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03 September 2020 Initiating Coverage
Amara Raja Batteries
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Towards a 'charged' future
We initiate on Amara Raja Batteries with an ADD rating. Currently, the
company has a ~20% market share in the USD 5bn lead-acid battery (LAB)
segment. We expect it to gain further share as revenues are forecasted to grow
in double digits over the next 3-5 years (vs. mid-single-digit for the industry).
While Amara Raja would benefit from the shift towards the organised
segment in the near term, we believe that the advent of new technologies such
as lithium-ion will change industry dynamics; though the pace of adoption is
expected to be very gradual. Amara Raja’s future technology partnerships
(after the exit of Johnson Controls) and its ability to foray into alternative
battery chemistries will determine its growth opportunities in the long term.
Organised segment to gain share: The share of unorganised players is high
at 30-40%, particularly in the replacement market. We believe that larger
players will continue to gain a share of the LAB market, driven by (1) steady
formalisation of the economy (post introduction of GST), (2) advanced and
more efficient production techniques introduced by organised companies
(punched grid technology), (3) launch of entry-level brands/batteries with
shorter warranty cycles to compete with the unorganised segment. Amara
Raja currently is ~20% of the overall market.
Amara Raja's revenues to grow in double digits: While industry growth is
expected to moderate from the 10-12% levels earlier to mid-single digits in
the next 3-5 years, we believe that Amara Raja's revenue will grow in double
digits, led by (1) sustained market share gains by the organised segment (as
highlighted above), (2) focus on exports (10% of revenues), and (3)
opportunities in the e-rickshaw/motive power category (new categories).
Lithium–opportunity or threat? The lead-acid battery segment is expected
to witness a substitution threat from lithium-ion batteries, with the
technology shift being driven by both the government and private sector.
The FAME-II scheme for automobiles envisages usage of 2.3 GWh/p.a. of
battery capacity that will be required, based on the proposed subsidy
amount. However, post the COVID outbreak, we believe the adoption of
EVs will be delayed. Within the telecom segment (~10% of revenue), Jio is
operating 100% of its towers with lithium batteries.
Prospective technology partnerships: After the exit of Johnson Controls, we
await the new technology partnerships that Amara Raja will forge, including
those on alternative battery chemistries.
Initiate with an ADD: We initiate coverage on Amara Raja with an ADD
rating and set a target price of Rs 780, at 19x Jun-22E EPS, which is in line
with its long-term P/E average. Key risks: Higher-than-expected market
share gains on the upside and a sudden shift in technology on the downside.
Financial Summary (Standalone)
YE Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E
Net Sales 67,931 68,395 60,243 69,836 80,256
EBITDA 9,508 10,986 9,097 11,272 13,106
APAT 4,835 6,608 4,918 6,648 8,021
Adj. EPS (Rs) 28.3 38.7 28.8 38.9 47.0
Adj. EPS Growth (%) 2.6 36.7 (25.6) 35.2 20.7
P/E (x) 26.4 19.3 25.9 19.2 15.9
RoE (%) 15.4 18.9 12.8 15.4 16.3
Source: Company, HSIE Research
ADD
CMP (as on 02 Sep 2020) Rs 745
Target Price Rs 780
NIFTY 11,535
KEY
CHANGES OLD NEW
Rating - ADD
Price Target - Rs 780
EPS % FY21E FY22E
- -
KEY STOCK DATA
Bloomberg code AMRJ IN
No. of Shares (mn) 171
MCap (Rs bn) / ($ mn) 127/1,739
6m avg traded value (Rs mn) 765
52 Week high / low Rs 814/349
STOCK PERFORMANCE (%)
3M 6M 12M
Absolute (%) 12.0 19.3 20.2
Relative (%) (3.5) 16.9 15.5
SHAREHOLDING PATTERN (%)
Mar-20 Jun-20
Promoters 28.1 28.1
FIs & Local MFs 11.6 13.8
FPIs 20.9 19.0
Public & Others 39.4 39.2
Pledged Shares 1.7 -
Source : BSE
Aditya Makharia
+91-22-6171-7316
Mansi Lall
+91-22-6171-7357
Page | 2
Amara Raja Batteries: Initiating Coverage
Focus charts
Industry composition of the battery segment – more
room for the organised segment to gain share
Amara Raja's market share in the replacement segment
has risen to ~one-third of the market
Source: Company, HSIE Research Source: Company, HSIE Research
Automotive volumes have now recovered to 85-90% of
pre-COVID levels
Shareholding has changed as Johnson Controls has
exited the business globally
Source: SIAM, Company, HSIE Research Source: BSE, Company, HSIE Research
Li-ion battery potential in India for the automotive
segment (in GWh/p.a.), a medium-term technology risk
P/E multiple has rerated from March lows
Source: Industry, HSIE Research Source: Bloomberg, Company, HSIE Research
Organised
59%
SME
33%
Unorganised
8%
15%
20%
25%
30%
35%
2W replacement 4W replacement
FY15 FY20
-
100
200
300
-
500
1,000
1,500
2,000
Ap
r-1
9
Ma
y-1
9
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Ma
r-2
0
Ap
r-2
0
Ma
y-2
0
Jun
-20
Jul-
20
2W 4W - RHS
2.3
25.0
0
5
10
15
20
25
30
FAME Longer term potential
26.1 28.1
26.0 24.0
0
10
20
30
40
50
60
Jun-18 Jun-20
Galla
FamilyGalla
Family
GallaFamily
Johnson
Controls
Brookfield
0
10
20
30
40
Mar
-09
Mar
-10
Mar
-11
Mar
-12
Mar
-13
Mar
-14
Mar
-15
Mar
-16
Mar
-17
Mar
-18
Mar
-19
Mar
-20
P/E Mean +1 SD -1 SD
Page | 3
Amara Raja Batteries: Initiating Coverage
Organised segment to gain share
The industry market size is USD5bn–the LAB market was growing at 10-12%
before FY20, driven by a combination of replacement demand, encouraging OEM
sales in the auto segment as well as UPS sales/exports. The organised players
have grown ahead of the market over this period.
