Amararaja Batteries Limited: Powering Ahead


(Sukhvinder) #21

:))

_ Disclosure: biased.

Street talks are so important while investing along with other parameters & definitely provides a overall picture of company’s business performance at very basic customer level on its product perception.

Thanks Abhishek on sharing the above piece of comment.

_


(Raj Panda) #22

Hi Dhwanil,

Any info on what %tage of revenue was contributed by industrial batteries segment ?

To quote from AR “In the industrial battery business, ouralliance with Bharti Airtel generatedlarge exports to Africa, Sri Lanka andBangladesh. Besides, our transformationfrom a product vendor to a solutionprovider generated good business in thetelecom space”

Do you think this part of the business is sustainable ?

Regards


(Dhwanil Desai) #23

ouralliance generatedlarge andBangladesh. Besides, our transformationfrom solutionprovider thetelecom

Hi Raj,

To the best of my understanding, 40-42% of revenue is contributed by industrial segment. Typically, industrial segments have better margins than at least auto OEM segments while the auto replacement segment has the highest margins.

Coming to your point of moving from product vendor to solution provider, what I do know is that typically batteries in the industrial segments are more complex as they have to deal with intermittent loads (some time large) for a limited time (power outage) or large fluctuating loads too. So it requires careful understanding of the system requirement to be able to provide right products/design right productscatering to the needs of the customer. Hence logically, I do see a need for a solution provider than that of a just product vendor in this segment. Is ARBL moving this way? I don’t know.I will try to find out if possible. However, if company is moving in this direction, I am sure there will be certainly margin improvement in the segment as they move up the value chain.

Best Regards

Dhwanil Desai


(saurabh shankar) #24

Hi Dhwanil,

Few days ago I met a client who is the leadeing distributor of batteries in UPS space. I checked on Amara Raja with him and his feedback was as follows:

1). Good Product quality and established network

2). Have small presence in UPS space but wants to expand here

3). But, he was doubtful on promoter integrity. Since, ARBL is not a direct competitor maybe my clients views are less biased. Any pointers other checks on management of ARBL

Regards,

Saurabh


(Raj Panda) #25

Hi Dhwanil,

Sorry for not being clear in my question. My bad. Actually my question was about the sustainability of the revenues which is coming from expansion by Airtel in Africa - “ouralliance with Bharti Airtel generatedlarge exports to Africa, Sri Lanka andBangladesh”

Do you think the contribution to revenue which came from such expansion (looks one time) is sustainable going forward ? Will we have to track the role out of Airtel’s infrastructure in Africa for getting clues on how ARBL will do going forward ?

Regards


(hemant gupta) #26

Does anyone have the recent research report published by nomura on ARBL?


(Dhwanil Desai) #27

1).

2).

3).

Hi Saurabh,

ARBL commands 32% market share in UPS batteries market and has big presence so may be information given to you may be relevant for a specific area.

In terms of integrity of management, I believe, judgement most of times is subjective and one can only get “feel” of it unless there are obvious actions which can help one decide on one side or the other. After reading annual reports for ARBL,I get a feel that it is a decent management and are not crooks atleast. As I have mentioned earlier also, JCI has been associated with ARBL for more than 10 years and has 26% stake in the company. From whatever little I know, typically large MNC try to avoid dealing with promoters whose integrity is under question. So, again my sense is that management is reasonably ethical and conservative (at least conservative in their accounting- please read AR for FY 2008-09).

Best Regards

Dhwanil Desai


(Dhwanil Desai) #28

“ouralliance generatedlarge andBangladesh”

Hi Raja,

Sorry. I interpreted the question slightly differently. To give some perspective, telecom batteries typically contribute 15-18% of the total revenue of the company and even less to the bottom line due to relatively lower margins compared to other industrial battery segments. Even though, I do not know exact numbers on Airtel’s africa plans, I do know that sizable portion of ARBL’s telecom business comes from Indian telecom market which, at the moment , is stagnant. Hence most of the demand in Indian telecom market is going to come from replacement (typical cycle - 4 years). Moreover company is steadily gaining market share from competitors (30% in 2008 to 45% in 2012) which when combined with replacement demand will ensure that telecom market revenue grows marginally or is maintained at same level at least. So, I see expansion in African market as an adder/icing on the cake.

Another thing which I think may happen is, that as time grows, the largest share of ARBL (or for that matter even exide) will come from replacement market demand due to exponential nature of the growth in this market and relative share of other sectors in sales contribution will shrink. Moreover, replacement market is the highest margin market for ARBL so I sm sure they will be keen to register strong growth there.

