDA margin at 18.8% was higher by 180bp YoY and 90bp QoQ against our estimate of 16.9%, a beat of 190bp. Management is targeting EBITDA margins of 20% over the next couple of years. PAT at INR 31.0cr (+40% YoY) is 16% ahead of our estimate of INR 26.7cr

Valuation and view

Granules is a high quality play on the mid-cap pharma space. The company is climbing higher in the pharma value chain by focusing on formulations which is expected to reach 65% of standalone revenues from 32% in FY15. While we expect the base business to solely drive profits until FY18E, we expect Auctus and the Omnichem JV to start contributing meaningfully to profitability by FY19E.
Based on the strong margins displayed by the company in 1HFY16, we raise our margin assumptions for FY16/17 by 1.5%/1.6% to 18.1%/19.3% and accordingly raise our EPS estimates by 15% for FY16/17. Overall, we expect the company to grow its Revenues/EBITDA/PAT at 17%/27%/34% respectively over FY15-18E and improve pre-tax ROCE from 19% in FY15 to 28% in FY18E.
We value the business at 20x Sep 2017E EPS which is a 10% discount (being a B2B player) to the mean multiple commanded by midcap formulation companies and maintain BUY rating on the stock with a target price of INR 185 / share (earlier INR 160).

Hi guys,

tera software is a 70 cr market cap software hyderabad based company which recently got a 300 cr order form the AP govt..what do you guys feel?

the one big negative is the huge amount of recievables on the balance sheet.

Great work @ayushmit, @rohitbalakrish_, @aveekmitra and of course @Donald for making this all available to the forum.

One aspect which might add to the margin of safety for fresh buys at current levels is the possible exit route through a takeover of MPS itself!

Assuming that MPS reaches the 500 Cr sales over next 3 years (through both organic growth and acquisitions) at that time it might become a lucrative enough takeover candidate for biggies looking to enter the segment for sticky revenues (remember the entry barriers!)

And given both the larger peers SPI Global and Aptara got acquired (Links here and here) this might provide a possible exit route. With Nishith having nurtured and sold businesses at attractive valuation earlier this option might indeed play out.