Lead-acid battery market size (in USD bn) Top two companies have grown ahead of the market
(Rs bn)
Source: Company, HSIE Research Source: Company, HSIE Research
Although the unorganised share has been reducing over the years, it remains
high at 30-40%, particularly in the replacement market. While the organised
players dominate the PV and 2W segments with a 70-80% share, the share of the
unorganised players is elevated at 50-60% levels in the CV, tractors, and home
inverter segment.
Battery segment industry composition
Source: Company, HSIE Research
Larger players to continue to gain share: We believe that larger players will
continue to gain share, driven by (1) formalisation of the economy with the
introduction of GST as well as consolidation post-COVID, (2) new production
techniques introduced by organised companies, (3) companies launching entry-
level brands/batteries with shorter warranty cycles to compete with the
unorganised segment
Although the unorganised
share has been reducing
over the years, it remains
high at 30-40%,
particularly in the
replacement market
3.0
3.5
4.0
4.5
5.0
2016 2020
100
120
140
160
180
2016 2020
Organised
59%
SME
33%
Unorganised
8%
Page | 4
Amara Raja Batteries: Initiating Coverage
With the introduction of GST, the larger companies have rationalised their
distribution networks while the unorganised segment is contending with higher
compliance costs.
New technology introduction to lower production costs: Organised players are
introducing new technologies, including punched grid/stamped grid technology,
which have improved production processes. For instance, the new stamped grid
technology introduced by Amara Raja is a much cleaner operation
environmentally and more efficient operation (production rates are higher than
the earlier technology of cast grids). Further, the process flexibility is higher,
which enables the creation of multiple product variants and leads to material cost
savings.
Launching entry-level brands: To compete with the unorganised sector, the
companies are launching entry-level brands with lower warranty periods,
besides expanding their distribution networks in the rural and semi-urban
markets.
The new stamped grid
technology introduced by
Amara Raja is a much
cleaner operation
environmentally and
more efficient
Page | 5
Amara Raja Batteries: Initiating Coverage
Amara Raja's growth strategy
Amara Raja has consistently been gaining market share across 2W and 4W
segments. The battery manufacturer has doubled capacity over FY14-20 and
currently has an installed capacity of 12mn in 4Ws and 17mn in 2Ws.
Capacity (in mn units)
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E
4W 6.0 8.3 8.3 8.3 10.5 11.0 12.0 14.0 14.0
% YoY
38% 0% 0% 27% 5% 9% 17% 0%
2W 8.4 8.4 11.0 11.0 11.0 15.0 17.0 20.0 20.0
% YoY
0% 31% 0% 0% 36% 13% 18% 0%
Total 14.4 16.7 19.3 19.3 21.5 26.0 29.0 34.0 34.0
% YoY
16% 16% 0% 12% 21% 12% 17% 0%
Source: Company, HSIE Research
Increased capacity in the automotive segment
Source: Company, HSIE Research
Amara Raja currently has ~20% market share of the lead-acid battery market in
India; it has risen sharply across the 2W and 4W replacement segments, and the
company now accounts for almost a third of the replacement segment. Within the
telecom segment, the company is the market leader with a share of ~60%.
