March 7, 2014

Amara Raja Batteries Ltd

Innovation in technology makes the difference
CMP: Rs.375

Target: 495

Company Profile

Key Share Data

Face Value (Rs.)
Equity Capital (Rs. in Cr.)
M.Cap (Rs. in Cr.)
52-wk High/Low
One Year Avg. Daily Vol (In Qty)
BSE Code
NSE Code
Reuters Code
Bloomberg Code

1
17.1
6,406
407/207
46,725
500008
AMARAJABAT
AMAR.NS
AMRJ:IN
st

Shareholding Pattern (as on 31 Dec, 2013)

Public
21.84
DII
12.75

FII
13.35

Source: BSE

Key Financials (Rs. In Cr.)

Particulars
Net Sales

2975.7 3462.8

4034.2 4921.7

growth (%)

25.6%

16.4%

16.5%

22.0%

EBITDA

465.8

574.4

654.3

799.8

PAT

286.7

365.0

378.7

469.9

growth (%)

33.3%

27.3%

3.8%

24.1%

EPS (Rs.)

16.8

21.4

22.2

27.5

BVPS (Rs.)

62.0

79.6

97.7

119.9

FY13

FY14E

FY15E

FY16E

22.3
6.0
2.2
13.1
41.9%
30.4%
15.7%
9.6%
0.1

17.6
4.7
1.8
10.9
41.3%
30.2%
16.6%
10.5%
0.1

16.9
3.8
1.6
9.3
35.7%
25.0%
16.2%
9.4%
0.0

13.6
3.1
1.3
7.2
36.4%
25.3%
16.3%
9.5%
0.0

FY14E

FY15E

FY16E

Key Financials Ratio

Particulars
P/E (x)
P/BVPS (x)
Mcap/Sales (x)
EV/EBITDA (x)
ROACE (%)
ROAE (%)
EBITDA Mar(%)
PAT Mar (%)
D/E (x)

Source: Company, SKP Research

Price Performance ARBL vs. BSE 200

60%

Amara Raja Batteries Ltd. (ARBL) is one of the largest manufacturers of Lead
Acid batteries for both Automotive and Industrial applications in Indias
storage battery industry. ARBL is the market leader in Industrial batteries and
second largest player in Automotive batteries after EXIDE in India.

Investment Rationale
Capacity expansion to drive growth
In FY13, ARBL ran its capacity utilization at 90% in the industrial as well as 4wheeler automotive and 76% in the 2-wheeler automotive segments.
Foreseeing future need for more output, the company has initiated the
capex plan of Rs.745cr over the period FY14-FY16E which is expected to
bring in additional revenue of ~Rs.1,700cr at full capacity.
ARBL is expanding both its 4-wheeler battery plant from 56 lac units in FY13
to 82.5 lac units p.a. by Q2 FY15E and the 2-wheeler battery plant from 48
lac units in FY13 to 84 lac units p.a. by the end of FY14E in order to boost its
growth prospects.

Promoter
52.06%

FY13

Initiating Coverage - Buy

BSE 200

ARBL

40%

Auto replacement segment to see robust growth

The average life of 2-wheelers and 4-wheelers has come down considerably
over the last few years. New 2-wheeler having self start mechanism feature
transforming batteries into a critical component. Hence, timely battery
replacement has become mandatory.
During FY10 & FY11 OEMs witnessed ~26% growth in demand along with
higher dieselization from 36% in FY11 to 58% in FY13. With this we expect
strong replacement demand over FY14-16.
Market share gains from unorganized segment particularly in CVs and
tractors could support replacement demand as well.
High demand in the banking and telecom sector
DoT has mandated all tower companies to reduce their dependence on
diesel and cut carbon emissions by operating at least 50% rural towers and
20% urban towers on hybrid power by 2015.
In UPS segment, ARBL has leadership position with 32% market share (up
from 27% in FY10), to remain strong. With increasing computerization
across industries (mainly BFSI, IT & ITeS, Retail, ATMs, e-governance
projects), UPS segment has a bright future ahead.
Strong Financials with higher return ratios
ARBLs revenues have grown at a CAGR of 31% from Rs.560 Cr. in FY07 to
Rs.3394 Cr in FY13. Going ahead, we expect that ARBLs top-line to grow
18% CAGR during FY13-16E.
Over the last three years, ARBL has maintained its EBITDA margin higher than
14.5% and PAT margin higher than 8.6%. We expect ARBL to deliver an
EBITDA margin ~16% and PAT margin in the range of 9-10% during FY14E16E respectively.