In nutshell, I do not think, the development indicated in ARBL report is substantial enough to make it primary growth driver for the company. So we can just sit back, relax and leave it to Airtel to worry about their African business!

Best Regards

Dhwanil Desai


(Rudra Chowdhury) #29

Hi Raj,

It will be better to not to look at specific one-off cases but to look at Telecom market demand overall to get a better picture. ARBL is a premium player in the telecom market with 46% market share.

The telecom batteries segment is set to grow at 8-9% driven by replacement demand.

A large majority of existing 3.5Lakh towers were set up before 2008, with average replacement life of 4 years, will be coming for battery replacements.

Also another trend is the replacement of diesel gensets by battery backup going forward. Two indicative opportunities (with ARBL’s 46% market share) in this regard are:

a) Migration of 20,000 towers by Indus Towers

(Bharti Airtel)

b) Greenfield expansion of 1,00,000 towers of 4G by RIL ( Infotel).

Also pricing power which was majorly absent earlier has now emerged where telecom majors are looking at strategic deals with major battery vendors with pass-through clause for lead and rupee hikes.

“ouralliance generatedlarge andBangladesh”


(Raj Panda) #30

Thanks Dhwanil & Rudra for giving me better perspective.


(Vivek Gautam) #31

Hopefully the Telugu lineage of the promoters Gallas should not act as dampner due to atrocious track record of Andhra/ Telugu promoters. Now why this itch to contest election n that too on Congress ticket ? Congress is on a very weak wicket in AP as per latest survey.

Does the promoter love the money more than his business ?

Otherwise all in all a decently run business with a great track record.Nomura has given a target of 547 which led it to a spike of 412 on Friday


(Sukhvinder) #32

Vivek,

I just want to condemn one point you raised in your comment.

I think regional biasing / inferiority towards one region/ppl should not come while analysing & assessing any business as such. Bad promoters are there everywhere in society.

Eventhough I am not from that region, but I openly condemn such biasing comments towards anyone.

Thanks for understanding.


(Subash Nayak) #33

**

Hi Sukhvinder,

Stock market investing is a pattern recognition game (be it value investing, growth investing, technical analysis, day trading), each looking at a different pattern. Vivekji brings a social aspect of it, which I feel is a value addition to the forum. I have interacted with him, and found his statistical analysis of behavior of promoters belonging to various strata, regional background, a big positive. One shouldn’t take these with a negative spirit.

Past experience interacting with the members of this forum, tells me that people with decent experience in stock market, do worry a lot before investing in AP-based company, because way too many companies have gone bust (Satyam, Decan Chronicle, are name of a few). This is a known fact, and vivekji is not saying anything new.

There is a saying in my mother tongue oriya, “the mother whose child was beaten by snake, do fear a rope lying in the floor”. This i think is a pattern-induced bias, an irrational but useful mental model.

Regards,

-Subash

Vivek,

I

** comment.I **

** society.Eventhough **

anyone.

Thanks for understanding.

Hopefully the Telugu lineage of the promoters Gallas should not act as dampner due to atrocious track record of Andhra/ Telugu promoters. Now why this itch to contest election n that too on Congress ticket ? Congress is on a very weak wicket in AP as per latest survey.

Does the promoter love the money more than his business ?

Otherwise all in all a decently run business with a great track record.Nomura has given a target of 547 which led it to a spike of 412 on Friday

**


(Abhishek Basumallick) #34

I am a bit surprised at looking at the executive compensation for the Gallas. Between the father and son duo, they took home 28 crores as annual compensation (including commissions). I personally find this very high specially as the Galla family own 26% of the equity of the company.

As to Jayadev Galla’s interest in politics, Aruna Kumari Galla, his mother is the minister for Geology and Mines in the AP government. His mother is the daughter of former Indian Parliamentarian and social activist Paturi Rajagopala Naidu. (source: wikipedia). So, his interest in politics may be genetic :slight_smile:


(Sukhvinder) #35

**

Hi Subhash

May I have privilege to take this discussion further ( just one last comment :)) because I dont buy into idea of analysis of promoters behaviour(esp corrupt practices) based on regional background & since I actively participate in anti corruption campaign at my location, so may be I really addicted to this type of discussion.

