Monday, 8 April 2013

Incredible Stocks - Amara Raja Batteries

Continuing with our posts on some great stocks in which we can invest, we will look at Amara Raja Batteries Ltd. in this post. The company is a well known company and caters to the industrial battery segment and now commands a good position in the industry. It is the largest supplier of industrial batteries in India and the second largest supplier of automotive batteries. Its most popular brand is Amaron.

The product range of Amara Raja Batteries includes batteries for telecom sector catering to the back-end, UPS, Indian Railways and power utility sector. Also, Amara Raja Batteries has an extensive distribution network of 274 franchisees, 18000 retailers, 2400 service centres, which includes 900 retail outlets in semi-urban and rural areas. 

The company’s business model is inherently low-risk as it has placed itself as a preferred vendor for automotive sector with presence in aftermarket segment as organised market player. The company has shown continued enhancement in operational efficiency, manufacturing efficiency and R&D. 

The company has partnered with Bharti Airtel for expansion of network in Africa, Sri Lanka and Bangladesh as preferred vendor. 

Lets take a look at the financials of the company

2013 2012 2011 2010 2009 CAGR%
Sales (in Cr) 2981.07 2371 1764 1467 1324 22.50
Profit (in Cr) 286.7 215 148 167 80 37.59
OPM% 15.8 15 14.63 19.73 15.56
ROCE% 33.92 34.28 29.33 40 24.75
ROE% 27 26 23 30 19
Debt/Equity 0.12 0.10 0.15 0.17 0.7
Interest Coverage
409 238 153 37 9.75

CMP on the date of posting was Rs.261/-

From the last 4yrs the gross margin is intact at 32% average. It is a good sign of pricing power stability. The company’s annual report for FY2011-12 which can be found here shows that market share in telecom industry is 46%, 32% in UPS segment and 26% in four-wheeler segment. The company’s strength is further proved by the fact that in spite of the slowdown in the automotive sector due to the high interest rate regime coupled with the high inflation leading to suppressed demand, the company has managed a high sales figure YOY.

The 9 months period ended Dec-31st 2012 has shown that the profit have already surpassed the full year profits of the previous year.

sales have grown at 27% YOY and profit has grown 45% YOY.
the EBITDA growth is 37% YOY.

The company has already declared that it will invest Rs.4.40bn. in capacity expansion over the next 16 to 18 months. The low D/E ratio and the high interest coverage ratio of the company, gives it enough free-hand to undertake such expansion exercise.

In our opinion Amara Raja Batteries will be a good stock investment if picked at the right price.