-20%

ARBL has good return ratios with ROAE in the range of 23-27.5% & ROACE in
the range of 17-23% over the last three years. We expect ARBLs ROAE and
ROACE to inch lower at ~25% and 36% in FY15-16E respectively primarily
due to capitalized capex during FY15.

-40%

Outlook & Recommendation

20%

Jan-14

Feb-14

Dec-13

Nov-13

Oct-13

Sep-13

Aug-13

Jul-13

Jun-13

Apr-13

May-13

Mar-13

0%

Analyst: Chirag K. Gothi

Tel No.: +91 22 4922 6006; Mobile: +91 9870895720
Email: chirag.gothi@skpmoneywise.com

SKP Securities Ltd

At CMP, the stock trades at a P/E of 17.6x FY14E, 16.9x FY15E and 13.6x
FY16E. We initiate coverage on the stock with BUY recommendation and a
target price of Rs.495 (18x FY16E EPS), at 32% upside over the period of 18
month.
www.skpmoneywise.com

Page 1 of 13

Amara Raja Batteries Ltd.

Industry Overview
The domestic Lead Acid storage battery market is estimated to be worth ~ Rs.13,000cr.
The automotive battery segment constitutes 63% whereas the industrial segment
occupies 37% of the total market. The branded battery contribute 58% to Rs.4,750cr
out of which Exide and ARBL are dominant players.
Domestic Lead Acid storage battery
market (Rs. 13,000 cr)

Automotive battery business

(~63 % at Rs. 8,190 cr)

Industrial battery business

(~37% at Rs. 4,810 cr)

Branded battery
(~58% at Rs. 4,750 cr)

Unbranded battery
(~42 % at Rs. 3,440 cr)
Automotive batteries break-up

Automotive batteries mix

Tractors
11%
OEM
34%

2 Wheelers
22%

Cars & UV
38%

Replacement
Market 66%

34%

CVs
29%

Source: Industry, SKP Research

Source: Industry, SKP Research

Industrial batteries break-up

Others
18%
UPS
47%
Telecom
35%

Source: Industry, SKP Research

SKP Securities Ltd

www.skpmoneywise.com

Page 2 of 13

Amara Raja Batteries Ltd.

Amara Raja Batteries Innovation in technology makes the difference
Amara Raja Batteries Ltd. (ARBL) is one of the largest manufacturers of Lead Acid
batteries for both Automotive and Industrial applications in Indias storage battery
industry.
Promoted by the Galla family, Dr. Ramachandra Galla is the Chairman and his son Mr.
Jayadev Galla is the Vice Chairman and Managing Director of the company.
ARBL was set-up in 1985. The company began commercial production in 1992 and got
its first bulk order of 200 sets of batteries from the Department of Telecom (DoT) in
1993, followed by a commercial order in 1995.
In Dec98 the company entered into a JV with US based Johnson Controls Inc (JCI) to
manufacture automotive batteries in India. Thus, in 2000 ARBL entered the segment of
Automotive batteries with the launch of AMARON batteries based on Zero
maintenance technology for the first time in India.
In May08, ARBL entered the 2Wheeler battery segment with the launch of Amaron Pro
Bike Rider 2-wheeler batteries powered by VRLA technology with 60 months warranty.
ARBL sells Automotive batteries under the brands Amaron (largely urban markets) and
Powerzone (rural and semi urban markets), with distribution network span across
through 287 franchisee distributors, 21,000 plus Amaron retail outlets and 1,100 plus
Powerzone outlets.
ARBL has a manufacturing facility in Andhra Pradesh. The two-tiered distribution model
has been a resounding success for ARBL. The company has been able to grow its brand
equity and market penetration in line with market leader Exide Industries (EXID).

The below diagram depicts the segments to which the company caters:

Segment

Automotive (60% of sales)

Industrial (40% of sales)

Overview

Begin operations in 2000 with technology from

Johnson Controls Inc. USA

Commenced operations in the year 1991 to

manufacture batteries for telecom, UPS, railways and
power utility sectors

Capacity

4W batteries: 56 lac per annum

2W batteries: 48 lac per annum

Large VRLA batteries 76 cr Ah pa

Medium VRLA batteries: 18 lac units

Products

Passenger cars: Amaron Pro, Amaron Flo,

Amaron Go, Amaron Black and Amaron
Fresh
Commercial vehicles: Amaron Hiway
Tractors: Amaron Harvest
Two-wheelers: Amaron Pro Bike Rider

