Amara Raja Batteries (ARBL) reported its 4QFY2011 results, which were ahead of our estimates. The company’s performance was driven by double-digit volume growth in the auto battery segment. We broadly maintain our earnings estimate for ARBL and positive outlook for the battery industry, owing to changing demographics, which in turn will support secular consumption growth in Indian markets. We maintain our Buy rating on the stock.
Net sales up 16.1% yoy: ARBL posted 16.1% yoy growth in net sales to `502.3cr (`432.6cr), ahead of our expectations of `451.4cr, aided by strong volume growth. While volume offtake in the auto battery segment remained buoyant, the industrial battery segment continued to face challenges mainly due to sluggish demand from the telecom sector. EBITDA margin contracted by 14bp yoy, largely due to a surge in input cost and lower realisation from telecom batteries. Consequently, net profit grew by 12.1% yoy to `41.1cr (`36.7cr), above our estimates of `37.9cr.
Outlook and valuation: We estimate ARBL’s top line to witness a CAGR of ~18% over FY2011–13E, largely aided by substantial growth in auto battery volumes. Net profit is estimated to post a ~17% CAGR. ARBL is trading at 8.8x FY2012E EPS. We believe ARBL is well placed to tap the rising demand from the auto and industrial segments, with its innovative products, increased capacity and widening reach. Consequently, discount would reduce going forward. Hence, we maintain our Buy recommendation on ARBL with a target price of `240.
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