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Thursday, May 27, 2010

Value Pick - Amara Raja Batteries

Amara Raja Batteries

Amara Raja Batteries Limited engages in the manufacture and sale of lead acid storage batteries for industrial and automotive applications in India. Its industrial products include Powerstack used in telecommunications, power utilities, railways, defense, and other heavy industries; and Amaron Quanta, a UPS battery with a back-up for a back-up. The company’s automotive products comprise PRO Hi-life, FLO, GO, Black, Fresh, Hi-way truck, Harvest, Shield, and Optima batteries under the AMARON brand.

Amara Raja Batteries markets its products through franchisees and retailers, as well as to original equipment manufacturers. The company exports its industrial and automotive batteries to Singapore, Malaysia, Hong Kong, Thailand, Indonesia, Vietnam, Taiwan, Philippines, China, Japan, Greece, Sri Lanka, Mauritius, Australia, Kuwait, Dubai, Iran, Yemen, Omen, Bahrain, Qatar, the United Arab Emirates, Tanzania, and South Africa. Amara Raja Batteries Limited was founded in 1985 and is based in Hyderabad, India.

India’s second largest battery manufacturer has registered a 50 per cent CAGR in revenues over the five year period FY04-FY09. The company whose revenues are split equally between industrial and auto segments is expected to end the current fiscal with revenues of about Rs 1,400 crore.

For the quarter ended March 2010, the company's total income for the quarter rose 30.92% to Rs 433 crore, and net profit increased to 36.70 crore from 28.05 crore when compared with the prior year period.

Amara Raja Batteries Ltd recommended a dividend of 145% i.e. Rs 2.90 per share of Rs 2 on 19th May.

For the December quarter, its revenues were higher by 10 per cent to Rs 366 crore and it doubled its net profits to Rs 40 crore. Operating profit margins improved by 500 basis points to 19 per cent over the year ago quarter.

Going ahead, lead prices which have doubled over the past year are expected to stabilise in the $2200-$2400 per tonne range. This is a positive as the raw material accounts for four-fifths of expenditure and further increases could have a dramatic impact on the margins, unless the company passes on the costs increases to customers. To overcome the slowdown in the telecom business (60 per cent of industrial segment revenues), the company is looking at the railways and the utilities segments. In the automotive segment, sales in the latest quarter were helped by strong demand from OEMs and commercial vehicles.

The replacement market, which gets two thirds of the automotive segment revenues, is also expected to do well going ahead given the company’s strong presence here. At Rs 160, the stock is trading at at P/E of 8.16 with FY 2010-11 estimated EPS of Rs 21 and should fetch about 25-30 per cent returns over the year.