Product portfolio offers capacities ranging from 4.5

Ah to 5,000 Ah under multiple brands
Amaron Volt (Telecom networks, data center,
power station, oil and gas)
Power Stack (Telecom networks, data center,
power stations, oil and gas, Indian Railways)
Quanta (UPS applications)
Power SleekTM (Wireless telecom network, UPS
applications)

Sectoral
position

Second-largest player in the automotive battery

business in India

Largest supplier of batteries to the telecom and UPS

sectors and to Indian Railways for rolling stock
application

Market share

4W (OEM): 28%
4W replacement (organised): 34%
2W replacement (organised): 24%

Telecom: 46%
UPS: 32%

Source: Company, SKP Research

SKP Securities Ltd

www.skpmoneywise.com

Page 3 of 13

Amara Raja Batteries Ltd.

Investment Rationale
Capacity expansion to drive growth
In FY13, ARBL ran its capacity utilization at 90% in the industrial as well as 4 wheeler
automotive and 76% in the 2-wheeler automotive segments. Foreseeing future need
for more output, the company has initiated the capex plan of Rs.745cr over the period
FY14-FY16E which is expected to bring in additional revenue of ~Rs.1,700cr at full
capacity.
Over the years, ARBLs focus has been shifting from the industrial segment to the
automotive segment. As a result, the company has laid a very aggressive capacity
expansion plan to further enhance its market share.
ARBL is expanding both its 4-wheeler battery plant (from 56 lac units in FY13 to 82.5 lac
units p.a. by Q2 FY15E) and the 2-wheeler battery plant (from 48 lac units in FY13 to 84
lac units p.a. by the end of FY14E) in order to boost its growth prospects.
ARBL expanding its auto battery capacities for which it has earmarked Rs160cr
doubling 2-wheeler battery capacity to 36 lac in FY11 and to 48 lac by FY12; raising
4wheeler capacity by 20% to 56 lac by FY12.
ARBL has never supplied batteries to 2-wheeler OEMs but in the beginning of FY14 the
company has received approvals from Hero MotoCorp Limited, Honda Motorcycle and
scooter India Pvt. Ltd, Bajaj Auto Ltd and Mahindra & Mahindra Ltd to supply OEM
batteries.
The capex is likely to be funded by internal accruals (see details below).
Automotive batteries
4- wheeler batteries
2- wheeler batteries

Industrial batteries
MVRLA
LVRLA

Capacity
expansion

Brownfield: from 56 lac

units p.a. to 60 lac;
Greenfield: from 60 lac
to 82.5 lac

From 48 lac to 84 lac

From 18 lac to 36lac

units p.a.

From 76 cr amph to
100 cr amph

Product range

12V - 28Ah to 180Ah

12V - 2.5Ah to 18Ah

12V - 26Ah to
200Ah

2V - 100Ah to
5000Ah

Brands

Amaron and Powerzone

Amaron and Powerzone

Quanta and Power

Sleek

Power Stack and

Amaron Volt
Telecom network,
rolling stock, solar
and power utilities

Applications

Starting, lighting and

ignition for all vehicles

Starting, lighting and ignition for

all vehicles

UPS, wireless
telecom network,
solar and rolling
stock (railways)

Capex

Rs400-450 cr

Rs100-120 cr

Rs200-220 cr

Rs50-70 cr

Commissioning

Q2FY15

Q4FY14

Q4FY14

Q4FY14

Fungibility

Can be used to make

MVRLA and flat plat
inverter batteries

Can be seamlessly used to

produce Quanta range of SVRLA
batteries for application in small
UPS, emergency lamps among
others

Can be used to
make 4-w batteries

Can be used to make

2V motive
powerbatteries

Revenue
estimated at
full capacity

Rs.750 cr

Rs.180 cr

Rs.500 cr

Rs.250 cr

Source: SIAM, SKP Research

SKP Securities Ltd

www.skpmoneywise.com

Page 4 of 13

Amara Raja Batteries Ltd.

