Time To Buy This Beaten Down Stock For Long Term With Low P/E & Industry Leadership Status

The stock of Amara Raja Batteries has plunged from levels of Rs 1067 to the current stock price of Rs 643. Nothing much has changed fundamentally at the company and the stock has the potential to rally. Here are some of the reasons to buy the stock of Amara Batteries for the long term.

Robust plans of expansion

The company plans to set up a lead recycling plant in the future. This investment will partially secure inputs that are critical for the company as well as optimise costs and strengthen its commitment to evolving environmental regulations. On the automotive side, Amara Raja Batteries will launch AGM Batteries for both ICE and Micro Hybrid variants.

Apart from this, the company also plans to introduce smart batteries for auxiliary applications in electric vehicles with additional features such as predicting battery maintenance and its replacement. On the industrial side the company will deploy advanced multi-stamped grid technology, a continuous plate making process which will provide higher wattage even as it reduces the battery weight. As a result, the company believes that its own products will gain an edge in the domestic and internationally markets. Further, Amara Raja 's digital solutions will remotely monitor battery bank installations and implementing hybrid battery energy systems will help us widen our product and solution portfolio for industrial customer

Plans afoot for electric vehicles

While lithium-ion cell manufacturing will be a central part of the plan at Amara Raja Batteries, the company has also planned to provide integrated solutions to its customers, the largest segments being the electric vehicle sector and renewable energy markets.

The company has started a pilot scale facility for manufacturing of Li battery packs, to support three wheeler and two wheeler customer requirements; this unit can be ramped up to about 200 Mwh. Amara Raja batteries is also doing extensive testing of its products for two wheelers and three wheelers in the fleet.

The company has made 18650 cells and 21700 cells, tested them on the test bench as well as put some other batteries of cells into field applications, getting our hands soiled to see what works best in the Indian condition.

Solid brand equity

Amara Raja Batteries is one of the largest manufacturers of lead acid batteries in the country. It has almost all of the two wheeler and auto company manufacturers as customer. The Amaron brand has a solid brand equity in both the OEM and the replacement market. It is also among the top players in the industrial and UPS segment.

Low debt, low equity company with great fundamentals

Amara Raja Batteries has a very low equity base of Rs 17.08 crores. The debt at the company too is very low. In fact, the company has been a consistent profit making dividend paying company over the years.

For the quarter ending Sept 30, 2021 the company reported an EPS of Rs 8.44, with partial lockdowns still playing out. It is likely that the company can report an EPS of at least Rs 40 for FY 2022-23 as economic activity gathers momentum. If we accord a p/e of 20, which is extremely reasonable for a solid brand equity and leadership status of the company, the stock should trade at least at Rs 800. A good stock to buy for the long-term.

The shares of Amara Raja Batteries last closed at Rs 643.

Disclaimer

Disclaimer Investing in the stock market is risky. Investors must therefore exercise due caution. Greynium Information Technologies and the author are not liable for any losses caused as a result of decisions based on the article.