Key Points of Amara Raja Batteries Growth:
- Amara Raja Batteries is a leading player in the organized lead-acid battery market, commanding almost 40 percent of the segment.
- Amara Raja Batteries is undergoing a structural shift towards lithium-ion batteries that are more efficient and pack more energy per unit mass.
- Lithium battery packs began contributing to the company’s revenue, making up 3 percent of its topline in Q3 of FY23.
- The company announced a Rs 9,500 crore investment over the next decade to set up a lithium-cell gigafactory in Telangana.
- Several brokerages anticipate Amara Raja’s stock to increase by 20-40 percent despite challenges presented by lead price volatility and production unit closures.
- Replacement demand in the auto vertical will be the company’s key growth driver in the medium term.
- Amara Raja’s brand equity and extensive distribution network can be leveraged to power strong growth in the battery industry.
- Analysts expect volume and margin growth to drive the stock’s appreciation, with EBITDA margin expected to rise to 13.6 percent in FY24 and FY25.
Details of Amara Raja Batteries Growth:
Amara Raja Batteries Positioned for Growth: A Look at the Turning Point
Amara Raja Batteries is a leading player in the organized lead-acid battery market, commanding almost 40 percent of the segment. Historically, the company generated revenue from the automotive and industrial segments, particularly from the former, accounting for 73 percent of the company’s topline in FY22.
However, with the transition towards lithium-ion batteries that are more efficient and pack more energy per unit mass, Amara Raja is undergoing a structural shift. In Q3 of FY23, lithium battery packs began contributing to the company’s revenue, making up 3 percent of its topline. Furthermore, the company recently announced a Rs 9,500 crore investment over the next decade to set up a lithium-cell gigafactory in Telangana.
Despite the challenges presented by lead price volatility and production unit closures, several brokerages anticipate Amara Raja’s stock to increase by 20-40 percent. Here’s what they’re counting on:
Advantage of Volume:
Anand Rathi analysts expect the stock to appreciate as volumes and margins improve. In the December quarter, the company’s revenue increased 12 percent YoY to Rs 2,637 crore, and volumes rose 8-9 percent, driven by robust replacement demand in the automotive sector and healthy demand in the telecom and UPS segments. Sharekhan also notes that automotive and industrial demand is expected to recover, particularly in the two-wheeler and four-wheeler segments, driven by pent-up demand and increased need for personal mobility transport amid the COVID-19 pandemic.
New-age Business:
Replacement demand in the auto vertical will be the company’s key growth driver in the medium term. In the longer term, analysts expect that the company’s brand equity and extensive distribution network can be leveraged to power strong growth in the battery industry. By supplying to the electric three-wheeler segment and setting up a lithium-ion gigafactory, Amara Raja is well-positioned for growth.
Expansion of Margin:
The company saw healthy margin expansion in the December quarter, driven by a correction in raw-material cost (lead). Anand Rathi analysts expect the EBITDA margin to rise to 13.6 percent in FY24 and FY25 with OEM demand picking up. Furthermore, the company’s merger with its subsidiary Mangal Industries’ plastic components for the battery business is expected to be EPS accretive from the first year and lead to margin improvement and annual recurring post-tax synergies.
Overall, Amara Raja Batteries is well-positioned for growth in the battery industry, leveraging its extensive distribution network, brand equity, and move towards lithium-ion batteries. Despite near-term challenges, analysts expect volume and margin growth to drive the stock’s appreciation.
About Amara Raja Batteries:
Amara Raja Batteries, a part of the Amara Raja Group, is a leading manufacturer of lead-acid batteries for industrial and automotive applications in the Indian storage battery industry. The company is known for its technological advancements in the field.
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