25 May 2016

4QFY16 Results Update | Sector: Automobiles

Amara Raja Batteries

BSE SENSEX
25,881
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INR m
Free float (%)

S&P CNX
7,935
AMRJ IN
170.8
145.3 / 2.2
1,132/773
-8/-2/3
275.3 / 0.3
47.9

Financials & Valuations (INR b)

Y/E Mar
2016 2017E 2018E
Net Sales
46.9
54.5
63.7
EBITDA
8.2
9.7
11.4
PAT
4.9
6.1
7.4
EPS (INR)
28.7
35.7
43.3
Gr. (%)
17.7
24.6
21.4
BV/Sh (INR)
123.0 152.8 189.1
RoE (%)
25.8
25.9
25.4
RoCE (%)
24.2
24.5
24.3
P/E (x)
29.7
23.8
19.6
P/BV (x)
6.9
5.6
4.5

Estimate change
TP change
Rating change

CMP: INR851

TP: INR975(+15%)

Buy

Below est; Sales growth moderates, higher RM and other expenses leads
to 8 quarter low EBITDA margins; Downgrade EPS

Net sales grew by 10% YoY (-4.5% QoQ) to INR11.7b (in line with our est.), with
the YoY growth being driven by a broad-based performance across segments.
EBITDA margin declined by 30bp YoY (-240bp QoQ) to 16.3%, translating into
EBITDA growth of ~7.6% YoY (-17% QoQ).
Raw material costs increased by 110bp QoQ (-200bp YoY) to 62.7%, as lead
costs hardened on a QoQ basis, but declined by ~12% YoY (spot prices with a
lag of one quarter). Other expenses were also higher by ~100bp QoQ (+180bp
YoY), which was most likely due to overheads incurred for recently
commissioned capacities and higher marketing spend.
Adjusted PAT grew by 6.2% YoY to INR~1.1b (vs. our estimate of ~INR1.3b).
At the end of 4QFY16, working capital rose by ~5 days, driven by an increase of
11 days in inventory to 47 days.
Free cash flow came in at a negative ~INR0.5b due to higher capex of ~INR5.5b,
resulting in net cash declining to ~INR939m (as against ~INR1.64b in FY15).
Capacity expansion plan for 2W batteries: The company is expanding its 2W
battery capacity in four phases, staggered over a period of four years, from the
current 11m units per annum to 25m units per annum, with the first phase
comprising of three lines adding a capacity of 4m units per annum. The
company had earlier also announced expansion of its 4W battery capacity from
8.25m units per annum to 11m units per annum.
Takeaways from press release: a) The aftermarket segment continued to
witness high growth, driven by new products, network expansion and
marketing support b) The auto OEM business also recorded growth due to
supply to new platforms and recovery in PV volume c) Auto exports growth was
driven by higher penetration in focused markets d) The auto segments market
share improved across segments e) The company has strengthened its core
management team, with a focus on making its management systems and
processes more robust.
Valuation and view: We have lowered our EPS estimate for by 7-8% in order to
factor in the weaker sales growth and higher other expenses. The stock trades at
23.8x/19.6x FY17/18 EPS. Maintain Buy with a TP of ~INR975 (~22.5x FY18E EPS).

Jinesh Gandhi ([email protected]); +91 22 3982 5416

Aditya Vora ([email protected]); +91 22 3078 4701

Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Amara Raja Batteries

Exhibit 1: Net sales grew ~9.7%

Exhibit 2: Gross margins down 110bp QoQ as RM cost rises

33.2

33.7

34.8

35.3

35.4

36.0

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

PAT (INR m)

1,600

39

1,200

29

2,286

1,908

3QFY16

4QFY16

4QFY16

4QFY16

1,987
2QFY16

3QFY16

1,988
1QFY16

Source: Company, MOSL

2QFY16

1,773
4QFY15

1QFY16

1,801
3QFY15

4QFY15

1,800
2QFY15

3QFY15

1,755
1QFY15

4QFY14

1,377
4QFY14

3QFY14

1,503
3QFY14

0
2QFY14

1,420
2QFY14

22
15

2
1QFY14

1,454
1QFY14

24

17

4QFY13

1,121
4QFY13

33

31

800
400

Growth YoY (%)

2QFY15

16.3

18.7

17.2

17.5

16.6

16.9

3QFY16

Exhibit 4: Muted PAT growth at 6% YoY

EBITDA (%)
17.0

17.1

15.5

17.4

17.6

16.3

Source: Company, MOSL

1QFY15

Exhibit 3: EBITDA margin at 16.3 % (lowest in 8 qtrs.)

