amara raja batteries limited -...
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Firstcall India Equity Advisors Pvt Ltd 1
Amara Raja Batteries Limited
BUY Target price: Rs.185.00 CMP: Rs. 161.00 Market Cap. : Rs.13750.21mn. Date: December 11th, 2009.
Key Ratios:
Particulars FY09
(12 m)
FY10E
(12 m)
FY11E
(12 m)
OPM (%) 13 23 23
NPM (%) 6 12 13
ROE (%) 20 31 26
ROCE (%) 20 32 29
P/BV(x) 3.39 2.36 1.75
P/E(x) 17.09 7.72 6.85
EV/EBDITA(x) 7.84 4.74 4.72
Debt equity ratio
0.70 0.51 0.40
Key Data:
Sector Automobile Ancillary
Face Value Rs.2.00
52 wk. High/Low Rs.182.50/30.50
Volume (2 wk. 47085
SYNOPSIS • Amara Raja Batteries Ltd. (ARBL) is one of the largest players in the Indian storage battery industry, manufacturing batteries for both industrial and automotive applications. The company supplies automotive batteries to players like Maruti and Tata Motors. They find application in sectors like railways, UPS, defence, oil and gas, and power control.
• The company has completed Medium VRLA battery capacity expansion from 1.20 million units to 1.80 million units on schedule.
• The company is planning to incur a capex of Rs. 90 crores in 2010 through its internal accruals.
• The company has entered into a tie-up with Maruti Suzuki. Along with the largest car manufacturer, it has launched the co-branded replacement battery under 'Amaron MGB' brand.
• The company is expecting sales from its industrial batteries division to touch Rs 10 billion in fiscal year 2010.
• The company’s top line and bottom line are expected to grow at a CAGR of 14% and 29% over FY08 to FY11E.
Share Holding Pattern:
V.S.R. Sastry
Vice President
Equity Research Desk
91-22-25276077
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
Firstcall India Equity Advisors Pvt Ltd 2
Table of Content
Content Page No.
1. Investment Highlights 03
2. Peer Group Comparison 06
3. Key Concerns 06
4. Financials 07
5. Charts & Graph 09
6. Outlook and Conclusion 11
7. Industry Overview 12
Firstcall India Equity Advisors Pvt Ltd 3
Investment Highlights
• Result Updates (Q2FY10)
For the second quarter, the top line of the company increased 6%YoY and stood at Rs.3611.67mn against Rs.3399.61mn of the same period of the last year. The bottom line of the company for the quarter stood at Rs.478.97mn from Rs.187.92mn of the corresponding period of the previous year i.e., an increase of 155%YoY.
EPS of the company for the quarter stood at Rs.5.61 for equity share of Rs.2.00 each.
Firstcall India Equity Advisors Pvt Ltd 4
Expenditure for the quarter stood at Rs.2757.79mn, which is around 9% lower than the corresponding period of the previous year. Raw material cost of the company for the quarter accounts for 59 % of the sales of the company and stood at Rs.2134.35mn from Rs.2185.99mn of the corresponding period of the previous year i.e., a decrease of 2%YoY. Employee cost stood at Rs.153.90mn from Rs.113.27mn. and accounts for 4% of the revenue of the company for the quarter i.e., an increase of 36%YoY.
OPM and NPM for the quarter stood at 24% and 13% respectively from 12% and 6% respectively of the same period of the last year.
Firstcall India Equity Advisors Pvt Ltd 5
• The Industrial Battery business has shown a steady growth in Q2. The UPS
battery markets continue to remain robust. The company has completed Medium VRLA battery capacity expansion from 1.20 million units to 1.80 million units on schedule, which will provide growth and help in garnering additional market share going forward. Telecom market potential in near future is influenced by trends in infrastructure sharing, roll out of rural network and implementation of GSM projects by new licensees.