I think,Its simply our psychological biasing induced which gives a wrong perception as such. Below few major scams I listed , we can see that they are cut across India?Indians basically not on any particular region (Andhra region or any) in majority.

Index ofcorruptionby Indian State also reveals different perception - May be I should condemn my state own state first ( Bihar, which itself is hard truth ) to be more corrupt than any other state people as per index :slight_smile:

May be there are not many listed companies from my state or yours as compared to Andhra or any other, because of which we are blind folded with this regional biasing.

Top 10 Business scams in India

  1. 2G Spectrum Scam

  2. Commonwealth Games Scam

  3. Telgi Scam

  4. Satyam Scam

  5. Bofors Scam

  6. The Fodder Scam

  7. The Hawala Scandal

  8. IPL Scam

9,10) Harshad Mehta & Ketan Parekh Stock Market Scam

Top 10 Corporate know scammers in India (published so far)

1). Ramalinga Raju - Satyam

2). Harshad Mehta - Big Bull

3). Ketan Parekh - NH Securities.

4). C R Bhansali - CRB Capital Markets

5). Sohin Daya - Cobbler scam

6). Dinesh Dalmia - DSQ Holdings

7). Abdul Karim Telgi - Dupl Stamp Papers

8). Virendra Rastogi - RBG Resources

9). P S Subramanyam - UTI scam

10). Uday Goyal - Arrow Global Agrotech

11). Sanjay Agarwal - Home Trade Scam

12.Mr. Shivraj Puri - Citibank Fraud

Thanks

Sukhvinder

Hi Sukhvinder,

Stock market investing is a pattern recognition game (be it value investing, growth investing, technical analysis, day trading), each looking at a different pattern. Vivekji brings a social aspect of it, which I feel is a value addition to the forum. I have interacted with him, and found his statistical analysis of behavior of promoters belonging to various strata, regional background, a big positive. One shouldn’t take these with a negative spirit.

Past experience interacting with the members of this forum, tells me that people with decent experience in stock market, do worry a lot before investing in AP-based company, because way too many companies have gone bust (Satyam, Decan Chronicle, are name of a few). This is a known fact, and vivekji is not saying anything new.

There is a saying in my mother tongue oriya, “the mother whose child was beaten by snake, do fear a rope lying in the floor”. This i think is a pattern-induced bias, an irrational but useful mental model.

Regards,

-Subash

Vivek,

I

** comment.I **

** society.Eventhough **

anyone.

Thanks for understanding.

**


(Vivek Gautam) #36

Sukhvinder,

India stock market is a virtual minefield with real large no of highly unethical promoters interested only in siphoning off the funds at the expense of small investors n banks thanks to crony capitalism. To top it unlike US here decision making take ages in courts.See Satyam case is still going on n on while Madhoff n Rajratnam have already been sent packing to jail.

DCHL is only the latest example.Somehow Andhra based cos take numero uno place in all these cos.but yes examples are galore in other regions as well. Remember Koutons, Vaswani industries,CRB etc

Ethnicity is one of the important evaluation criteria which does play an important role n provides a big comforting factor to hapless small investor of India.


(Kiran) #37

The only angle I think this discussion missed is the consumer play of inverters. Almost every home (atleast in Bangalore and Hyderabad) is purchasing an inverter (with a 4-6 hr power backup) for uninterrupted power supply. This entire market is captured by ARBL coz every shop you visit, they recommend Amaron to power the inverter. And the price of inverter has gone up from Rs.14k when I purchased last year to Rs.17.5k now. Given the inverters are also supplied by ARBL, the sorry state of SEBs combined with aspirational movement towards uninterrupted power supply at home even in towns can continue to contribute revenue and probably change the perception from being a cyclical play to a consumer play.

Promoters intention to politics - why is this a bad thing? Having political power is advantageous to a company, no?

This Hyderabad-based companies theme is true to some extent (and I am from Hyd, so beware :slight_smile: ). But except for Satyam (which I think we should agree was a black swan nobody predicted), you could see it coming from most other companies because of rapid increase in debt and almost nil dividends (debt is always a killer!).

Also, Hyderabad-based companies also include Avanti Feeds and Kaveri seeds. So, people who are gung-ho on these two stocks should be careful.

Abhishek,

Agree. Close to 10% of sales as compensation is pretty high, even if you include commissions.

This fact is a little killing, along with a measly dividend to go with it. Hence portfolio allocation should be a little on the conservative side.


(Rudra Chowdhury) #38

To put things into perspective, let us look at ARBL's compensation policy vis-a-vis others.

