2 February 2016

3QFY16 Results Update | Sector: Automobiles

Amara Raja Batteries

BSE SENSEX
24,539
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm/ Vol m
Free float (%)

S&P CNX
7,456
AMRJ IN
170.8
147.1 / 2.2
1132 / 773
5/1/13
265
47.9

Financials & Valuations (INR b)

Y/E Mar
2015 2016E 2017E
Net Sales
42.1
47.8
56.5
EBITDA
7.1
8.6
10.5
PAT
4.2
5.2
6.9
EPS (INR)
24.3
30.3
40.3
Gr. (%)
12.3
24.4
33.3
BV/Sh (INR)
99.5 135.2 182.9
RoE (%)
27.2
25.8
25.4
RoCE (%)
37.6
36.1
33.6
P/E (x)
35.4
28.5
21.4
P/BV (x)
8.7
6.4
4.7

Estimate change
TP change
Rating change

CMP: INR861

TP: INR1,100 (+28%)

Buy

In-line; Highest ever EBITDA margins (18.7% v/s est 17.6%) off-set by
higher taxes
Net sales grew 15% YoY (+6% QoQ) to INR12.25b (in-line), driven by strong
growth in 4W replacement segment (driven by new capacities) and double digit
growth in the industrial segment.
EBITDA margins improved 180bp YoY (+150bp QoQ) to 18.7%, translating into
EBITDA growth of ~27% YoY (+15% QoQ).
RM Cost declined 240bp QoQ (-360bp YoY) to 61.6%, benefitting from lag
impact of ~9% correction in spot lead prices in 2QFY16. However, higher other
expenses (+150bp QoQ) due to higher marketing expense.
However, higher tax rate at 33.3% restricted adj. PAT to INR1.36b (v/s est
~INR1.33b) up 33% YoY (+11% QoQ).
Takeaways from Press Release: a) Significant investment in brand building was
initiated during 3QFY16, driving further market share gains in aftermarket business
in both 2W and 4W. b) It has started making deeper penetration in the domain of
the unorganized sector. c) Ramping up of new capacities is faster than expected,
enabling it to plan further capacity expansion which would be finalized by March
2016. d) New tubular battery plant is expected to commission operations by end
4QFY16, which would reduce dependence on trading operations in tubular
batteries. e) With improving power situation in the country, it has redesigned its
tubular battery plant making it fungible to produce products for different
applications. It is evaluating new technologies in energy storage space through
which it is realigning its business strategy.
Valuation and view: We will review our estimates post interaction with
management, however, we see limited change on our estimates. The stock trades
at 21.4x/17.6x FY17/18 EPS. Maintain Buy with a TP of ~INR1,100 (~22.5x FY18E
EPS).

Jinesh Gandhi (Jinesh@MotilalOswal.com); +91 22 3982 5416

Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Amara Raja Batteries

Exhibit 1: Net sales growth of 15% YoY
11,583

33.1

34.2

34.0

31.2

33.2

34.8

34.4

33.1

33.2

33.7

34.8

35.5

35.4

36.0

38.4

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

14.9
12,251

Source: Company, MOSL

Exhibit 4: PAT growth at 33% YoY boosted by lower tax rate

and higher other income

1,801

1,878

1,988

1,987

2,286

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

15

22

33

3QFY16

1,800
2QFY15

30

2QFY16

1,755
1QFY15

3QFY14

1,377
4QFY14

Source: Company, MOSL

2QFY14

1,503
3QFY14

17

0
1QFY14

1,420
2QFY14

39

2
4QFY13

1,454
1QFY14

29 31

23

3QFY13

1,121
4QFY13

39

2QFY13

1,218
3QFY13

500

1QFY13

1,085

1,000

1QFY16

18.7

3QFY15

17.117.016.917.517.517.2

Growth YoY (%)

95

2QFY15

15.5

1,500

4QFY14

17.617.4

2QFY13

13.9

16.3

1,195

15.116.0

PAT (INR m)