• Growth in automotive OE business tracked the strong revival in passenger
vehicle demand. The commercial vehicle segment has also begun to look up. The aftermarket continues to grow in both the formats of AMARON® and POWERZONETM. In the space of 2-wheeler battery market, AMARON ProbikeRiderTM has gained momentum and further capacity addition is on the anvil. Based on buoyant industry growth forecast, automotive battery business is expected to be on a strong growth path.
• Capex plan
The company is planning to incur a capex of Rs. 90 crores in 2010 through its internal accruals. The company will be investing Rs. 50 crores in the UPS segment and Rs. 20 crores in the Motor cycle segment. The rest of it will be used for the industrial segment. ARBL is not looking at expanding the capacity in the automotive batteries segment in the near future.
• Amara Raja expects industrial batteries sales to touch Rs 10bn by FY10
Firstcall India Equity Advisors Pvt Ltd 6
Amara Raja Batteries is expecting sales from its industrial batteries division to touch Rs 10 billion in fiscal year 2010.
By fiscal year 2010, the company`s revenue from industrial segment will account for more than half of total sales on the back of capacity addition. The company said that it saw industrial batteries sales in the current fiscal at about Rs 7.5 billion.
• Amara Raja ties up with Maruti Suzuki
The company has entered into a tie-up with Maruti Suzuki. Along with the largest car manufacturer, it has launched the co-branded replacement battery under 'Amaron MGB' brand. This is aimed at capitalizing on the Amaron brand, which has been an OE fitment in the automotive battery segment for most models of passenger cars from the Maruti stable. The tie-up has made 'Amaron' as the brand endorsed by Maruti Suzuki as a replacement battery. Amaron MGB will now be an addition to Maruti Suzuki's existing array of genuine spares offerings. Amaron MGB now presents customers with the dual advantage of Amara Raja's finest battery technology and a wide availability through Maruti Suzuki's largest network of 3,000 plus authorized outlets across the length and breadth of the country.
Peer Group Comparison
Name of the
company
CMP(Rs.)
(As on
Dec
11th,2009
)
Market
Cap.
(Rs. Mn.)
EPS
(Rs.)
P/E
(x)
P/BV
(x)
Dividend
(%)
(FY08)
Amara raja batteries ltd 161.00 13750.21 16.07 10.02 3.39 40.00
Exide industries 112.95 90360.00 4.96 22.77 7.42 60.00
Bosch 4620.00 145062.90 164.82 28.03 4.69 250.00
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Motherson Sumi Systems 128.50 45688.70 2.48 51.81 11.04 135.00
Amtek Auto 186.00 26224.70 9.62 19.33 1.06 25.00
Key Concerns
� Adverse Govt. policies
� Economic slow down.
� Highly competition
Financials
Results Update
12 months ended Profit and Loss A/C (Standalone):
Value(Rs in million) FY08A FY09A FY10E FY11E
Description 12m 12m 12m 12m
Net Sales 10833.26 13241.27 14300.57 16016.64
Other Income 256.10 16.52 31.39 37.67
Total Income 11089.36 13257.79 14331.96 16054.31
Expenditure -9256.21 -11503.28 -11082.94 -12412.90
Operating Profit 1833.15 1754.51 3249.02 3641.41
Interest -129.31 -182.37 -120.07 -126.07
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Gross Profit 1703.84 1572.14 3128.95 3515.34
Depreciation -244.45 -345.56 -414.67 -456.14
Profit before Tax 1459.38 1226.59 2714.28 3059.20
Tax -515.75 -421.80 -933.39 -1052.00
Net Profit 943.63 804.79 1780.89 2007.20
Equity Capital 113.88 170.81 170.81 170.81
Reserves 3217.14 3885.05 5665.94 7673.15
Face Value 2.00 2.00 2.00 2.00
Total No. of Shares 56.94 85.41 85.41 85.41
EPS 16.57 9.42 20.85 23.50