Amara Raja

Sales Turnover

1,349.99

1,579.41

1,690.36

1,944.31

2,605.75

Employee Cost

40.81

51.61

62.37

88.46

100.26

Percentage

3.0%

3.3%

3.7%

4.5%

3.8%

Exide

Sales Turnover

3,757.55

4,344.01

4,729.66

5,261.06

5,882.31

Employee Cost

165.33

191.98

262.18

320.97

330.38

Percentage

4.4%

4.4%

5.5%

6.1%

5.6%

SKF India

Sales Turnover

1,727.01

1,771.27

1,664.73

2,193.04

2,566.75

Employee Cost

119.29

125.88

144.26

144.69

163.93

Percentage

6.9%

7.1%

8.7%

6.6%

6.4%

WABCO India

Sales Turnover

628.26

483.04

641.23

977.69

1,143.36

Employee Cost

45.14

49.37

53.61

71.19

94.29

Percentage

7.2%

10.2%

8.4%

7.3%

8.2%

Now let us look at the compensation of Galla's in details.

( Rs in Crores)






Name /designation

Salary

Contribution to provident fund

Value of perquisites

Commission*

Total

Mr. Jayadev Galla, Managing Director

2.4

0.001

0.2

14.762

17.363

Dr. Ramachandra N Galla, Non-Executive Chairman

10.418

10.418






27.781

Total Profits before Tax in FY2012: 318.64 Cr

Commission to Mr. Jayadev Galla, Managing Director : 4.63%

Commission to Dr. Ramachandra N Galla, Non-Executive Chairman : 3.27%

Company Policy for Non-executive directors
The remuneration by way of commission not exceeding 4% per annum of the net profits of the Company for each year calculated as per the provisions of the Companies Act, 1956
to non-executive directors was approved by the board of directors;

The approval includes 3% commission on net profits payable to Dr. Ramachandra N Galla, Non-Executive Chairman and payment to all other independent non-executive directors
put together at a rate not exceeding 1% of the net profits of the Company and in such sum and proportion as the board may decide from time to time.

In terms of the above approval, an amount of Rs 104.18 million will be paid to Dr. Ramachandra N Galla, Non-Executive Chairman as commission for the financial year
2011-12 upon approval of the accounts.

So clearly it seems there is a violation and both the father-son duo are being paid exorbitant commissions.


(Abhishek Basumallick) #39

There are 2 instances in the last 5 years where there has been a yoy profit contraction. I tried to get the reason for this from the AR of the respective years, but did not find it. Can someone help? What happened in 2010-11 & 2008-09 for sales to grow but profit to go down?

I am not very happy with the quality of the annual report. If the company has had reduced profits compared to the previous year and the management does not talk about it at all in the MDA and Director’s report, then it does not augur well for the quality of management.

But I will re-read the AR’s once more to see if I find anything. In the meantime if someone else is aware, please let me know.


(Dhwanil Desai) #40

Hi Abhishek,

On both the ocassion, ARBL has enumerated specific reasons in the AR. For 2008-09, please refer to page 4 (MD’s address) where he specifically mentioned

_“Our profit before tax was Rs. 1,226.59 million as compared with Rs. 1,459.38 million for the same period last year. The drop in profits was owing to Rs. 322 million provisioning towards cash and notional forex loss. We adopted a conservative approach of charging the entire forex loss in the same year and did not resort to lenient provisioning allowed under amended AS11. The net profit after tax was Rs. 804.78 million (Rs. 943.63 million).” _

On the contrary, I liked the fact that ARBL took a conservative approach to accounting and did not conviniently availed benefits of AS-11.

For 2010-11, please refer to page 37,

"Fall in operating profit, despite commendable volume growth, was primarily on account
of significant drop in price realisation in telecom sector. The Profit Before Tax (PBT) and Profit After Tax (PAT) for 2010-11 was at 2,210 million (12.55% of net sales) and1,481 million (8.41% of net sales) as against 2,546 million (17.38% of net sales) and1,670 million(11.40% of net sales) for 2009-10 respectively."

_Also, please refer to first para on page-11. _

Actually, I found ARBL report to be quite extensive in terms of performance analysis, initiatives taken by the company on various front and how it resulted in to better performance and very specific on outlook for the next year in terms of what all areas company is targeting. At the same time company has no qalms in mentioning what went wrong when it did not perfrom well.

Best Regards

Dhwanil Desai