Amara raja market share in the replacement market has risen to ~one third
Source: Company, HSIE Research
0
5
10
15
20
FY14 FY20
4W 2W
15%
20%
25%
30%
35%
2W replacement 4W replacement
FY15 FY20
Page | 6
Amara Raja Batteries: Initiating Coverage
In the OEM segment, Amara Raja has a ~35% market share in 4W OEMs and a
~15% share in 2W OEMs. The company is focusing on gaining market share in
the 2W segment and has recently won orders from Hero and TVS Motors.
Growth initiatives by Amara Raja
The industry growth is expected to be in mid-single digits for the next five years
(as compared to 10-12% earlier) due to the moderation in automotive volumes
over FY18-21 (which will impact replacement sales). However, we believe Amara
Raja will continue to grow in double digits, led by (1) sustained market share
gains by the organised segment (2) focus on exports (3) and opportunities in the
e-rickshaw/motive power category.
Amara Raja's growth strategy
Source: Company, HSIE Research
Exports account for 10% of sales and are a focus area: Exports have been
growing for the company and now account for ~10% of overall sales. Rising
shipments to the markets in the Indian Ocean Rim–Africa, Middle East and
South-East Asia is leading to the above. The company will continue to expand
into new markets to consolidate its overseas presence.
Exports as % of sales
Source: Company, HSIE Research
The industry growth is
expected to be in mid-
single digits for the next
five years. However, we
believe Amara Raja will
continue to outperform
the industry and grow in
double digits
The company will
continue to expand into
new markets to
consolidate its overseas
presence
0%
3%
6%
9%
12%
15%
FY16 FY17 FY18 FY19 FY20
Exports
Geographic expansion
•Strengthen and expand operation in identified markets in the Indian Ocean Rim
•Move towards internationalisation of the export business
•Forge International tie-ups to expand and hedge existing business operations
Leverage new technologies
•Use of advanced plate making technologies, in terms of punched grids, across product categories
•Cater to the growing demand for energy storage solution from the renewble energy sector.
Expand product offering
•To meet various emission and Cafe’ norms, vehicle manufacturers are using unique technologies, that necessitates advanced battery technologies
•Emerging applications in e-space; E-Rickshaws & E-Autos.
Continue to grow in India
•Build leadership
across categories
and markets
•Strengthen brand
equity, as a
vehicle for future
growth
Page | 7
Amara Raja Batteries: Initiating Coverage
E-rickshaw and motive power opportunity
Amara Raja has started supplies to the e-rickshaw battery segment with the
proliferation of these vehicles across several micro-markets, particularly in north/
east India. The segment has witnessed significant growth owing to government
incentives and rising environmental awareness. Most of these rickshaws are
powered by lead-acid batteries, and they provide last-mile connectivity in Tier II
and III cities. The e-rickshaw sales are expected to rise to 1mn units in the
medium term.
Annual EV sales in India (in units)
Segment FY19
e-2 wheelers 1,26,000
e-3 wheelers 6,30,000
e-4 wheelers 3,600
TOTAL 7,59,000
Source: Industry, HSIE Research
Amara Raja is expanding capacity: The company has plans to expand its tubular
battery capacity from 1.3m to about 1.7m batteries. The additional capacity will
be for the e-rickshaws products–the field trials for the products are ongoing, and
Amara Raja will reach the additional battery capacity by end FY21. The sales are
expected to expand as the market evolves.
Each e-rickshaw has a pack of 4 large lead-acid batteries, which provide a driving
range of 80km per charge. However, due to the high drain, battery life is short at
6-9 months. With the life of the e-rick at ~2 years, it requires 3-4 replacement
cycles. Currently, the regional and unorganised players dominate the segment.
However, with the organised players getting into this segment (including
manufacturing), the formal sector will gain share.
Batteries for motive power
The motive power segment offers long-term growth potential. Currently, the
market for forklifts/pallet trucks in India has been limited due to the availability
of manual labour. The adoption of lift trucks in India is limited at 10 lift trucks
per million as against 273 in China.
However, with rising mechanisation, higher labour costs, conversion of diesel
vehicles to electric ones, and the advent of e-commerce, the adoption of electric
vehicles for forklifts will increase. This will create an additional requirement for
batteries.
The e-rickshaw segment
has witnessed significant
growth owing to
government incentives
and rising demand for
last mile connectivity
The company has plans
to expand its tubular
battery capacity from
1.3m to about 1.7m
batteries to address this
segment
Page | 8
Amara Raja Batteries: Initiating Coverage
Demand is recovering to pre-COVID levels
The management of Amara Raja has highlighted that demand is now reviving
post the COVID lows in 1QFY21. Sales are now back up to 85% of pre-COVID
levels, and demand is expected to pick up further as OEM sales are benefitting
from the move towards personal mobility. This will also aid replacement demand
as consumers will be utilising their existing vehicles for a longer duration.