Auto replacement segment to see robust growth
The average life of 2-wheelers and 4-wheelers has come down considerably over the
last few years. New 2-wheeler having self start mechanism feature transforming
batteries into a critical component. Hence, timely battery replacement has become
mandatory.
Average Life of Batteries
4-Wheelers
2-Wheelers
Telecom

3-4 Years
2-3 Years
4-5 Years

Source: Company, SKP Research

In 2-wheeler replacement, the volume traction is likely to continue on strong OEM

sales over FY09-12 (as mentioned below), plus higher % of new bikes having self start
mechanism (estimated at 40-45% vs. close to NIL 5-6 years back), which reduces the
battery life and hence boosts replacement demand.
During FY10 & FY11 OEMs witnessed higher demand along with higher dieselization in
FY12-13. With this we expect strong replacement demand over FY14-16.
Market share gains from unorganized segment particularly in CVs and tractors could
support replacement demand as well.
Passenger
Vehicles
21%
12%
0%
26%
28%
5%
3%

FY 07
FY 08
FY 09
FY 10
FY 11
FY 12
FY 13

Commercial
Vehicles
33%
5%
-22%
39%
29%
18%
-2%

Three
Wheelers
12%
-10%
-4%
26%
19%
-2%
5%

Two
Wheelers
12%
-8%
3%
26%
26%
14%
3%

Grand
Total
14%
-5%
1%
26%
26%
12%
3%

Source: SIAM, SKP Research

Expecting higher realization in diesel vehicle batteries because batteries used in diesel
cars require higher power (Amp Hrs), they tend to be at least 50% more expensive than
batteries that are used in petrol cars. 2-wheeler replacement battery demand is
expected to grow on the back of increase in electric start option in most models
released over the past four years.
Rising dieselization leads to better realisation
Amt in Rs.

70%
58%

60%

40%
29%

34%

35%

Petrol

7000
6000

47%

50%

30%

ARBLs Mumbai retail price

5800

5800

Diesel
6000

6000

5000

36%

4000

3800

3800

3800

3800

3000

20%

2000

10%

1000

0%

0
FY08

FY09

FY10

FY11

FY12

FY13

Source: http://www.batterywale.com and SKP Research

SKP Securities Ltd

www.skpmoneywise.com

Maruti Swift Maruti Ertiga Toyota Etios

Liva

Toyota
Innova
Page 5 of 13

Amara Raja Batteries Ltd.

Continue gaining market share from the organized and unorganized markets
Making a presence in automotive batteries in 2000, ARBL has garnered a share of ~28%
by volume in 4-wheeler OEM batteries and 22% in replacement market for 4-wheeler.
The company has increased its market share steadily over the last 5 years through
aggressive branding, advertising and product innovations.
The attractive pricing policy has helped ARBL to grow at a rate of 22% CAGR for the
past five years. The company provides at least 6 months more warranty period than its
competitors. Better quality product combined with cheaper price and longer warranty
terms made ARBL become a major player in the storage battery space in India.
Further, in the 2 wheeler organized replacement segment, the company has garnered a
very strong market share of ~25% within a period of 5 years of entering into the market
(ARBL entered in two-wheelers replacement market in May08).
ARBL remains a dominant player in the Telecom batteries segment with a robust
market share of ~46%. Companys increasing dominance in the segment is reflected by
the fact that company has almost doubled its market share within 5 years.
In the 4-wheeler replacement market, it expects market share to improve to 30%
from 22%, while in the 2-wheeler replacement market, ARBL will gain a market share
of 35% from 25% currently.
In the 4-wheeler OEM market share expansion will entirely depend on recovery in the
automotive space. Still company is targeting a market share of 47% in the fourwheeler OEM segment in the next three to four years from current 28%.
Four-wheelers market share (%)
4-wheelers OEM

4-wheelers Replacement (Overall)

30
25

25

24

24

23

20

26

19

2-wheelers Replacement (Organised)

26

25

28

24
24

22

23

22

21

16

15
10

Two wheelers replacement market share (%)

14

13

12

20

18
Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-10

Market share in Telecom (%)

50

Telecom

45

46

Mar-12

Mar-13

Market share in UPS (%)

34
46

42

UPS

32

32

32

32

30

40

27

28

35
30

Mar-11

32

26

29

28

24

25

23

24

22

20

20
Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

Source: Company, SKP Research

SKP Securities Ltd

www.skpmoneywise.com

Page 6 of 13

Amara Raja Batteries Ltd.

High demand in the banking and telecom sector
Telecom tower companies consume about 1.7% of the total diesel consumption in
India; ~60% of the towers in India depend solely on diesel therefore soaring diesel
prices have led to an increase in capex and operational costs for these towers.
The Department of Telecommunications (DOT) has mandated all tower companies to
reduce their dependence on diesel and cut carbon emissions by operating at least 50%
rural towers and 20% urban towers on hybrid power by 2015.
Moreover, telecom tower operators themselves are rapidly switching to use of
batteries as alternative to diesel generators, led by rising cost of diesel, which in turn
will boost battery demand going forward.
Company has also started strategic partnership with leading telecom tower companies
and operators, which provides long term revenue visibility.
UPS sector: The key sub-sectors in this UPS sector comprise BFSI (including ATMs), IT
& ITeS, e-governance projects and e-commerce institutions.

