Outperform Amara Raja on earnings growth: Standard Chartered

Despite sluggish demand, Amara Raja posted 17% revenue growth in FY14.

We have outperform on Amara Raja Batteries with a price target of R520 per share (earlier R335). We value it at 15x one-year forward earnings instead of 13x, as it deserves a re-rating on superior-to-peer earnings growth, improving return ratios and a consistent increase in market share. While we expect the valuation discount over Exide to further narrow, its base is 15xtarget on 25% discount to Exide’s long-term average trading multiple.

Despite sluggish demand, Amara Raja posted 17% revenue growth in FY14, driven by steady demand from the replacement segment, industrials and exports, driving market share gain of about 300 bps in most segments. The company is in the midst of about R8 billion of capex over FY14-15 (invested R340 crore in FY14) to expand its 4W battery capacity to 8.2 million units pa, 2W capacity to 8.4 million units and doubling of MVRLA to 3.6 million units pa. We believe this will position it to reap the benefits of a recovery in H2FY15/FY16.

There have been concerns on margin in FY15. But no cost pressures were visible in FY14 when under 50% of planned capacity was operational. The incentives for the newly formed state are likely to provide further cushion. We estimate 23% earnings CAGR over FY14-16.

Standard Chartered

http://www.financialexpress.com/news/Outperform-Amara-Raja-on-earnings-growth/1259549