Domestic 2W sales (in '000 units) Domestic 4W sales (in '000 units)
Source: SIAM, Company, HSIE Research Source: SIAM, Company, HSIE Research
We expect automotive industry sales to revive over 2HFY21/22 as the economy
picks up.
2W and 4W sales volume forecast
Source: SIAM, HSIE Research
-
100
200
300
Ap
r-1
9
Jun
-19
Au
g-1
9
Oct
-19
Dec
-19
Feb
-20
Ap
r-2
0
Jun
-20
-
500
1,000
1,500
2,000
Ap
r-1
9
Jun
-19
Au
g-1
9
Oct
-19
Dec
-19
Feb
-20
Ap
r-2
0
Jun
-20
-30%
-20%
-10%
0%
10%
20%
FY
17
FY
18
FY
19
FY
20
FY
21
E
FY
22
E
PV 2W
Page | 9
Amara Raja Batteries: Initiating Coverage
Changing landscape: alternative battery chemistries
The industry is witnessing demand for batteries with higher rate discharge
capabilities and those which require a more demanding cycle life (such as in
commercial applications). This is leading to nascent demand for the lithium-ion
batteries.
The lead-acid battery segment is expected to witness the threat of substitution
from the next-generation lithium-ion batteries. This threat is being driven from
both—the government as well as the private sector. Thus, under the FAME II
scheme, the government is promoting the migration towards electric mobility,
while private telecom operators such as Reliance Jio are adopting the usage of Li-
ion batteries for their towers.
FAME-II is promoting lithium batteries, which provides a more extended range:
Under FAME-I, the incentives were provided to all EVs, including those that run
on lead-acid batteries, irrespective of the battery capacity. This has been
discontinued under the new scheme. Considering that the cost of batteries is a
significant factor in the price of an EV, the demand incentives are based on
battery capacity under FAME-II. Currently, the initial proposal for such
incentives is Rs 10,000 per kWh for all vehicles except buses (Rs 20,000 per kWh).
Segment-wise incentives under the FAME-II
Sr. No. Vehicle segment
Max no. of
vehicles to be
supported
~size of the
battery (kWh)
Total
approximate
incentive per
kWh
Maximum ex-
factory price to
avail incentive
(Rs)
Total fund
supported by
DHI (Rs bn)
1 Registered e-2 wheelers 1,000,000 2 20,000 150,000 20.00
2 Registered e-3 wheelers 500,000 5 50,000 500,000 25.00
3 Registered e-4 wheelers 35,000 15 150,000 1,500,000 5.25
4 4W strong hybrid
vehicle 20,000 1.3 13,000 1,500,000 0.26
5 e-Bus 7,090 250 5,000,000 20,000,000 35.45
Total Demand
Incentive 85.96
Source: GoI, HSIE Research
The central government has announced a subsidy of Rs 100bn under the FAME II
scheme for automobiles. The scheme envisages the usage of 2.3 GWh/p.a. of
battery capacity that will be required, based on the proposed subsidy amount.
This is expected to scale up over the medium term, subject to the broader
adoption of EV vehicles as well as the price fall in lithium batteries.
Li-ion battery potential (in GWh/p.a.)
Source: Industry, HSIE Research
The lead-acid battery
segment is expected to
witness threat of
substitution from the
next generation lithium-
ion batteries...
...though the transition to
alternate battery
chemistries will be long-
drawn, in our view
2.3
25.0
0
5
10
15
20
25
30
FAME Longer term potential
Page | 10
Amara Raja Batteries: Initiating Coverage
However, post the COVID outbreak, the adoption of EVs will be delayed, in our
view. In our EV report the 'S' Curve, we believe the adoption of electric mobility
will be gradual in India (refer Where are we on the 'S' curve?). We believe that
EVs are at the start-up stage of the S-Curve, and the ecosystem will take time to
get established in India. The route to profitability yet remains long-drawn, in our
view.
S-Curve for alternate technology applications in the automotive segment
Source: Industry, HSIE Research
Also, contrary to perceptions, the electric cars have a 12v lead-acid battery as an
auxiliary battery for Starter, Lightning and Ignition (SLI) applications. Thus, the
LAB will continue to be relevant even in an EV world.
However, the telecom segment, which accounts for ~10% of Amara Raja's
revenues, has witnessed a migration towards lithium-ion batteries. The market
leader Reliance Jio has adopted the usage of Li-Ion batteries in its towers. The
other telecom operators may gradually migrate towards the same in the medium
term. Currently, Amara Raja is the dominant battery supplier to this segment,
with a share of 60%.
Setting up a lithium-ion facility is an expensive proposition and requires high
Capex. As per industry estimates, a minimum scale of 5 GWh (over time) is
critical to be competitive in cell manufacturing. Bosch India's management, for
instance, has highlighted that it will not get into cell manufacturing operations.
