Comments
Target: ₹1,638
CMP: ₹1,310.65
In Q2-FY25, Amara Raja Energy & Mobility’s 4W OEM segment and telecom segment witnessed a decline in volumes, which impacted its revenue growth trajectory, while most of its segments registered healthy volume growth.
Further, a higher trading mix and additional provisions pertaining to levy on fuels for earlier years (₹15 crore) impacted its EBITDA margin in Q2-FY25. The company undertook an average 1.5 per cent price hike in the aftermarket segment ahead of Q2-FY25.
While Amara Raja has reported EBITDA margin in line with estimates, the bottom line missed estimates in Q2-FY25, given the higher trading mix, additional provision of ₹15 crore, and muted performance in the telecom and 4W OEM segments. Management has indicated that it would commission its lead recycling plant by Q3-FY25, and the tubular battery plant would be commissioned by Q4, which we believe would be EBITDA margin accretive.
Post-factoring Q2 performance, we maintain Buy on the stock with a revised PT of ₹1,638 on account of the expectation of healthy traction in the replacement segment and an opportunity to play in the Li-ion cell business.
Key Risks
Volatile raw-material cost trend, correction in replacement demand and rise in competition. Also, the company is investing heavily in the Li-ion project and, hence, carries a project execution risk with demand uncertainty.
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