Established brokerage firm Sharekhan suggested investors to buy the stocks of Amara Raja Batteries Ltd. The company is debt-free and generates free cash flow (FCF) of Rs. 300 crore-400 crore every year, sufficient to meet its strategic goals.
Amara Raja Batteries Ltd.: Target Price, CMP and performance
The Current Market Price (CMP) of Amara Raja Batteries Ltd. is Rs. 529. Sharekhan has estimated a Target Price for the stock at Rs. 629. Stock is anticipated to give an 18.90% return, in 1 year. The company is a mid-cap company with a market capitalization of Rs. 8,286 crore.
|Current Market Price (CMP)||Rs. 529|
|Target Price||Rs. 629|
|1 year return||18.90%|
|52 week high share price||Rs. 791.00|
|52 week low share price||Rs. 483.50|
Amara Raja Batteries' net revenue has increased by 3.7% y-o-y, while declining 7.8% q-o-q at Rs. 2,181 crores in Q4FY22. In Q4, Amara's revenue was impacted by sluggishness in OEM sales due to supply constraints, while the EBITDA margin for the quarter contracted by 190 bps q-o-q to 10.1% versus the expectation of 12.2%, largely hit by increased raw material costs. As a result, EBITDA and PAT declined by 30.5% y-o-y and 48% y-o-y, respectively in Q4FY22. Amara Raja Batteries' (Amara's) Q4FY22 results were below expectations.
Advantages and risks: Sharekhan says
The management of Amara is adopting multiple strategic initiatives to take advantage of the rapidly emerging new opportunities to accelerate growth in the medium term. Amara laid down the company's vision to remain a dominant battery player in the Indian Ocean Rim and one of the leading global players in batteries through enduring partnerships. The company is open to growing through partnerships, joint ventures, and acquisitions. The company has guided for a 15-17% revenue CAGR in the next 5 years versus an 8% revenue CAGR during FY2016-21.
Additionally, Sharekhan stated, "We maintain our Buy rating on Amara Raja Batteries Limited (Amara) with a revised target price of Rs. 629, owing to a stock price correction, a brighter demand outlook for batteries, and comfortable valuations. We remain positive on the company's growth prospects, led by a recovery in auto and industrial sales with improved aftermarket sales."
Mentioning the key risk, the form said, "Prolonged supply constraints of OEMs can affect our future projections. Moreover, if the Hon'ble Court gives verdict against the company, there could be uncertainties regarding production of products in its plants in Chitoor district (Andhra Pradesh)."
About the company
With products and services spanning a wide range of industries, Amara Raja has a global presence already in 44 countries and growing. Amara Raja Batteries Limited (ARBL) is the technology leader and one of the largest manufacturers of lead-acid batteries for both industrial and automotive applications in the Indian storage battery industry. The company distributes through pan-India sales and service retail network. ARBL supplies automotive batteries under OE relationships to Ford India, Honda, Hyundai, Mahindra & Mahindra, Maruti Suzuki, Ashok Leyland, and Tata Motors, Honda Motorcycles & Scooters India Private Ltd, Royal Enfield, Bajaj Auto Ltd among others. In India, ARBL is the preferred supplier to major telecom service providers, telecom equipment manufacturers, the UPS sector (OEM & Replacement), Indian Railways, and the Power, Oil & Gas, and Motive among other industry segments. The Company's products are exported to most of the countries in the Indian Ocean Rim. The company is present in more than 35 countries and exports contribute ~12% to total revenue.
The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the articl