Further, the industry in India will require government support in the form of
subsidies and tax breaks to set up these facilities.
Estimated global Li-ion battery production capacity (in GWh)
Source: Industry, HSIE Research
START
GROWTH
SCALE
MATURITY
GR
OW
TH
TIME
Electric vehicles in India
Ride sharing & mobilityservices
Achieveing profitabilty is important to ensure scalabilty of these alternate business
Strategic growth inflection point
Path of sustainedmomentum
Path of obsolescence
Path of plateau
The potential for lithium
ion batteries is 2.3
GWh/p.a. currently
Post the COVID
outbreak, the adoption of
EVs will be delayed in
our view
Setting up a lithium-ion
facility is capital
intensive
-
40
80
120
160
BY
D
CA
TL
Tes
la/P
an
aso
nic
Sa
msu
ng
SD
I
LG
Ch
em
No
rth
vo
lt
GS
Yu
asa
SK
In
no
va
tio
n
Lis
hen
Bo
sto
n P
ow
er
2020 2025
Page | 11
Amara Raja Batteries: Initiating Coverage
Amara Raja is investing in alternative battery chemistries, i.e. lead batteries
with silicon at the core, in collaboration with US-based Gridtential Energy, to
enhance battery performance. The batteries will use the patented silicon joule
bipolar technology, which comes with a wider temperature range and are 40%
lighter in weight than the conventional batteries.
Gridtential Energy facilitates its partners to adapt their manufacturing operations
to provide high performing 24V and 48V batteries for hybrid automotive, low-
speed electric vehicles, energy storage systems and home backup markets with
the usage of bipolar battery technology.
Besides, Amara Raja has set up an assembly facility for delivering lithium-ion
packs to the 2 and 3-wheeler segment in FY19.
Amara Raja is investing
in lead batteries with
silicon at the core in
collaboration with US-
based Gridtential Energy
These 24V and 48V
batteries will provide
power for hybrids, low
speed EVs and energy
storage systems
Page | 12
Amara Raja Batteries: Initiating Coverage
Technology tie-ups: what next after Johnson Control?
In Nov 2018, Johnson Controls announced the sale of its Power Solution business
globally to Brookfield Business Partners. Thus, from Apr 2019, the agreement in
India was terminated. Over the years, since the initial agreement in 1997, Amara
Raja has been fully absorbing all critical technologies from Johnson. The recent
technological know-how for the advanced stamped grid plate making
technologies, signed in Sep 2018, is being completely absorbed as well.
Shareholding pattern Jun-18 Shareholding pattern Jun-20
Source: BSE, Company, HSIE Research Source: BSE, Company, HSIE Research
While the company is equipped with the requisite technology from Johnson
Controls in the near to medium term, we believe that the management should
seek a new business partner for the long term as the technology landscape is fast
evolving, especially with the emergence of alternate battery chemistries.
Galla
Family,
26.1
Johnson
Controls,
26.0
MI/FIIs,
10.3
FPIs, 20.3
Others,
17.4 Galla
Family,
28.1
Brookfield,
24.0 MI/FIIs,
13.8
FPIs, 19.0
Others,
15.2
Page | 13
Amara Raja Batteries: Initiating Coverage
Financials
Revenue to grow in double digits: The company has delivered revenue growth
of 13% CAGR over FY15-19. However, the industry growth has moderated over
FY20-21, owing to COVID and other industry-led factors (2W sales down ~18%).
While we expect FY21 revenue to decline, sales would revive in FY22, in our
view, led by the expected economic recovery. In the medium term, we expect
Amara Raja's revenues to grow in double digits, driven by market share gains
and expansion into new segments.
Amara Raja revenue mix
Source: Company, HSIE Research
EBITDA–expect encouraging performance to sustain: Despite a challenging
FY20, the company's EBITDA margin expanded to 16.1%, owing to good growth
in the replacement segment and a fall in lead prices (-9% YoY in US dollar terms).
As margins have sustained in the 14-18% band over the past five years,
management continues to guide for profitability to sustain in this range (of 14-
16%) in the near term.