BFSI: The recent RBI directive on inclusive banking which requires public sector
banks to reach out to the unbanked population will see significant action building
in rural India, expected to translate into a sizeable demand for UPS batteries.

The Governments intent to issue banking licenses to NBFCs is expected to widen

the banking network to semi-urban and rural locations. Increasing penetration by
banks (public and private), insurance companies and NBFCs from the urban cities
to the vast number of Tier-II and III towns will only increase standby power
demand as these areas face significant power shortage.

ATMs: Since the ATM concentration in India is primarily in metros and Tier-I cities,
the population of 74 ATMs per mn people is significantly lower than the global
average. This underpenetration is expected to change following the recent
Government directive (Union Budget, 2013-14) that every Indian public sector
bank branch should have an ATM by March 2014; a large part of this addition is
expected to come up in Tier-II and III locations with batteries as a critical power
source.

The recent RBI permission to non-banking financial institutions to set up their own
White Label ATMs (WLAs) in semi-urban and rural areas is expected to create a
sizeable battery opportunity as well. Independent research suggests that by 2017,
the installed Indian base of ATM machines will grow to 400,000 from about
100,000 in the third quarter of 2012.

IT and ITeS: India is one of the fastestgrowing IT services markets in the world;
three-fourths of large Indian enterprises plan to increase IT spending in 2013.

Strong client base

Automotive Segment:
OEM customers: Ford,Maruti Suzuki, Hyundai, Honda,M&M, Tata, Volvo Eicher,
Daimler Benz, Tafe Tractors, Isuzu Motors among others
Major private label customers: Bosch, Lucas, Cummins and AC Delco
Industrial Segment: Indus Towers, Viom Networks, ATC, Bharti Infratel, Bharti Airtel,
Vodafone, Aircel, BSNL, Idea Cellular, Indian Railways, APC, Emerson, Numeric, Delta,
DB Power and Schneider

SKP Securities Ltd

www.skpmoneywise.com

Page 7 of 13

Amara Raja Batteries Ltd.

Strong brand recall & wide distribution network key strengths
Over the past three years, ARBL has been focusing on branding. The company has
steadily expanded its retail distribution network, as a strong distribution network is
essential to serve the replacement market effectively.
ARBL has created a dominant distribution network (274 franchised distributors, about
18,000 retailers in Amaron format, 900 exclusive retail partners in Power Zone format
spread across semi-urban and rural locations & around 2,000 service hubs) in the
automobile battery segment in India.
ARBL has also been deliberately making inroads into rural India, starting in 2007 with
the launch of Powerzone stores. These are small retail establishments that act as a
one-stop shop for all types of batteries. There are 1,100 such outlets spread across
India and 20% of our volumes come from rural India. The advantage here is that we can
tackle the unorganised sector in smaller towns.
Going forward, ARBL plans to continue using the two-tier model in the case of
Amaron and a direct dealer model, in case of power zone since direct reach will be
more effective here.
ARBLs market share in the replacement market now stands at ~26%. The company
plans to widen its retail network to further increase its penetration in the replacement
market where unorganized players are predominant- semi urban & rural areas..

Pricing discipline to protect operating margins

The Indian batteries market is primarily a duopoly with EXIDE and ARBL occupying over
90% of the organised automotive battery space. There are pass-through clauses with
OEMs enabling pricing power and margin sustenance. In case of auto OEM and
replacement cost increases are passed on with a quarterly lag while in case of
industrials segment, they are passed with a 1-2 month lag.
We believe continued pricing discipline will help this duopolistic industry to tide over
cost increases. Also in the interim, while most benefit of lower lead prices have been
offset by rupee depreciation, risks to margins are reduced due to stabilizing lead prices.
ARBL has more or less followed EXIDE with measured price hikes (as depicted in figure
below). We see the return of pricing discipline as key positive at the industry level
towards margin sustainability. Even in telecom segment, pricing discipline has
returned as per AMRJ mgmt, which bodes well for profitability.
Pricing actions taken by EXIDE and ARBL over past 2 years
ARBL
EXIDE

Nov-12 Dec-12 Feb-13 Mar-13 Jul-13

2-3%
3-4%
4-5%
5-6%
5-6%
5-6%

Sep-13 Oct-13 Nov-13 Dec-13

3%
-3%
6-7%
-6%

Feb-14
3-4%

Source: Company, SKP Research

SKP Securities Ltd

www.skpmoneywise.com

Page 8 of 13

Amara Raja Batteries Ltd.

