Pick of the Week - Amara Raja Batteries Ltd.

4th February 2019 By Edelweiss

Amara Raja Batteries is the second largest automotive battery manufacturer and the largest supplier of industrial storage batteries in India. It is a joint venture between the Galla family and US based Johnson Control (JCI) with 26% each. JCI, the global leader in leadacid automotive batteries and advanced batteries for start-stop, hybrid and electric vehicles, provides technical support to AMRJ. The company has been a technology leader in the Indian market, having introduced VRLA (valve-regulated lead acid) batteries for the first time for industrial applications and two wheelers. In the automotive segment too, AMRJ was first to introduce batteries with five-year warranties and zero maintenance fully charged batteries. Its business model is derisked as it caters to automotive as well as industrial segments. Sales are well diversified among automotive and industrial segments at 60% and 40%, respectively.

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Key Highlights
  • Having established its strong foothold in the auto replacement space, the company is increasing its capacity in OEMs by 47% in 4-wheelers and 75% in 2-wheelers, which will provide the scale and operational efficiency.
  • The company is expanding capacity by 32% in telecom segment and 100% in UPS segment which will set a base to capture industrial growth over next three years.
  • AMRJ has maintained market share in aftermarket across segments. It has not taken any price hike in the segment since Feb 2018.
  • In the industrial segment as well the overall industrial volume growth was healthy at ~35% YoY on a favourable base as the base quarter was impacted by slowdown in telecom and other industrials.
  • The company has approved capex of INR5.4bn for FY19 towards deployment of advanced stamped grid technology, second punching line for two-wheeler battery plant in a phased manner and debottlenecking in MVRLA plant.
  • We envisage growth and profitability momentum to sustain led by: i) improving auto replacement cycle; ii) boost to industrials with telecom showing signs of improvement; and iii) soft lead price scenario.
  • Led by sustained growth in the auto replacement segment, scale up in home UPS batteries and potential rebound in telecom, we estimate 16% PAT CAGR over FY18-20.

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