Amara Raja Batteries Ltd (AMRJ) is Indias second-largest lead-acid battery manufacturer. It enjoys ~28% share by volume in 4W OEM, 37% share in 4W aftermarket (organised), 25% share in 2W aftermarket, 32% in UPS and 46% share in telecom segment. Being the second largest player gaining market share from the leader Exide Industries (EXID) and unorganised market, the company will be a strong beneficiary of structural and cyclical uptick in the auto segment. Additionally, about 40% of revenue from the industrial space protects it from the vagaries of the slowdown in the auto sector. We initiate a buy on the stock.
The company is increasing its capacity by 47% in four-wheeler and 75% in 2-wheeler space, which will provide the scale and operational efficiency. Also 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. Having grown the organised space from about 35%, ten years ago, to 58% now; it is further expected to grow ~62% (R2,400 crore opportunity) over the next two to three years, due capacity and distribution network expansion by AMRJ and EXID.
We expect revenue and earnings to grow 22% and 19% over FY13-15E with strong ROE of 28% and 36% ROCE alongside capacity, market share expansion and pricing discipline.