Strong Financial Performance
ARBLs top-line to grow at 31% CAGR during FY13-16E:
ARBLs revenues have strongly grown at a CAGR of 31% from Rs.560Cr. in FY07 to
Rs.2976Cr in FY13. This stellar performance is primarily attributed to strong demand for
batteries coupled with timely increase in capacity.
Going ahead, we believe ARBLs top-line to grow at 18% CAGR during FY13-16E due to
upcoming huge capacity additions and enable it to maintain a higher growth rate as
compared to Exide.
Revenue break up segment wise %
Automotive

Revenue in value and Growth %

Industrial

Revenue

5500

100%

Growth

5000

90%
80%

50

70%

45

52

4500

40

45

34.0%
25.6%

3500

50%

3000

40%

2500

30%

2000

50

20%

55

48

60

55

2976
20.8%

3463

35%
30%

4034

4000

60%

40%
4922

22.0% 25%
20%

16.4% 16.5%

2369

15%

1769

10%

1500

10%

1000

5%

0%

500

0%

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Source: Company, SKP Research

Mar-11 Mar-12 Mar-13 Mar-14E Mar-15E Mar-16E

Source: Company, SKP Research

Looking at EBITDA margins ~ 16%:

Over the last three years, ARBL maintained EBITDA margin higher than 14.5% and PAT
margin higher than 8.6%.
The duopoly nature of the industry lends a substantial degree of pricing power to
ARBL. Going ahead, we expect company to deliver an EBITDA margin ~ 16% and PAT
margin in the range of 9-10% during FY14E-16E respectively through an enriched
product mix and higher replacement market sales.
Sales Volume and Realisation trend

344

262

16%

320

15%

240

15%

160

14%

80

14%

0
Mar-11 Mar-12 Mar-13 Mar-14E Mar-15E Mar-16E
Source: Company, SKP Research

SKP Securities Ltd

9.6%

10.5%

9.5%

10%

470

400

11%

9%

9.4%

9.1%
8.6%

379

480

Net Profit Margin

365

654

14.5%

300

466

14.8%

574

500

100

17%
16.3% 16%

800

16.2%

15.7%

600

200

560

287

700

400

17%
16.6%

800

Net Profit

Rs. in Cr.

EBITDA Margin

8%

215

EBITDA

7%

152

Rs. in Cr.
900

Sales in value and Growth %

6%
Mar-11 Mar-12 Mar-13 Mar-14E Mar-15E Mar-16E

Source: Company, SKP Research

www.skpmoneywise.com

Page 9 of 13

Amara Raja Batteries Ltd.

Healthy Return Ratios:
ARBL has good return ratios with ROAE in the range of 23-27.5% & ROACE in the range
of 17-23% over the last three years on strong business performance.
We expect ARBL ROAE and ROACE to inch lower at ~25% and 36% in FY15-16E
respectively primarily due to capitalized capex during FY15. However we believe that
ROCE and ROE should start improving at the end of FY16E as new plant starts
operating at full capacity utilization.
ARBL reported strong operating cash flow from Rs.86Cr. in FY11 to Rs.342Cr in FY13. We
expect it will continue reporting during FY14-16E.
%

ROAE

45

Rs. in Cr.

ROACE
41.9

500
35.7

35

36.4

400

342

30.4

29.3

30.2

421

200
25.0

25.5

382

295

300

32.7

30
25

438

41.3

38.7

40

Operating Cash Flow

25.3

20

100

86

0
Mar-11

Mar-12

Mar-13

Mar-14E Mar-15E Mar-16E

Source: Company, SKP Research

Mar-11 Mar-12 Mar-13 Mar-14E Mar-15E Mar-16E

Source: Company, SKP Research

Concerns
High Raw material cost: A Raw material cost, can be a cause of concern. The major
element used in the manufacturing of the battery is lead. Lead accounts for ~85% of
the cost of manufacturing. Any volatility in lead prices is likely to affect the companys
profitability. However, ARBL may lose market share in the replacement market if the
company is unable to pass on the increase in lead prices to consumers due to
competitive pressures and with the intent of protecting or increasing its market share.
Delay in capacity expansion plans to hurt growth: Any delay in expansion plans of the
company would have an adverse impact on the turnover of the business as the same
has been factored in our estimates.
Slowdown in economy to impact OEM demand: The slowdown in auto sales can have
effect on auto ancillary companies as inventories can pile up due to fall in demand.
Passenger car segment saw sales figure in FY13 and FY14. While we expect OEM
demand recovery during FY15.