1QFY13

17.2

EBITDA (%)

1QFY15

Exhibit 3: EBITDA margin at 18.7% on lower RM cost

EBITDA

Source: Company, MOSL

4QFY15

10.5 9.2

3QFY16

10,698
4QFY15

Gross margin (%)

2QFY16

10,665
3QFY15

2QFY14

15.1

10,602

8,938
1QFY14

20.5

2QFY15

8,038
4QFY13

23.6

1QFY15

7,592
3QFY13

4QFY14

7,205
2QFY13

3QFY14

6,962

12.0 13.7

1QFY13

10.5

31.4

11,376

8,879
10,290

23.7
19.6

8,629

28.0

8,071

28.4

Growth YoY (%)

1QFY16

Net sales (INR m)

32.7

Exhibit 2: Gross margins up 360bp YoY

Source: Company, MOSL

Exhibit 5: Benefit of 9% correction in 2QFY16, is reflecting in 3QFY16 performance

INR/Ton

Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15

150,000
135,000
120,000
105,000
90,000
75,000
60,000

Source: Company, MOSL

Valuation and view

2 February 2016

Industry structure remains duopoly, but AMRJ is a strong No. 2: While the
industry structure remains largely duopoly, AMRJ has emerged as a formidable
challenger to leader EXIDE, with market leadership in telecom (46% share) and
UPS (32%) segments, and a fast gaining share in Autos. Over FY04-15, AMRJ
clocked a CAGR of 34% and 68% in net sales and PAT respectively, far exceeding
EXIDs 20% CAGR each in net sales and PAT. This has been driven through a
combination of technological innovations (first to introduce maintenance-free,
factory charged, extended warranty batteries), witty advertising and unique
2

Amara Raja Batteries

distribution model (franchisee based) supported with operational efficiency-led

competitive pricing.
AMRJ gearing up to be leader: AMRJ is gearing up to be a leader through 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. Company aims to increase its share in the OEM
and replacement segments to 40% (from current 30%) and 30% (from current
24%) respectively over the medium term. In the telecom segment, AMRJ
expects to maintain its market share at current levels (60% currently).
Strong ~30% EPS CAGR over FY15-FY17E, robust return ratios and FCF; Buy:
FY16 is inflection year for AMRJwith new capacities driving top-line (~18%
CAGR over FY16-18E) and benign lead prices driving margins (+110bp by FY18),
translating into ~27% EPS CAGR (FY16-18E) after muted FY15. Stable
competitive environment, significant FCF generation (~INR8b over FY16-18) and
stable RoE of 23% coupled with potential shift from unorganized to organized
players due to GST would continue to drive stock re-rating. The stock trades at
21.4x/17.6x FY17/18 EPS. Maintain Buy with a TP of ~INR1,100 (~22.5x FY17E
EPS).

Exhibit 6: Valuations trading above historical average, reflecting improving fundamentals

P/E (x)
5 Yrs Avg(x)

35

15 Yrs Avg(x)
10 Yrs Avg(x)

P/B (x)
5 Yrs Avg(x)

8.0

28

15 Yrs Avg(x)
10 Yrs Avg(x)

6.0
21.6

21

15.4

14

3.7

4.0

11.0
2.0

10.0

4.8

2.7
1.9

Source: MOSL

Jan-16

Nov-14

Sep-13

Aug-12

Jun-11

Apr-10

Feb-09

Dec-07

Nov-06

Sep-05

Jul-04

May-03

Jan-01

Jan-16

Nov-14

Sep-13

Aug-12

Jun-11

Apr-10

Feb-09

Dec-07

Nov-06

Sep-05

Jul-04

May-03

Mar-02

Jan-01

Mar-02

0.0

Source: MOSL

Exhibit 7: Comparative valuation

Auto OEM's
Bajaj Auto
Hero MotoCorp
TVS Motor
M&M
Maruti Suzuki
Tata Motors
Ashok Leyland
Eicher Motors#
Auto Ancillaries
Bharat Forge
Exide Industries
Amara Raja Batteries
BOSCH