13.9

37.3

33.1
4QFY14

9.7

Source: Company, MOSL

EBITDA

38.4

34.4

11,697

12,251

3QFY14

10,667
4QFY15

34.8

10,665
3QFY15

2QFY14

10,602
2QFY15

33.2

10,290
1QFY15

1QFY14

8,879
4QFY14

31.2

8,629
3QFY14

4QFY13

8,071
2QFY14

14.9

4QFY16

8,938
1QFY14

9.2

2QFY16

8,038

10.5

4QFY13

10.5

20.1

15.1

1QFY16

12 13.7

Gross margin (%)

3QFY16

23.6

11,583

31.4

28.4
19.6

Growth YoY (%)

11,376

Net sales (INR m)

Source: Company, MOSL

Exhibit 5: Spot lead prices are ~6% higher QoQ in 4QFY16, impact of which will be reflected
with a quarter lag in 1QFY17
INR/Ton

150,000
135,000
120,000
105,000

Mar-16

May-16

Feb-16

Dec-15

Oct-15

Sep-15

Jul-15

May-15

Mar-15

Feb-15

Oct-14

Dec-14

Sep-14

Jul-14

May-14

Apr-14

Feb-14

Oct-13

Dec-13

Sep-13

Jul-13

May-13

Apr-13

90,000

Source: Company, MOSL

Valuation and view

25 May 2016

Industry structure remains duopoly, but AMRJ is a strong No. 2: While the
industry structure remains largely duopoly, AMRJ has emerged as a formidable
challenger to leader EXIDE, with market leadership in telecom (46% share) and
UPS (32%) segments, and a fast gaining share in Autos. Over FY04-15, AMRJ
clocked a CAGR of 34% and 68% in net sales and PAT respectively, far exceeding
EXIDs 20% CAGR each in net sales and PAT. This has been driven through a
combination of technological innovations (first to introduce maintenance-free,
factory charged, extended warranty batteries), witty advertising and unique
2

Amara Raja Batteries

distribution model (franchisee based) supported with operational efficiency-led

competitive pricing.
AMRJ gearing up to be leader: AMRJ is gearing up to be a leader through i)
consolidating in existing areas, ii) entering new business opportunities within
battery space, mainly home UPS, Solar and Motive Power and iii) aided by
capacity and network expansion. Company aims to increase its share in the OEM
and replacement segments to 40% (from current 30%) and 30% (from current
24%) respectively over the medium term. In the telecom segment, AMRJ
expects to maintain its market share at current levels (60% currently).
Strong ~23% EPS CAGR over FY16-FY18E, robust return ratios and FCF; Buy: We
had lowered our EPS estimates by 7-8%, factoring in for weaker sales growth
and higher other expenses. FY16 is inflection year for AMRJwith new
capacities driving top-line (~17% CAGR over FY16-18E) and benign lead prices
driving margins (+50bp by FY18), translating into ~23% EPS CAGR (FY16-18E).
Stable competitive environment, significant FCF generation (~INR4b over FY1618) and stable RoE of 25% coupled with potential shift from unorganized to
organized players due to GST would continue to drive stock re-rating. The stock
trades at 23.8x/19.6x FY17/18 EPS. Maintain Buy with a TP of ~INR975 (~22.5x
FY18E EPS).

Exhibit 6: Revised estimates

(INR M)
Rev
54,534

FY17E
Old
55,992

Chg (%)
-2.6

Rev
63,748

FY18E
Old
65,654

Chg (%)
-2.9

EBITDA (%)

17.9

18.3

-40bp

17.9

18.4

-50bp

Net Profit

6,098

6,686

-8.8

7,404

7,986

-7.3

EPS (INR)

35.7

39.1

-8.8

43.3

46.8

-7.3

Net Sales

Source: MOSL

Exhibit 7: Valuations trading above historical average, reflecting improving fundamentals

P/E (x)
5 Yrs Avg(x)