Quarterly ended Profit and Loss A/C (Standalone):
Value(Rs. in million) 31-Mar-09 30-Jun-09 30-Sep-09 31-Dec-09E
Description 3m 3m 3m 3m
Net Sales 3330.29 3065.34 3611.67 3792.25
Other Income 5.58 6.12 9.59 10.36
Total Income 3335.87 3071.46 3621.26 3802.61
Expenditure -2765.75 -2298.82 -2757.79 -2895.68
Operating Profit 570.12 772.64 863.47 906.93
Interest -48.66 -29.84 -25.73 -26.76
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Gross Profit 521.46 742.80 837.74 880.17
Depreciation -99.72 -102.01 -106.57 -110.83
Profit before Tax 421.75 640.79 731.17 769.34
Tax -141.26 -215.05 -252.20 -265.37
Net Profit 280.49 425.74 478.97 503.97
Equity Capital 170.81 170.81 170.81 170.81
Face Value 2.00 2.00 2.00 2.00
Total No. of Shares 85.41 85.41 85.41 85.41
EPS 3.28 4.98 5.61 5.90
Charts
• Net sales & PAT
Firstcall India Equity Advisors Pvt Ltd 12
Outlook and Conclusion
• At the market price of Rs.161.00, the stock is trading at 7.72 x and 6.85 x for FY10E and FY11E respectively.
• EPS of the company is expected to be at Rs.20.85 and Rs.23.50 for the
earnings of FY10E and FY11E respectively. • On the basis of EV/EBDITA, the stock trades at 4.74 x and 4.72 x for FY10E and
FY11E respectively. • The price to book value of the company is expected to be at 2.36 x and 1.75
x for FY10E and FY11E respectively.
• The company has completed Medium VRLA battery capacity expansion from 1.20 million units to 1.80 million units on schedule, which will provide growth and help in garnering additional market share going forward.
• The flow in profits was aided by operational efficiencies and cost-savings. The
uncertainties in telecom infrastructure rollout and volatility in lead price might pose challenges in the second half of the current financial year. However, the expected double-digit growth in automotive industry and projected GDP growth of more than 6% for the current fiscal are positive signals for the industry.
Amara Raja BSE SENSEX
Firstcall India Equity Advisors Pvt Ltd 13
• The company is planning to incur a capex of Rs. 90 crores in 2010 through its internal accruals. The company will be investing Rs. 50 crores in the UPS segment and Rs. 20 crores in the Motor cycle segment. The rest of it will be used for the industrial segment. ARBL is not looking at expanding the capacity in the automotive batteries segment in the near future.
• The company has entered into a tie-up with Maruti Suzuki. Along with the
largest car manufacturer, it has launched the co-branded replacement battery under 'Amaron MGB' brand.
• The company is expecting sales from its industrial batteries division to touch
Rs 10 billion in fiscal year 2010.
• ARBL batteries support the transmission & distribution networks of Power stations. Increased spending by the government in the power sector will boost demand as government plans a 48% growth in transmission grid growth in the eleventh plan.
• We recommend ‘BUY’ for this stock with a target price of Rs.185.00 for long
term.
Industry Overview
The Indian auto ancillary industry has come a long way since it had its small
beginnings in the 1940s. If the evolution of the industry is traced in India, it can
be classified into three distinct phases namely: Period prior to the entry of Maruti
Udhyog Ltd, Period after the entry of Maruti Udhyog Ltd and Period post
Liberalization. The period prior to the entry of Maruti Udhyog Ltd was
characterized by small number of auto majors like Hindustan Motors, Premier
Automobiles, Telco, Bajaj, Mahindra and Mahindra, low technology and assured
business for most of the auto-component manufacturers.