CMP * Rating
(INR)
2,363 Buy
2,522 Buy
293 Buy
1,209 Neutral
3,876 Buy
330 Buy
91 Buy
17,197 Buy

TP
(INR)
2,876
2,962
370
1,261
4,819
480
103
21,249

815
122
861
17,007

966
183
1,100
22,115

Buy
Buy
Buy
Buy

P/E (x)
FY15E FY16E
19.2
15.4
16.2
13.6
31.2
18.9
19.1
15.3
23.9
18.5
9.3
7.2
23.7
12.6
51.2
31.5
22.8
16.9
28.5
43.9

19
13.4
21.4
31.8

EV/EBITDA (x)
FY15E FY16E
11.9
10
10.3
8.8
18.4
12
14.6
12.7
11.2
9.7
3.3
2.8
11.4
7.1
27.8
17.8
12.1
10.1
16.8
28.9

10.7
8.2
13.2
21.6

RoE (%)
FY15E FY16E
31.4
34.3
42.8
41.8
24.7
32.6
15.7
15.7
17.6
19.8
18.4
18.8
19.9
30.9
33
40.4
22.2
13.7
25.8
15.6

23
15.4
25.4
18.8

RoCE (%)
FY15E FY16E
45.1
45.9
59.7
57.1
23.6
32
17.3
17.7
24.7
26.4
16.9
17.2
20.9
31.7
35.1
46.4
23.3
18.7
36.1
23

24.8
19.9
33.6
26.6

Source: Company, MOSL

2 February 2016

Amara Raja Batteries

Amara Raja| Story in charts: Robust ~27% EPS CAGR expected over FY16-18E
Exhibit 9: Expect net sales to register a CAGR of ~18% over
FY16-18E

Exhibit 8: Capacity for various batteries

Net sales (INR m)

4W (mn units)

2W (mn units)

MVRLA (mn units)

LVRLA (billion. Amph)

8.4
8.25 8.4

FY14

FY15

EBITDA (INR m)

FY13

FY14

FY15

FY16E

FY17E

FY18E

14.4

Source: Company, MOSL

Exhibit 11: Strong EPS growth of ~27% over FY16-18E

EBITDA margins (%)

19.0

18.6

17.9

16.8

16.3

15.2

EPS

45.2

Growth (%)

36.2

33.3
24.4

5,603

7,091

8,585

10,527

12,574

12.6

FY13

FY14

FY15

FY16E

FY17E

FY18E

FY12

17.2

21.7

24.3

30.3

40.3

48.9

FY13

FY14

FY15

FY16E

FY17E

FY18E

Source: Company, MOSL

Exhibit 12: FCF to turn positive in FY16E-18E

Exhibit 13: Return ratios to remain strong

4,813

3,115

6,615

210

8,313

RoCE (%)

FCF
6,210

3,917

1,840

2,273

1,763

-1,463

-434

Capex

Source: Company, MOSL

37.8
29.3

41.2
31.1

40.9
30.6

RoE (%)

37.6
27.2

36.1

33.6

25.8

25.4

30.9
23.1

-69

-809

3,225

1,914

2,723

CFO

21.2

12.3

4,515

3,396

26.3

FY12

17.3

FY12

Source: Company, MOSL

Exhibit 10: Expect margins to sustain and improve to 19% by

FY18E

18.0

66,251

FY13

13.6

56,464

FY12

16.0

47,831

42,113

22.5

34,367

FY11

4
1.65

1.5

25.2

29,614

3.5
2.25
1.5

34.3

23,645

4.7

4.5
3.5

Growth (%)

-3,986

-3,500

-3,500

FY17E

FY18E

-6,000
FY12

FY13

FY14

FY15

FY16E

Source: Company, MOSL

2 February 2016

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

Source: Company, MOSL

Amara Raja Batteries

Financials and Valuations

Income Statement

Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)