35
28

15 Yrs Avg(x)
10 Yrs Avg(x)

P/B (x)
5 Yrs Avg(x)

8.0

15 Yrs Avg(x)
10 Yrs Avg(x)

6.0

2.0

Source: MOSL

2.1
May-16

Jun-09

Apr-08

Mar-07

Jan-06

Nov-04

Sep-03

Jul-02

0.0
May-01

May-16

Mar-15

Jan-14

Nov-12

Oct-11

Aug-10

Jun-09

Apr-08

Mar-07

Jan-06

Nov-04

Sep-03

Jul-02

May-01

25 May 2016

2.9

Mar-15

10.5

5.4

Jan-14

11.9

14

4.2

4.0

Nov-12

17.0

Oct-11

23.0

Aug-10

21

Source: MOSL

Amara Raja Batteries

Exhibit 8: Comparative valuation
CMP * Rating
Auto OEM's
(INR)
Bajaj Auto
2,479 Buy
Hero MotoCorp 2,929 Buy
TVS Motor
296 Buy
M&M
1,312 Neutral
Maruti Suzuki
4,054 Buy
Tata Motors
397 Buy
Ashok Leyland
97 Buy
Eicher Motors
18,525 Buy
Auto Ancillaries
Bharat Forge
742 Buy
Exide Industries
157 Buy
Amara Raja Batt. 851 Buy
BOSCH
21,914 Buy

25 May 2016

TP
(INR)
2,762
3,325
339
1,484
4,525
477
119
22,935
903
176
975
24,659

P/E (x)
FY17E
FY18E
16.8
15.0
16.3
13.4
20.9
17.5
17.7
14.7
19.7
16.1
10.0
7.6
14.6
11.4
31.0
22.4
21.2
18.8
23.8
41.9

16.4
16.0
19.6
31.3

EV/EBITDA (x)
FY17E
FY18E
11.3
9.7
10.4
8.8
12.6
10.6
14.1
12.2
9.9
8.4
3.7
3.1
8.2
6.6
18.1
14.4
11.7
12.0
14.7
27.1

9.6
10.2
12.3
22.8

RoE (%)
FY17E
FY18E
33.0
32.6
40.9
40.8
30.7
29.1
15.5
15.9
19.2
20.3
16.4
18.3
30.8
31.1
39.8
40.3
21.0
14.4
25.9
18.4

23.1
15.0
25.4
21.2

RoCE (%)
FY17E
FY18E
31.8
31.5
39.9
40.0
31.8
30.8
17.3
18.0
25.8
27.2
15.4
16.8
22.0
23.9
31.8
34.0
14.0
19.4
24.5
26.3

16.6
19.9
24.3
28.3

Amara Raja Batteries

Amara Raja| Story in charts: Robust ~24% EPS CAGR expected over FY16-18E
Exhibit 10: Expect net sales to register a CAGR of ~18% over
FY16-18E

Exhibit 9: Capacity for various batteries

4W (mn units)
MVRLA (mn units)

Net sales (INR m)

2W (mn units)
LVRLA (billion. Amph)
8.4

8.25 8.4

25.2

22.5

54,534

63,748

FY15

46,907

FY13

42,113

FY12

34,367

FY14

11.4
29,614

1.65

1.5

FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

Source: Company, MOSL

Exhibit 11: Expect margins to sustain and improve to 19% by

FY18E
EBITDA (INR m)

14.4

17.4

16.8

16.3

15.2

Source: Company, MOSL

Exhibit 12: Strong EPS growth of ~27% over FY16-18E

EBITDA margins (%)

17.9

17.9

EPS

45.2

Growth (%)

36.2
24.6
17.7

5,603

7,091

8,169

9,749

11,400

12.3

4,515

3,396

26.3

FY12

12.6

FY13

FY14

FY15

FY16

FY17E

FY18E

FY12

Exhibit 13: FCF to turn positive in FY16E-18E

21.7

24.3

28.7

35.7

43.3

FY13

FY14

FY15

FY16

FY17E

FY18E

-3,986

FY12

FY13

FY14

FY15

Exhibit 14: Return ratios to remain strong

RoCE (%)
28.0

28.0

RoE (%)