SKP Securities Ltd

www.skpmoneywise.com

Page 10 of 13

Amara Raja Batteries Ltd.

Peer comparison:
(Amt in Cr. & TTM basis)

Exide
ARBL

CMP
118
375

Sales
5902
3368

EBITDA
808
550

EBITDAM
13.7%
16.3%

PAT
501
347

PATM
8.5%
10.3%

EPS
5.9
20.3

P/E
19.5
19.2

ROE
13.3%
25.8%

M-Cap
9775
6406

Source: Both Companies and SKP Research

Valuation:
ARBL, the second largest battery player is structurally well poised with a strong revenue
mix that acts as a hedge during a cyclical downturn. A diversified portfolio, strong
distribution reach, service network and strong global partner provide significant
competitive advantage.
ARBL is continuously increase its manufacturing capacity in all segment and improved
distribution channel. Maintenance free batteries provided by ARBL have been a revolution
for the industry overall.
The market seems to have grown up to the prospect of strong business growth coupled
with earnings closer to the market leader. Even on the return ratios front, ARBL has
improved its profile leading to further support towards higher valuation multiples.
At CMP, the stock trades at a P/E of 17.6x FY14E, 16.9x FY15E and 13.6x FY16E. We expect
ARBLs revenue grow at a CAGR of 31% and to deliver an EBITDA margin ~16% over FY1316E. Hence, we initiate coverage on the stock with BUY recommendation and a target
price of Rs.495 (18x FY16E EPS), at 32% upside over the period of 18 month.
1 year forward P/E Band
Price

9X

12X

15X

18X

20X

450
400
350
300
250
200
150
100
50
Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Source: SKP Research

SKP Securities Ltd

www.skpmoneywise.com

Page 11 of 13

Amara Raja Batteries Ltd.

Financial Performance:
Income Statement
Particulars
Net Sales

Figures: Rs. in Cr.

Mar-12

Mar-13 Mar-14E Mar-15E Mar-16E

Ratio Analysis
Particulars

2369.2

2975.7

3462.8

4034.2

4921.7

34.0

25.6

16.4

16.5

22.0

2024.9

2509.9

2888.4

3379.8

4121.9

9.8

-32.1

-38.6

-40.3

-49.2

Raw materials

1597.2

2027.1

2326.4

2723.1

3334.4

Employees Exp

100.3

126.6

158.1

181.5

221.5

Other Expenses

317.6

388.2

442.5

515.6

633.9

Valuation Ratio

EBIDTA

P/E (x)

growth (%)
Expenditure
(Inc)/Dec in Stocks

Mar-12 Mar-13 Mar-14E Mar-15E Mar-16E

Earnings Ratios (%)

EBDITA Margin

14.5

Net Profit Margin

15.7

16.6

16.2

16.3

9.1

9.6

10.5

9.4

9.5

ROACE

38.7

41.9

41.3

35.7

36.4

ROANW

29.3

30.4

30.2

25.0

25.3

ROAA

25.4

27.4

27.8

23.5

24.0

29.8

22.3

17.6

16.9

13.6

344.3

465.8

574.4

654.3

799.8

EBIDTA Margin (%)

14.5

15.7

16.6

16.2

16.3

Price/BVPS (x)

7.8

6.0

4.7

3.8

3.1

Depreciation

46.5

66.1

71.6

115.1

123.4

EV / EBITDA (x)

18.2

13.1

10.9

9.3

7.2

297.9

399.7

502.7

539.3

676.4

EV / Net Sales (x)

2.6

2.0

1.8

1.5

0.0

D/E Ratio

0.1

0.1

0.1

0.0

0.0

EBIT
Other Income

Balance Sheet Ratio

23.2

32.2

31.6

30.0

30.0

Interest Expenses

2.4

1.0

1.0

1.2

1.5

Profit Before Tax

318.6

421.8

533.3

568.1

704.9

Current Ratio

2.2

2.1

1.8

1.9

2.2

Tax

103.6

135.1

168.4

189.3

234.9

FA Turnover Ratio

6.7

8.3

5.0

4.0

5.1

Profit After Tax

215.1

286.7

365.0

378.7

469.9

Inventory Days

48

43

43

45

44

41.6

33.3

27.3

3.8

24.1

Debtors Days

49

47

46

47

46

9.1

9.6

10.5

9.4

9.5

Creditors Days

22

20

21

21

21

growth (%)
PAT Margin (%)

