Target: ₹700
CMP: ₹ 511.55
Amara Raja Batteries (AMRJ) posted a strong topline performance with revenue increasing 38.9 per cent Y-o-Y/20.1 per cent Q-o-Q to ₹2,620 crore led by strong volume growth across the verticals.
The robust demand in the automotive sector from the aftermarket along with 2/4-Wheeler OEM segments boosted the volumes.
Amara Raja Batteries has over the years built a strong franchise for itself in lead acid batteries market with extensive growth in aftermarket business.
The company is planning to enter cell manufacturing through a customer qualification plant. With regards to capex, the company will be investing in the Li-ion cell technology and the investment is expected to be in the range of ₹5-550 crore.
In recent past, the industry specific headwinds and issues at company level have weighed on the financial performance. With revival in automotive demand the company is expected to report improved performance hereon. It is focusing on the maximisation of its core LAB business and foraying into the new Energy Business.
At CMP, the stock trades below its historical average at 13.7x FY23 & 11.6x FY24. The strong guidance, reviving product demand & inherent growth structure of the company validates the Buy rating on the stock with a target price of ₹700.
Risks: High RM costs, Power and input costs, cost competitiveness.