Amara Raja Batteries Ltd
(BSE Code: 500008) (CMP: Rs.719.35) (FV: Re.1) By Pratit Nayan Patel
We had recommended this stock earlier at Rs.772.1 on 9 July 2018, where-after it zoomed to Rs.907.75. The stock has corrected sharply in line with the recent market crash and therefore, we believe that this is a good opportunity for investors to enter or average.
Company Background: Incorporated in 1985, Hyderabad-based Amara Raja Batteries Ltd (ARBL) manufactures leadacid batteries for both industrial and automotive applications in the storage battery industry. It is a preferred supplier to major telecom service providers, telecom equipment manufacturers, the UPS (Uninterruptible Power Supply) sector (OEM and replacement), Indian Railways, Power sector, Oil & Gas, etc. It sells industrial battery under the brands ‘PowerStack’, ‘AmaronVoltTM’ and ‘Quanta’ and automotive batteries under the brands ‘Amaron’ and ‘PowerzoneTM’. It supplies automotive batteries to Ashok Leyland, Ford India, Honda, Hyundai, Mahindra & Mahindra, Maruti Suzuki and Tata Motors. It exports its products as well. Its plants are located at Tirupati and Chittoor in Andhra Pradesh. In December 2017, it commissioned a two-wheeler battery plant in Chittoor. Phase-I, which has been commissioned, has a 5 million unit capacity. The management plans to incur capex of ~Rs.700 crore to enhance the plant’s capacity to 17 million units, taking the total capacity for two-wheeler batteries to 29 million units.
Financials: ARBL is almost debt-free. With an equity capital of Rs.17.08 crore and reserves of Rs.2920.31 crore, its share book value works out to Rs.171.97. The promoters hold 52.06% of the equity capital (26% equity each from the Galla family and Johnson Controls), Mutual Funds hold 8.16%, FPIs hold 20.33% and DIIs hold 2.1%, which leaves 17.35% stake with the investing public.