Lead price and Amara Raja's EBITDA margin
Source: Bloomberg, Company, HSIE Research
4W & inverters,
45%
2W, 22%
Telecom, 9%
UPS, 13%
Other industrial,
11%
12%
14%
16%
18%
20%
1,500
1,700
1,900
2,100
2,300
2,500
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
Lead price price ($/tonne) EBITDA margin (%) - RHS
Page | 14
Amara Raja Batteries: Initiating Coverage
-20%
-10%
0%
10%
20%
30%
30,000
40,000
50,000
60,000
70,000
80,000
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21E
FY
22E
FY
23E
Revenue (Rs mn) % YoY
Revenue expected to grow in double digits over FY22-
23E after a weak FY20-21E
EBITDA margins should sustain in the current band
Source: Company, HSIE Research Source: Company, HSIE Research
PAT Return ratios – RoEs are at healthy mid-teens level
Source: Company, HSIE Research Source: Company, HSIE Research
12%
14%
16%
18%
5,000
7,000
9,000
11,000
13,000
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21E
FY
22E
FY
23E
EBITDA (Rs mn) EBITDA Margin % - RHS
-30%
-20%
-10%
0%
10%
20%
30%
40%
3,000
4,000
5,000
6,000
7,000
8,000
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21E
FY
22E
FY
23E
APAT (Rs mn) % YoY - RHS
10
15
20
25
30F
Y15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21E
FY
22E
FY
22E
RoE (%) RoCE (%)
Page | 15
Amara Raja Batteries: Initiating Coverage
Target price, valuation, and risks
We initiate coverage on Amara Raja with an ADD rating and set a target price of
Rs 780 at 19x Jun-22E EPS, which is in line with its long-term P/E average. While
Amara Raja will benefit from a pick-up in growth in the near term, the advent of
new technologies such as lithium-ion presents an opportunity and a threat.
Amara Raja's future technology partnerships (after the exit of Johnson Controls)
and the ability to foray into future technologies will determine its growth
opportunities in the long term.
Key risks: Higher-than-expected market share gains on the upside and a sudden
shift in technology away from lead-acid on the downside.
One year forward P/E band chart
Source: Bloomberg, Company, HSIE Research
One year forward EV/EBITDA band chart
Source: Bloomberg, Company, HSIE Research
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Page | 16
Amara Raja Batteries: Initiating Coverage
Key assumptions
Capacity (in mn units) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
4W 8.3 8.3 10.5 11.0 12.0 14.0 14.0 14.0
% YoY 0% 0% 27% 5% 9% 17% 0% 0%
2W 11.0 11.0 11.0 15.0 17.0 20.0 20.0 20.0
% YoY 31% 0% 0% 36% 13% 18% 0% 0%
Total 19.3 19.3 21.5 26.0 29.0 34.0 34.0 34.0
% YoY 16% 0% 12% 21% 12% 17% 0% 0%
Industrial capacity (in bn AH) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Tubular battery capacity (in mn units) 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
Rs bn FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Revenue from:
Automotive 28 32 36 41 46 41 48 55
Industrial 18 21 24 27 23 19 22 25
Total revenue 46 53 61 68 68 60 70 80
% YoY 10% 15% 14% 12% 1% -12% 16% 15%
EBITDA 8.2 8.5 8.8 9.5 11.0 9.1 11.3 13.1
EBITDA margin (%) 17.8% 16.0% 14.6% 14.0% 16.1% 15.1% 16.1% 16.3%
Source: Company, HSIE Research
Peer set comparison
Company Mcap
(Rs bn)
CMP
(Rs/sh) Reco
Adj EPS (Rs/sh) P/E (x) RoE (%)
FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E
Amara Raja 127 745 ADD 28.8 38.9 47.0 25.9 19.2 15.9 12.8 15.4 16.3
Balkrishna Industries* 255 1,320 NR 48.3 59.5 67.2 27.3 22.2 19.7 17.1 18.2 17.7
Bharat Forge* 232 498 NR 4.3 14.8 22.0 116.7 33.6 22.7 4.4 11.7 16.2
Bosch* 381 12,929 NR 332.5 456.5 460.3 38.9 28.3 28.1 10.7 13.1 11.9