DuPont Analysis
O/S of Shares

17.1

17.1

17.1

17.1

17.1

PAT / PBT

0.7

0.7

0.7

0.7

0.7

EPS

12.6

16.8

21.4

22.2

27.5

PBT / EBIT

1.0

1.0

1.0

1.0

1.0

1.9

2.5

3.3

3.5

4.5

EBIT / Net Sales

0.1

0.1

0.2

0.1

0.1

Sales / T.Assets

2.5

2.6

2.4

2.3

2.3

DPS
Div payout ratio
(%)

15.0

15.0

15.2

15.8

16.4

17.1

17.1

17.1

17.1

17.1

Balance Sheet
Particulars
Share Capital
Reserves
Net Worth
Total Debt
Def Tax Liab (Net)

Figures: Rs. in Cr.

Mar-12 Mar-13 Mar-14E

T. Assets / Equity
ROE

1.1

1.1

1.1

1.1

1.0

26.1%

27.1%

26.8%

22.7%

22.9%

Cash Flow Statement

Mar-15E Mar-16E

Particulars

Figures: Rs. in Cr.

Mar-12 Mar-13 Mar-14E Mar-15E Mar-16E

17.1
17.1
806.4 1042.7
823.5 1059.8
84.1
87.2
22.0
19.5

17.1
1342.7
1359.8
77.3
18.3

17.1
1651.5
1668.6
77.3
18.3

17.1
2031.5
2048.6
77.3
18.3

PBT

Total Liabilities

929.5 1166.5

1455.4

1764.1

2144.1

Taxes paid

Gross Block
Less: Depreciation
Net Block
Capital WIP
Total Fixed Assets
Investments
Inventories
Sundry Debtors
Cash and Bank Bal
Loans & Advances

621.4
266.7
354.7
31.1
385.8
16.1
266.6
319.7
229.2
133.7

680.3
321.4
358.9
102.5
461.4
16.1
292.9
380.7
410.8
207.9

1087.8
393.0
694.8
200.0
894.8
16.1
340.3
436.4
243.5
234.2

1527.8
508.1
1019.7
0.0
1019.7
16.1
416.7
519.5
400.3
171.4

1602.8
631.5
971.3
0.0
971.3
16.1
496.9
620.3
685.1
305.3

Operating CFlows

295.3

342.1

382.4

437.9

421.3

Capital exp

(79.7) (141.7)

(75.0)

Depreciation

318.6

421.8

533.3

568.1

704.9

46.5

66.1

71.6

115.1

123.4

Interest expense

2.4

1.0

1.0

1.2

1.5

Other (inc)/Loss

(23.2)

(32.2)

(31.6)

(30.0)

(30.0)

(Inc)/Dec in WC

54.5

20.6

(23.6)

(27.1) (143.5)

(103.6) (135.1)

(168.4)

(189.3) (234.9)

(505.0)

(240.0)

0.0

0.0

0.0

0.0

Investing CFlows

23.2
32.2
(56.4) (109.4)

31.6
(473.4)

30.0
(210.0)

30.0
(45.0)

Inc/(Dec) in debt

(11.0)

3.1

(9.9)

0.0

0.0

Div Paid Incl. Tax

(37.5)

(50.4)

(65.0)

(69.9)

(89.9)

Inc/(Dec) in Cap
Interest paid

0.0

0.0

0.0

0.0

0.0

(2.4)

(1.0)

(1.0)

(1.2)

(1.5)

(Inc)/Dec in Invest
Other income

Other Adj

(0.0)

1.5

(2.5)

(1.3)

0.0

0.0

Current Assets

949.2

1292.2

1254.4

1507.8

2107.6

Financing CFlows

(49.5)

(50.7)

(77.1)

(71.1)

(91.4)

Current Liabs & Prov

422.0

604.0

709.8

779.4

950.8

Chg. in Cash & Equ

189.4

182.0

(168.1)

156.8

284.9

1156.8

Opening Cash Bal

39.9

229.3

411.3

243.2

399.9

2144.1

Closing Cash Bal

229.3

411.3

243.5

400.3

685.1

Net Current Assets

Total Assets

527.2
929.5

688.2
1165.5

544.5
1455.4

728.4
1764.1

Source: Company Data, SKP Research

SKP Securities Ltd

www.skpmoneywise.com

Page 12 of 13

Amara Raja Batteries Ltd.

Notes:

The above analysis and data are based on last available prices and not official closing rates. SKP Research is also available on Bloomberg, Thomson First
Call & Investext Myiris, Moneycontrol, Ticker plant and ISI Securities
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Page 13 of 13