The AR of Amara Raja batteries is out. It is quite an impressive document which gives a lot of details on the business, future direction and quite exhaustive in their disclosures in terms of numbers.
The overall health of the business looks good. However, there are a few red flags.
1). We always knew that the salary and the commissions paid to the promotors is quite high, but it is only going up. It has gone up from Rs 27.8 crores to Rs 37.6 crores between Fy12 to FY 13. As a percentage of the total wage bill of the company of Rs 126.6 crs, it is 30%. Two people accounting for 30% of the total wage bill is amazing.
2). The related party transactions also are quite bemusing.
a) The donation paid to the trusts controlled by the promotors is Rs 11.2 crores. This might be going for the CSR activities, but this needs to be explained. At face value, it looks like the promotors diverting funds into personal trusts.
b) The inter- party transaction are a whopping Rs 334 crores. These are all companies held by the Galla family in their personal capacity. Once again it is possible that these group companies are the most suited for the goods and services that they supply, but are they they best? Not sure.
c) There is another Rs 78.3 of capital goods bought from the group companies. Out of this, Rs 66.6 crores was from Amara Raja Infra. I am presuming that this was for the ongoing capital expansion. Again, not very sure what to make of these transactions.
All of the above could be genuine business relationships but we need to be aware of the same. The promotors control around 15% of the shareholding, but seem to exert dis-propotionate influence.
This leaves an investor with some unanswered questions and i for one am hesitating to increase allocation in ARB despite it being a very good business.