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Nothing spectacular in result. Net profit number disappointing, but expected at this phase of expansion. What is more disheartening is tepid topline growth. One may get opportunity to add at around 2 times sales valuation.

Graet Insights on Take http://www.tankrich.com/2015-46-evaluating-capital-allocation/

**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.