25.3

2,998

7,998

1,409

6,409

25.5

-500

29.3

-5,454

-5,000

-5,000

FY16

FY17E

FY18E

Source: Company, MOSL

25 May 2016

Source: Company, MOSL

FCF
4,954

3,917

1,840

-434

-69

-1,463

2,273

1,763

3,225

1,914

2,723

-809

Capex

21.4

17.2

Source: Company, MOSL

CFO

16.9

16.3

16.0

23,645

4.7

4.5
3.5

3.5
2.25
1.5

Growth (%)

34.3

FY12

31.1

FY13

30.6

FY14

27.2

FY15

24.2

25.8

FY16

24.5

25.9

FY17E

24.3

25.4

FY18E

Source: Company, MOSL

Amara Raja Batteries

Financials and Valuations

Income Statement

Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)

Balance Sheet
Million)

Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets

25 May 2016

2011
17,611
20.3
2,574
14.6
417
2,157

2012
23,645
34.3
3,396
14.4
465
2,931

2013
29,614
25.2
4,515
15.2
661
3,854

2014
34,367
16.0
5,603
16.3
646
4,957

2015
42,113
22.5
7,091
16.8
1,340
5,751

2016
46,907
11.4
8,169
17.4
1,399
6,770

2017E
54,534
16.3
9,749
17.9
1,779
7,971

31
78
0
2,204
723
32.8
0
1,481
1,481
-11.3

25
280
0
3,186
1,036
32.5
0
2,151
2,151
45.2

10
466
-92
4,218
1,351
32.0
0
2,867
2,929
36.2

7
455
-39
5,367
1,692
31.5
0
3,674
3,701
26.3

2
423
-73
6,098
1,990
32.6
0
4,108
4,158
12.3

5
457
0
7,222
2,328
32.2
0
4,894
4,894
17.7

9
750
0
8,712
2,613
30.0
0
6,098
6,098
24.6

(INR Million)
2018E
63,748
16.9
11,400
17.9
2,179
9,221
9
1,000
0
10,212
2,808
27.5
0
7,404
7,404
21.4

(INR
2011
171
6,289
6,459
1,000
205
7,664
5,388
2,237
3,151
375
161
7,472
2,847
3,057
451
1,117
3,496
2,028
1,468
3,977
7,664

2012
171
8,064
8,235
855
220
9,310
6,213
2,667
3,546
315
161
9,493
2,666
3,197
2,292
1,339
4,206
2,145
2,061
5,288
9,310

2013
171
10,427
10,598
881
195
11,674
6,803
3,214
3,589
1,030
161
12,925
2,929
3,807
4,108
2,082
6,030
3,537
2,493
6,895
11,674

2014
171
13,456
13,627
843
301
14,772
9,955
3,860
6,096
1,447
161
13,691
3,350
4,528
2,946
2,867
6,623
3,435
3,188
7,068
14,771

2015
171
16,825
16,996
741
368
18,106
14,414
4,970
9,444
863
161
13,414
4,181
5,541
2,222
1,469
5,775
4,136
1,639
7,638
18,106

2016
171
20,846
21,016
725
588
22,330
19,731
6,369
13,362
1,000
161
14,560
6,017
5,922
1,503
1,120
6,754
5,771
983
7,806
22,330

2017E
171
25,925
26,096
773
588
27,458
24,731
8,148
16,584
1,000
161
17,143
6,275
6,884
2,682
1,302
7,430
5,412
2,018
9,713
27,458

2018E
171
32,120
32,291
773
588
33,653
29,731
10,326
19,405
1,000
161
21,493
6,462
8,047
5,462
1,521
8,407
6,327
2,080
13,086
33,653

Amara Raja Batteries

Financials and Valuations

Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)

