Buy Amara Raja Batteries; target of Rs 560: Motilal Oswal

AMRJ’s 1QFY15 operational performance was above expectation driven by higher-than-expected revenue and margins. Net sales grew 15.1% YoY (+15.9% QoQ) to INR10.3b (est. of INR9.8b). EBITDA margin at 17.1% (est. 16.6%) improved by 80bp YoY/160bp QoQ. Other expenditure declined 130bp QoQ (100bp YoY) driven by lower share of home UPS (trading business) and cost reduction measures (particularly for power & fuel). Despite the robust 20.7% YoY EBITDA growth, PAT growth was restricted to 8.3% to INR1.06b (est. INR1.03b) on higher depreciation charge (as per the provisions of new Companies Act). “Considering superior 1Q performance and improved business outlook, we upgrade FY15E/16E EBITDA by 5%/6.8%; though EPS upgrade is restricted to 1.8%/3.2% on higher depreciation charge. The stock trades at 21.1x/16.6x FY15E/16E EPS of INR24.5/31.1 respectively. Maintain Buy with a target price of Rs 560”, says Motilal Oswal research report.

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