This Midcap Stock Is A Good Buy For 50% Gains On Strong Growth, Solid Brand

Amara Raja Batteries is the country's top battery manufacturer, with very good brand equity in Amaron. Broking firm Anand Rathi sees a good potential in the stock and has recommended a buy on this midcap stock with a price appreciation of at least 50% from current levels.

Buy the stock of Amara Raja Batteries for a price target of Rs 903

Current market price	Target price	Gains %
605	903	50%

According to Anand Rathi, the third quarter of FY22 revenue at the company grew 21% to Rs 23.6 billion. Volumes grew 5% year on year, except of inverters (off-season). In automotives, the four-wheeler after market grew 10% year-on-year, while OEMs fell 20% year on year; the two-wheeler after market grew 28% year on year (on a low base), while OEMs fell 28% y/y, the decline stemming from semi-conductor shortages faced by auto OEMs, expected to ease in subsequent quarters.

Stock very close to 52-week lows

The stock of Amara Batteries has fallen from levels of Rs 1009 to the current levels of Rs 604. At these levels the stock also becomes attractive on account of the sharp fall, thanks to the problem of chip shortages, curfews and lockdowns, which all impacted the stock price.

Broking firm, Anand Rathi expects both volumes and margins to pick-up going forward. "In Q3 FY22, the gross margins contracted a small 19 basis points, quarter on quarter, as lead prices had started to normalise. The company did not raise prices. We expect margins to expand as we anticipate strong volume growth in OEMs and inverter batteries. Hence, we expect margins of 13.3% in FY23 and FY24," the brokerage has said.

A few reasons to buy the stock

Currently, according to the management the revenue mix comprises of auto at 70% and industrials at 30%. For Amara Raja, replacement demand was strong; OEMs were hit by supply constraints faced by auto OEMs. Inverter sales were affected by business seasonality. "We continue to expect strong volume growth on the rebound in industrial activity and supply constraints for auto OEMs easing in the near term. Accordingly, we maintain a Buy at a higher target price of of Rs 903 (20x FY24e)," Anand Rathi has said.

The shares of Amara Raja Batteries were last seen trading at Rs 607 on the NSE.

Key financial projections as per Anand Rathi

	FY 2022 (e)	Fy 2023 (E)
Sales	Rs 88,299	99409
EPS	Rs 33.3	Rs 40.6
Dividend yield	0.84	0.84
ROE	12.9	14.2
P/e	18.6	15.3