Stock Recommendation: Buy Amara Raja Batteries at a CMP of Rs852

Motilal Oswal | April 8, 2015, 2:01 p.m.

-  We expect AMRJ’s revenue to grow 22.5% YoY (2% QoQ) to INR10.9b.

- Growth would continue to be driven by a revival in demand from auto OEMs and replacement segment.

-  Average lead cost has declined by 10% QoQ, the benefit of which is likely to accrue with a lag.

-  EBITDA margin is likely to expand 180bp YoY (40bp QoQ) to 17.3%.

-  We expect PAT to grow 30.1% YoY to INR1b.

-  We increase FY16E/FY17E EPS by 0.7%/9.3% to factor in for higher volumes and better EBITDA margins.

-  The stock trades at 26.4x/17.8x FY16E/17E EPS. Maintain Buy.

Key issues to watch for

-  Update on demand environment for OEMs, auto replacement and industrial battery segment.

-  Outlook on RM cost trend, recent pricing action and currency hedges, if any.

- Update on capacity expansion plans across product segments.

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