Hold Amara Raja Batteries; target of Rs 700: ICICI Direct
ICICI Direct’s research report on Amara Raja Batteries
Amara Raja Batteries (ARBL) reported decent Q4FY20 results. Net revenues displayed resilience, at Rs 1,581 crore (up 0.9% YoY) vs. ~21.5% YoY drop in OEM domestic volumes during the quarter. Full year FY20 revenues were at Rs 6,840 crore, flattish YoY. Reported EBITDA margins declined 87 bps QoQ to 15.4% on the back of negative operating leverage (other expenses up 117 bps, employee costs up by 52 bps on percentage of sales basis), even as raw material expenses came down by 83 bps on account of lagged pass through of softer lead prices in Q3FY20. PAT was at Rs 137 crore, up 14.5% YoY. Lower tax outgo (tax rate at 23.3%) and higher other income gave a leg up to profitability. Reported PAT in Q4FY20 & FY20 were at Rs 137 crore (up 14.5% YoY) and Rs 661 crore (up 36.7% YoY).
We expect sales, PAT CAGR at 3.5%, 2.7%, respectively, in FY20P-22E. However, post a healthy run up in stock price in the recent past, it is now trading closer to its long period averages, leaving limited room for upside. Consequently, we downgrade the stock from BUY to HOLD, valuing it at Rs 700 i.e. 17.2x FY22E EPS of Rs 40.8.
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