Endurance 153 1,087 BUY 26.9 39.5 48.5 40.4 27.5 22.4 12.0 15.8 16.9
Exide Industries* 142 167 NR 8.0 10.1 11.8 20.8 16.5 14.2 10.4 12.1 13.1
Subros 17 255 ADD 2.8 10.6 14.4 90.8 24.0 17.7 2.4 8.7 10.8
Source: HSIE Research, *Bloomberg consensus, NR = Not rated
Page | 17
Amara Raja Batteries: Initiating Coverage
Financials Standalone Income Statement
(Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Net Revenues 46,178 53,172 60,592 67,931 68,395 60,243 69,836 80,256
Growth (%) 9.7 15.1 14.0 12.1 0.7 (11.9) 15.9 14.9
Material Expenses 29,105 34,885 41,163 46,441 44,471 40,243 46,301 53,330
Employee Expenses 2,429 2,778 3,090 3,452 3,852 3,916 4,330 4,575
Other Operating Expenses 6,418 7,017 7,507 8,530 9,086 6,988 7,933 9,245
Total Expenses 37,952 44,679 51,760 58,423 57,409 51,147 58,564 67,150
EBITDA 8,225 8,493 8,832 9,508 10,986 9,097 11,272 13,106
EBITDA Margin (%) 17.8 16.0 14.6 14.0 16.1 15.1 16.1 16.3
EBITDA Growth (%) 17.2 3.2 4.0 7.7 15.5 (17.2) 23.9 16.3
Depreciation 1,407 1,912 2,303 2,612 3,007 3,091 3,338 3,672
EBIT 6,818 6,581 6,528 6,896 7,978 6,006 7,933 9,434
Other Income (Including EO Items) 463 499 664 477 551 601 896 1,194
Interest 55 58 51 70 122 127 128 130
PBT 7,226 7,022 7,142 7,304 8,407 6,480 8,701 10,498
Tax (Incl Deferred) 2,310 2,237 2,429 2,469 1,799 1,562 2,053 2,478
RPAT 4,916 4,785 4,713 4,835 6,608 4,918 6,648 8,021
EO (Loss) / Profit (Net of Tax) - - - - - - - -
APAT 4,916 4,785 4,713 4,835 6,608 4,918 6,648 8,021
APAT Growth (%) 19.7 (2.7) (1.5) 2.6 36.7 (25.6) 35.2 20.7
Adjusted EPS (Rs) 28.8 28.0 27.6 28.3 38.7 28.8 38.9 47.0
EPS Growth (%) 19.7 (2.7) (1.5) 2.6 36.7 (25.6) 35.2 20.7
Source: Company, HSIE Research
Standalone Balance Sheet
(Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
SOURCES OF FUNDS
Share Capital - Equity 171 171 171 171 171 171 171 171
Reserves 20,988 25,760 29,203 33,182 36,385 40,324 45,747 52,299
Total Shareholders’ Funds 21,159 25,931 29,374 33,353 36,556 40,495 45,918 52,469
Long Term Debt - - - - - - - -
Short Term Debt 725 690 584 468 343 105 198 198
Total Debt 725 690 584 468 343 105 198 198
Net Deferred Taxes 538 815 878 959 441 308 343 343
Other Non-current Liabilities & Provns 709 814 919 1,154 1,646 1,810 1,991 2,190
TOTAL SOURCES OF FUNDS 23,130 28,250 31,756 35,935 38,986 42,718 48,450 55,200
APPLICATION OF FUNDS
Net Block 13,520 14,921 17,033 18,128 18,292 20,206 20,089 19,279
CWIP 1,229 2,403 2,264 3,147 8,270 5,522 5,842 5,990
Investments 200 189 198 202 139 146 153 161
Other Non-current Assets 478 747 668 1,442 1,075 1,183 1,301 1,431
Total Non-current Assets 15,426 18,260 20,163 22,919 27,777 27,057 27,385 26,861
Cash & Equivalents 1,503 2,987 1,266 721 2,268 8,232 12,851 19,179
Inventories 6,016 8,170 10,497 10,614 11,427 10,068 11,480 12,753
Debtors 5,922 5,705 7,825 7,686 6,363 5,942 6,697 7,696
Other Current Assets 641 725 1,935 3,020 2,172 2,389 2,628 2,891
Total Current Assets 14,081 17,586 21,523 22,041 22,229 26,630 33,655 42,518
Creditors 3,493 4,184 5,923 5,104 6,149 5,612 6,697 7,696
Other Current Liabilities & Provns 2,885 3,412 4,007 3,920 4,871 5,358 5,894 6,483
Total Current Liabilities 6,378 7,596 9,930 9,025 11,020 10,969 12,590 14,179
Net Current Assets 7,703 9,990 11,593 13,016 11,209 15,661 21,065 28,340
TOTAL APPLICATION OF FUNDS 23,130 28,250 31,756 35,935 38,987 42,718 48,450 55,200
Source: Company, HSIE Research
Page | 18
Amara Raja Batteries: Initiating Coverage