Cash Flow Statement

Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

25 May 2016

2011

2012

2013

2014

2015

2016

2017E

2018E

8.7
11.1
37.8
2.3
30.9

12.6
15.3
48.2
1.9
17.4

17.2
21.0
62.0
2.5
17.6

21.7
25.4
79.8
3.6
19.3

24.3
32.2
99.5
3.6
18.0

28.7
36.8
123.0
4.3
17.8

35.7
46.1
152.8
5.0
16.7

43.3
56.1
189.1
5.9
16.3

35.0
8.6
3.4
20.3
0.4

29.7
6.9
3.1
17.7
0.5

23.8
5.6
2.6
14.7
0.6

19.6
4.5
2.2
12.3
0.7

24.9
21.1
23.7

29.3
25.5
29.9

31.1
28.0
40.6

30.6
28.0
40.9

27.2
25.3
30.9

25.8
24.2
26.6

25.9
24.5
25.8

25.4
24.3
26.4

2.3
59
57
23

2.5
41
45
15

2.5
36
42
19

2.3
36
43
17

2.3
36
43
23

2.1
47
41
26

2.0
42
40
17

1.9
37
40
17

0.1

-0.2

-0.3

-0.2

-0.1

0.0

-0.1

-0.2

2011
2,574
56
-1,138
-776
146
861
0
861
0
-612
-612
0
17
-21
-419
-422
-174
625
451

2012
3,396
233
120
-1,026
262
2,985
0
2,985
0
-727
-727
0
-271
84
-222
-409
1,848
444
2,292

2013
4,578
108
-94
-1,366
129
3,355
0
3,355
0
-1,194
-1,194
0
3
-17
-323
-336
1,825
2,283
4,108

2014
5,629
-435
-1,315
-1,606
514
2,788
0
2,788
-3,314
-134
-3,448
0
-87
-14
-430
-531
-1,192
4,138
2,946

2015
7,140
174
-1,475
-1,922
-35
3,882
0
3,882
0
-3,810
-3,810
0
-112
-84
-552
-748
-675
2,897
2,221

2016
8,169
0
-887
-2,328
0
4,954
0
4,954
0
-4,998
-4,998
0
203
-5
-871
-673
-716
2,221
1,505

2017E
9,749
0
-727
-2,613
0
6,409
0
6,409
0
-4,250
-4,250
0
48
-9
-1,018
-979
1,179
1,505
2,685

(INR Million)
2018E
11,400
0
-593
-2,808
0
7,998
0
7,998
0
-4,000
-4,000
0
0
-9
-1,209
-1,218
2,780
2,685
5,465

Amara Raja Batteries

Corporate profile

Exhibit 1: Sensex rebased

Company description
Commencing operations in 1992, AMRJ has become
battery
Indias
second-largest
lead-acid
manufacturer (next to market leader EXID), with
market leadership in telecom and UPS segments. It
is reckoned as one of the pioneers in VRLA (valve
regulated lead acid) batteries. Johnson Control USA
(JC) is an equal partner and acquired 26% equity in
AMRJ in 1997.

Exhibit 2: Shareholding pattern (%)

Promoter

Source: MOSL/Bloomberg

Exhibit 3: Top holders

Dec-15

Sep-15

Dec-14

52.1

52.1

52.1

Franklin Templeton Investment Funds

2.4

% Holding

Holder Name

DII

9.3

8.7

8.7

ICICI Prudential Value Discovery Fund

1.8

FII

19.5

20.2

18.2

Smallcap World Fund INC

1.3

Others

19.1

19.0

21.0

NA

0.0

Note: FII Includes depository receipts

Source: Capitaline

NA

0.0
Source: Capitaline

Exhibit 4: Top management

Exhibit 5: Directors

Name

Designation

Name

Name

Ramachandra N Galla

Chairman

N Sri Vishnu Raju

Nagarjun Valluripalli

Jayadev Galla

Vice Chairman & M.D.

Raymond J Brown

Shu Qing Yang

M R Rajaram

Company Secretary

T R Narayanaswamy

Bhairavi Tushar Jain

Raphael John Shemanski

Source: Capitaline

Exhibit 7: MOSL forecast v/s consensus

Exhibit 6: Auditors
Name

Type

Brahmayya & Co

Statutory

Chevuturi Associates

Statutory

Deloitte Haskins & Sells LLP

Statutory

E Phalguna Kumar & Co

Statutory

Sagar & Associates

Cost Auditor
Source: Capitaline

25 May 2016

*Independent

EPS
(INR)

MOSL forecast

Consensus
forecast

Variation
(%)

FY17

35.7

36.9

-3.3

FY18

43.3

44.0

-1.5
Source: Bloomberg

AMARA RAJA BATTERIES GALLERY

AMRJ

AMRJ

SECTOR UPDATES

Disclosures

Amara
Batteries
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Analyst ownership of the stock
Served as an officer, director or employee

AMARA RAJA BATTERIES

No
No

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10