The Hindu Business Line : Amara Raja Batteries: Buy

THE share price of Amara Raja Batteries has been stuck in a narrow band in the recent months. However, there are signs of recovery both in the business environment and the financial performance of the company. Investors willing to wait for at least six months can include Amara Raja Batteries in their portfolio.

Amara Raja Batteries is a prominent player in the valve regulated lead acid (VRLA) battery segment. These batteries find application in such industries as telecom, power, and information technology. In the late-1990s, the company made a foray into the automotive battery segment.

Financially, the company's performance improved steadily during the mid-1990s until the increased competitive pressure led to a slowdown in earnings. The entry of automotive battery major, Exide Industries, and a few other smaller regional players affected the profitability of Amara Raja Batteries in the VRLA market.

However, the entry of private players in the telecom industry along with the progress made by Amara Raja in the automotive battery market resulted in improved business volumes in the last one year.

For the three-month period ended December 2002, the turnover increased by 9.3 per cent to Rs 46.9 crore while the post-tax earnings dropped 34 per cent to Rs 3 crore.

The performance may not appear all that impressive, but a more relevant perspective is available compared with the immediately preceding quarter. For the quarter ended September 2002, the company had reported a turnover of Rs 36.5 crore and a net profit of Rs 0.99 crore. The sequential growth in earnings is explained by the effort taken by the company to expand its broad base.

After initially targeting the passenger car market, the company has now moved into the commercial vehicle and tractor segment. As a result, the contribution of the automotive battery segment is expected to rise further from the current levels of about 30 per cent. Besides, the recent initiatives to gain presence in the highly lucrative replacement market of automotive battery division would have a positive impact on the company's profitability. In the original equipment market, Amara Raja has an impressive list of clients and the company is actively trying to expand its presence in this market.

The decision to undertake battery production for other brands such as Bosch, Lucas and AC Delco would also have a positive impact from a long- term perspective as the battery is a typically volume driven industry.

In the VRLA battery market, the company has taken steps to expand its product base, which again is a welcome development. Taking into these factors, the company could report steady improvement in earnings in the future.

Long-term investors could, therefore, contemplate equity exposure in the Amara Raja Batteries at current price levels.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Frontline software companies — Strategising when bottomlines byte

Billing gets a grilling

MNC challenge

Saving the margins

More goodies for mobile users

Will farm-powered auto sector drive economy?

VAT: Areas of concern

FMCG: Short-term pains, long-term pay-offs

SEBI's open offer decision: Questions of credibility

US-95: Hold