Amara Raja Batteries: Consolidating existing turfs, entering new ones: Motilal Oswal

Re-initiating Coverage

Amara Raja Batteries: Consolidating existing turfs, entering new ones

– Amara Raja Batteries (AMRJ) has emerged as a formidable challenger to leader Exide Industries (EXID), with leadership in telecom (46% share) and UPS (32% share) segments.

– AMRJ is gearing up to be a leader through a combination of i) consolidating in existing areas, ii) entering new business opportunities within battery space, mainly home UPS, Solar and Motive Power and iii) aided by capacity and network expansion.

– Over FY14-17E, we expect earnings CAGR of 18.7% driven by net sales CAGR of 19.3% and steady margins at ~16.5%. Key drivers in our view are a) demand recovery in auto OEMs, industrial segment with b) continued share gains in auto OEMs, 4W replacement and c) ramp-up in 2W business.

– Considering superior earnings growth prospects, strong FCF generation (INR8.4b), return ratios (average 38.4% RoCE) over FY14-17E and debt free status, we initiate coverage with a Buy and target price of INR515 (17x FY16E EPS), 25% upside.

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