The entry of Maruti in the 1980s marked the beginning of the second phase of
the industry. The auto ancillary industry in the country really showed a spurt in
growth during this period. This period witnessed the emergence of a new
generation of auto ancillary manufacturers who were required to meet the
stringent quality standards of Maruti’s Korean collaborator Suzuki of Japan. The
good performance of Maruti resulted in an upswing for the domestic auto
Firstcall India Equity Advisors Pvt Ltd 14
ancillary industry. It was during this period that auto components from India
began to be exported.
The entry of foreign automobile manufacturers ranging from Mercedes Benz,
Ford, and General Motors to Daewoo following the government liberalizing the
foreign investment limits saw the beginning of the third phase of the evolution of
the industry. The auto ancillary industry witnessed huge capacity expansions
and modernization initiatives in the post liberalization period. Technological
collaborations and equity partnerships with world leaders in auto components
became a common affair. However, the tough competitive scenario saw a lot
of consolidation in the industry and it still continues unabated.
In 2008-09, automobile sales are expected to grow by around 12 per cent in
value-terms, driven mainly by favourable demographic trends, anticipated
growth recovery in commercial vehicles and robust export growth. Consistent
growth and dedication have made the Indian automobile industry the second-
largest tractor and two-wheeler manufacturer in the world. It is also the fifth-
largest commercial vehicle manufacturer in the world. It is also the fifth-largest
commercial vehicle manufacturer in the world. The Indian automobile market is
among the largest in Asia.
The key players like Hindustan Motors, Maruti Udyog, Fiat India Private Ltd, Tata
Motors, Bajaj Motors, Hero Motors, Ashok Leyland, and Mahindra & Mahindra
have been dominating the vehicle industry. A few of the foreign players like
Toyota Kirloskar Motor Ltd., Skoda India Private Ltd., Honda Siel Cars India Ltd.
have also entered the market and have catered to the customers’ needs to a
large extent.
Not only the Indian companies but also the international car manufacturing
companies are focusing on compact cars to be delivered in the Indian market
at a much smaller price. Moreover, the automobile companies are coming up
with financial schemes such as easy EMI repayment systems to boost sales. There
have been exhibitions like Auto-expo at Pragati Maidan, New Delhi to share the
technological advancements. Besides, there are many new projects coming up
in the automobile industry leading to the growth of the sector.
The Government of India has liberalized the foreign exchange and equity
regulations and has also reduced the tariff on imports, contributing significantly
to the growth of the sector. Having firmly established its presence in the
Firstcall India Equity Advisors Pvt Ltd 15
domestic markets, the Indian automobile sector is now penetrating the
international arena. Vehicle exports from India are at their highest levels. The
leaders of the Indian automobile sector, such as Tate Motors, Maruti and
Mahindra and Mahindra are leading the exports to Europe, Middle East and
African and Asian markets.
The Ministry of Heavy Industries has released the Automotive Plan 2006-2016, with
the motive of making India the most popular manufacturing hub for
automobiles and its components in Asia. The plan focuses on the removal of all
the bottlenecks that are inhibiting its growth in the domestic as well as
international arena.
Key points:
Supply : The Indian automobile market has some amount of excess
capacity.
Demand : Largely cyclical in nature and dependent up on economic
growth and per capita income. Seasonality is also a vital
factor.
Barriers to entry : High capital costs, technology, distribution network, and
availability of auto components.
Competition : High Expected to increase even further.
Some of the major characteristics of Indian automobile sector are:
• Second largest two-wheeler market in the world. • Fourth largest commercial vehicle market in the world. • 11th largest passenger car market in the world. • Expected to become the world's third largest automobile market by 2030,
behind only China and the US.
The Future Growth Drivers: • India's huge geographic spread- Mass Transport System. • Increasing Road Development. • Increasing disposable Income with the service sector. • Replacement of aging four wheelers. • Graduating from two wheelers to four wheelers. • Increasing dispensable income of rural agri sector. • Growing Concept of Second Vehicle in Urban Areas.
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___________________________________________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but we do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
Firstcall India Equity Research: Email – [email protected]
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