Balance Sheet

Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets

2 February 2016

2011
17,611
20.3
2,574
14.6
417
2,157

2012
23,645
34.3
3,396
14.4
465
2,931

2013
29,614
25.2
4,515
15.2
661
3,854

2014
34,367
16.0
5,603
16.3
646
4,957

2015
42,113
22.5
7,091
16.8
1,340
5,751

2016E
47,831
13.6
8,585
17.9
1,448
7,137

2017E
56,464
18.0
10,527
18.6
1,762
8,765

31
78
0
2,204
723
32.8
0
1,481
1,481
-11.3

25
280
0
3,186
1,036
32.5
0
2,151
2,151
45.2

10
466
-92
4,218
1,351
32.0
0
2,867
2,929
36.2

7
455
-39
5,367
1,692
31.5
0
3,674
3,701
26.3

2
423
-73
6,099
1,990
32.6
0
4,109
4,158
12.3

9
500
0
7,628
2,456
32.2
0
5,172
5,172
24.4

9
750
0
9,505
2,614
27.5
0
6,891
6,891
33.3

2011
171
6,289
6,459
1,000
205
7,664
5,388
2,237
3,151
375
161
7,472
2,847
3,057
451
1,117
3,496
2,028
1,468
3,977
7,664

2012
171
8,064
8,235
855
220
9,310
6,213
2,667
3,546
315
161
9,493
2,666
3,197
2,292
1,339
4,206
2,145
2,061
5,288
9,310

2013
171
10,427
10,598
881
195
11,674
6,803
3,214
3,589
1,030
161
12,925
2,929
3,807
4,108
2,082
6,030
3,537
2,493
6,895
11,674

2014
171
13,456
13,627
843
301
14,772
9,955
3,860
6,096
1,447
161
13,691
3,350
4,528
2,946
2,867
6,623
3,435
3,188
7,068
14,771

2015
171
16,825
16,996
741
368
18,106
14,414
4,970
9,444
863
161
13,414
4,181
5,541
2,222
1,469
5,775
4,136
1,639
7,638
18,106

2016E
171
22,929
23,100
773
368
24,241
20,277
6,419
13,858
1,000
161
16,426
4,578
6,293
3,885
1,669
7,204
4,802
2,402
9,222
24,241

2017E
171
31,062
31,233
773
368
32,375
23,777
8,181
15,596
1,000
161
23,826
5,443
7,429
8,984
1,970
8,209
5,784
2,425
15,617
32,375

(INR Million)
2018E
66,251
17.3
12,574
19.0
2,042
10,532
9
1,000
0
11,523
3,169
27.5
0
8,354
8,354
21.2

(INR Million)
2018E
171
40,922
41,093
773
368
42,234
27,277
10,223
17,054
1,000
161
33,750
6,428
8,717
16,293
2,312
9,731
6,804
2,927
24,019
42,234

Amara Raja Batteries

Financials and Valuations

Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)

Cash Flow Statement

Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

2 February 2016

2011

2012

2013

2014

2015

2016E

2017E

2018E

8.7
11.1
37.8
2.3
30.9

12.6
15.3
48.2
1.9
17.4

17.2
21.0
62.0
2.5
17.6

21.7
25.4
79.8
3.6
19.3

24.3
32.2
99.5
3.6
18.0

30.3
38.8
135.2
4.5
18.0

40.3
50.7
182.9
6.1
18.0

48.9
60.9
240.6
7.3
18.0

99.3
77.5
22.8
8.4
57.4
0.3

68.4
56.3
17.9
6.2
42.9
0.2

50.2
41.0
13.9
4.9
31.9
0.3

39.8
33.9
10.8
4.2
25.9
0.4

35.4
26.8
8.7
3.5
20.5
0.4

28.5
22.2
6.4
3.0
16.8
0.5

21.4
17.0
4.7
2.5
13.2
0.7

17.6
14.2
3.6
2.0
10.5
0.9

24.9
31.4

29.3
37.8

31.1
41.2

30.6
40.9

27.2
37.6

25.8
36.1

25.4
33.6

23.1
30.9

2.3
59
57
23

2.5
41
45
15

2.5
36
42
19

2.3
36
43
17

2.3
36
43
13

2.0
35
42
14

1.7
35
42
15

1.6
35
42
15

0.1

-0.2

-0.3

-0.2

-0.1

-0.1

-0.3

-0.4

2011
2,574
56
-1,138
-776
146
861
0
861
0
-612
-612
0
17
-21
-419
-422
-174
625
451