Standalone Cash Flow (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Reported PBT 7,226 7,022 7,142 7,304 8,407 6,480 8,701 10,498
Non-operating & EO Items (463) (499) (664) (477) (551) (601) (896) (1,194)
Interest Expenses 55 58 51 70 122 127 128 130
Depreciation 1,407 1,912 2,303 2,612 3,007 3,091 3,338 3,672
Working Capital Change (1,042) (802) (3,324) (1,968) 3,354 1,513 (785) (947)
Tax Paid (2,141) (1,960) (2,366) (2,388) (2,316) (1,695) (2,018) (2,478)
OPERATING CASH FLOW ( a ) 5,042 5,731 3,142 5,152 12,023 8,914 8,468 9,682
Capex (5,850) (4,487) (4,276) (4,591) (8,295) (2,256) (3,541) (3,010)
Free Cash Flow (FCF) (808) 1,244 (1,134) 561 3,728 6,658 4,927 6,672
Investments 451 (153) 175 (543) 920 50 55 61
Non-operating Income 463 499 664 477 551 601 896 1,194
INVESTING CASH FLOW ( b ) (4,936) (4,141) (3,436) (4,656) (6,824) (1,605) (2,590) (1,755)
Debt Issuance/(Repaid) (17) (35) (106) (116) (125) (238) 93 -
Interest Expenses (55) (58) (51) (70) (122) (127) (128) (130)
FCFE (880) 1,152 (1,290) 375 3,481 6,293 4,892 6,542
Share Capital Issuance (314) 426 (823) (93) (2,221) - - -
Dividend (439) (439) (447) (762) (1,184) (979) (1,224) (1,469)
FINANCING CASH FLOW ( c ) (825) (105) (1,426) (1,041) (3,652) (1,345) (1,260) (1,599)
NET CASH FLOW (a+b+c) (719) 1,485 (1,721) (546) 1,547 5,964 4,619 6,328
Closing Cash & Equivalents 1,502 2,987 1,266 720 2,267 8,231 12,850 19,179
Key Ratios
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
PROFITABILITY (%)
GPM 37.0 34.4 32.1 31.6 35.0 33.2 33.7 33.6
EBITDA Margin 17.8 16.0 14.6 14.0 16.1 15.1 16.1 16.3
EBIT Margin 14.8 12.4 10.8 10.2 11.7 10.0 11.4 11.8
APAT Margin 10.6 9.0 7.8 7.1 9.7 8.2 9.5 10.0
RoE 25.8 20.3 17.0 15.4 18.9 12.8 15.4 16.3
RoIC (or Core RoCE) 24.4 19.1 15.5 13.9 17.4 12.8 17.3 20.1
RoCE 23.8 18.8 15.8 14.4 17.9 12.3 14.8 15.7
EFFICIENCY
Tax Rate (%) 32.0 31.9 34.0 33.8 21.4 24.1 23.6 23.6
Fixed Asset Turnover (x) 3.4 3.6 3.6 3.7 3.7 3.0 3.5 4.2
Inventory (days) 47.6 56.1 63.2 57.0 61.0 61.0 60.0 58.0
Debtors (days) 46.8 39.2 47.1 41.3 34.0 36.0 35.0 35.0
Other Current Assets (days) 5.1 5.0 11.7 16.2 11.6 14.5 13.7 13.1
Payables (days) 27.6 28.7 35.7 27.4 32.8 34.0 35.0 35.0
Other Current Liab & Provns (days) 22.8 23.4 24.1 21.1 26.0 32.5 30.8 29.5
Cash Conversion Cycle (days) 49.0 48.1 62.2 66.1 47.7 45.0 42.9 41.7
Debt/EBITDA (x) (0.1) (0.3) (0.1) (0.0) (0.2) (0.9) (1.1) (1.4)
Net D/E (x) (0.0) (0.1) (0.0) (0.0) (0.1) (0.2) (0.3) (0.4)
Interest Coverage (x) 123.3 114.1 129.0 99.2 65.4 47.3 61.8 72.8
PER SHARE DATA (Rs)
Adj. EPS 28.8 28.0 27.6 28.3 38.7 28.8 38.9 47.0
Adj. CEPS 37.0 39.2 41.1 43.6 56.3 46.9 58.5 68.5
Dividend 4.3 4.3 4.2 7.1 11.0 8.0 10.0 12.0
Adj. Book Value 124 152 172 195 214 237 269 307
VALUATION
P/E (x) 25.9 26.6 27.0 26.4 19.3 25.9 19.2 15.9
P/BV (x) 6.0 4.9 4.3 3.8 3.5 3.1 2.8 2.4
EV/EBITDA (x) 15.4 14.7 14.4 13.4 11.4 13.1 10.2 8.3
EV/Revenues (x) 2.7 2.4 2.1 1.9 1.8 2.0 1.6 1.4
OCF/EV (%) 4.0 4.6 2.5 4.0 9.6 7.5 7.4 8.9
FCF/EV (%) (0.6) 1.0 (0.9) 0.4 3.0 5.6 4.3 6.2
FCFE/Mkt Cap (%) (0.7) 0.9 (1.0) 0.3 2.7 4.9 3.8 5.1
Dividend Yield (%) 0.6 0.6 0.6 0.9 1.5 1.1 1.3 1.6
Source: Company, HSIE Research
Page | 19
Amara Raja Batteries: Initiating Coverage
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: >10% Downside return potential
Date CMP Reco Target
03-Sep-20 745 ADD 780
RECOMMENDATION HISTORY
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Amara Raja TP
Page | 20
Amara Raja Batteries: Initiating Coverage
HDFC securities
Institutional Equities
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