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Amara Raja Batteries ARB

  • Stock Pick from Auto Ancillary Sector: Amara Raja Batteries (ARB)

    | 1/24/2013 9:00 PM Thursday

     
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    Choice Scrip is a Blue Chip stock pick that is expected to give returns within a 6 months-1 year horizon. The recommendation is based on a fundamental analysis of the company.

    HERE IS WHY

    • Potential growth from automotive replacement and telecom sales 
    • Robust performance over the years, both top-line and bottom-line
    • Capacity expansion plans, health of balance sheet and valuation

    Remember those catchy advertisements promoting a car battery? When they first made it to the screens nobody would have thought that the company would be able to grab customer attention for a seriously commoditised product with them. But Amaron, the brand that Amara Raja Batteries (ARB) promoted through these advertisements got the company a good start and it has never looked back ever since.

     

    Share Holding Pattern as on 31/12/2012
    Promoter and Promoter Group 52.06
    Indian 20.54
    Foreign 31.52
    Public 47.94
    FII 6.82
    DII 17.62
    Non Institutions 23.5
    GRAND TOTAL 100

    ARB manufactures and sells batteries to the automotive and industrial segments. Over the years, it has cut through competition and changed market dynamics through aggressive branding initiatives, technological advancement and attractive warranties and pricing. Even during the ongoing difficult period for the automotive and industrial segments, it continues to perform better than its competitors.

     

    55 per cent of ARB’s revenues are derived from automotive sales. It caters to four-wheelers and two-wheelers, channelling a third of its production through Original Equipment Manufacturers (OEM) and the rest through the replacement market. Lately, automobile sales have been highly subdued with no firm visibility of improvement in the near-term. This has had an obviously direct impact on the growth in sales to OEMs. However, ARB has seen an improvement of 92 basis points in its margins in Q2FY13 on a YoY basis.

     

     12/Sep12/Jun12/Mar11/Dec11/Sep
    Sales 718.72 693.79 671.08 613.13 560.41
    Operating Profit 104.76 106.59 83.2 94.31 76.51
    Interest 0.66 0.12 0.16 1.53 1.06
    Net Profit 70.1 76.09 58.29 65.93 51.85
    Equity Capital 17.08 17.08 17.08 17.08 17.08

    Having said this, and considering the fact that automobile sales had been robust in FY09 and FY10, we expect sales to be driven by the replacement market. ARB currently has a market share of 34 per cent and 24 per cent in the replacement market for four-wheelers and two-wheelers respectively. To strengthen its presence in the two-wheeler market, it has been working towards selling to two-wheeler OEMs. This is expected to further boost the performance of ARB.



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