2012
3,396
233
120
-1,026
262
2,985
0
2,985
0
-727
-727
0
-271
84
-222
-409
1,848
444
2,292

2013
4,578
108
-94
-1,366
129
3,355
0
3,355
0
-1,194
-1,194
0
3
-17
-323
-336
1,825
2,283
4,108

2014
5,629
-435
-1,315
-1,606
514
2,788
0
2,788
-3,314
-134
-3,448
0
-87
-14
-430
-531
-1,192
4,138
2,946

2015
7,140
174
-1,475
-1,922
-35
3,882
0
3,882
0
-3,810
-3,810
0
-112
-84
-552
-748
-675
2,897
2,221

2016E
8,585
0
80
-2,456
0
6,210
0
6,210
0
-5,500
-5,500
0
32
-9
-932
-910
-200
2,221
2,021

2017E
10,527
0
-1,297
-2,614
0
6,615
0
6,615
0
-2,750
-2,750
0
0
-9
-1,242
-1,251
2,614
2,021
4,635

(INR Million)
2018E
12,574
0
-1,093
-3,169
0
8,313
0
8,313
0
-2,500
-2,500
0
0
-9
-1,506
-1,515
4,298
4,635
8,933

Amara Raja Batteries

Corporate profile
Exhibit 1: Sensex rebased

Company description
Commencing operations in 1992, AMRJ has become
Indias second-largest lead-acid battery manufacturer
(next to market leader EXID), with market leadership in
telecom and UPS segments. It is reckoned as one of the
pioneers in VRLA (valve regulated lead acid) batteries.
Johnson Control USA (JC) is an equal partner and acquired
26% equity in AMRJ in 1997.

Source: MOSL/Bloomberg

Exhibit 2: Shareholding pattern (%)

Promoter
DII
FII
Others

Sep-15
52.1
8.7
20.2
19.0

Exhibit 3: Top holders

Jun-15
52.1
9.2
18.8
19.9

Note: FII Includes depository receipts

Sep-14
52.1
8.8
18.1
21.1

Source: Capitaline

Holder Name
Franklin Templeton Investment Funds
ICICI Prudential Value Discovery Fund
Smallcap World Fund INC
HDFC Trustee Company Ltd - A/c HDFC Mid Cap Opportunities Fund
NA

% Holding
2.4
1.8
1.3
1.1
0.0
Source: Capitaline

Exhibit 5: Directors

Exhibit 4: Top management

Name
Ramachandra N Galla
Jayadev Galla
M R Rajaram

Designation
Chairman
Vice Chairman & M.D.
Company Secretary

Name
Bruce A Ronning Jr.
Nagarjun Valluripalli
Shu Qing Yang
Bhairavi Tushar Jain

Name
N Sri Vishnu Raju
Raymond J Brown
T R Narayanaswamy

Source: Capitaline

Exhibit 6: Auditors
Name
Brahmayya & Co
Chevuturi Associates
Deloitte Haskins & Sells LLP
E Phalguna Kumar & Co
Sagar & Associates

2 February 2016

*Independent

Exhibit 7: MOSL forecast v/s consensus

Type
Statutory
Statutory
Statutory
Statutory
Cost Auditor
Source: Capitaline

EPS
(INR)
FY16
FY17
FY18

MOSL
forecast
30.0
40.3
50.9

Consensus
forecast
29.2
37.1
44.2

Variation (%)
2.8
8.7
15.1
Source: Bloomberg

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Raja Batteries
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AMARA RAJA BATTERIES

No
No

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