Excerpts from Buy Report of IIFL
Amara Raja Batteries Ltd (ARBL) is one of the best plays on the ensuing surge
in replacement demand for automotive batteries in the domestic market.
During FY09â12, passenger car sales in the domestic market registered a
CAGR of 18.2% and 2âwheeler sales witnessed a CAGR of 21.8%. With
replacement cycle for batteries in a passenger car of 30â36 months and that
of a switchâstart 2âwheeler of 24â30 months, substantial jump in replacement
demand can be seen in the near future.
As compared to past, 2âwheeler battery replacement market is likely to
increase in size. This can be mainly attributed to the rising proportion of
switchâstart 2âwheelers in the domestic sales. In a kickâstart 2âwheeler,
replacement of batteries was not essential as it was not used to start the
vehicle. However, batteries are a key for ignition of switchâstart 2âwheelers.
ARBL has gained a strong foothold in the replacement market for the
automotive with a steady increase in market share in the segment. Even with
the OEMs, the company has been able to get into its fold most incumbent
players and is in discussions to enter into tieâups with new entrants.
The industrial segment is mainly driven by demand for UPS led by
investments in IT industry and towers in the telecom segments. Battery
demand in the UPS segment, which has witnessed a 15% growth, is
expected to continue given that investments in computerization by India Inc
has been on a rise. While pace of new addition of new telecom towers has
slowed down, replacement of batteries in the existing towers is due which
will keep demand growth from the segment robust.
ARBL, to capture these growth opportunities is expanding capacities in all
segments by nearly 50% by H2 FY15. The company has been performing
better than Exide in the past few quarters on all counts. This has triggered a
reârating in the stock. We expect the performance to continue on both
revenue and profitability fronts with estimates of a revenue and PAT CAGR
of 22% and 26% respectively between FY12â15E. We initiate coverage with a
BUY recommendation and a 9âmonth price target of Rs340..