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Chola Securities
Amara Raja Batteries (Buy)
Target: ₹1,015
CMP: ₹890.25
During the quarter net revenue increased by 12.2 per cent y-o-y to ₹1,960 crore; driven by a strong off take from OEMs and improving replacement market demand. The EBITDA margin for the Q3-FY21 stood at 15.6 per cent, decline of 61 bps y-o-y and 195 bps q-o-q, due to inferior product mix (higher share of OEM revenue) and rise in raw material prices.
The aftermarket witnessed strong demand in Q3-FY21 with easing of logistics movement and rising preference for personal mobility. While, 2W battery replacement demand is quite strong, there is a short supply in most parts of the country due to supply chain disruptions for a few components sourced from China and existing commitment to fulfil OEMs orders. These disruptions are impacting supply in the aftermarket. The company is making best efforts to remove bottlenecks in the production and supply chain in order to accelerate dispatches.
We expect the demand momentum across business segments to continue. In addition, the strong pent-up demand seen in after-market business post easing of lock-downs is sustaining. The structural reforms like GST and reduction in corporate tax rates are leading to market share gains for organised players like AMRJ.
We upgrade our rating to a Buy (earlier Market performer) with a revised target price of ₹1,015 (earlier ₹775).
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