Amararaja Batteries Limited: Powering Ahead


(Vivek Gautam) #141

Cud you please give more details about this related party transaction at Kaveri n how it is impacting the share price?


#142

@ Arun,

It is not the size of deal wrt the M Cap of Amara Raja at question. There is a clear corporate governance issue here. Jayadev Galla is already a MP and his role remains to be seen in Amara Raja. While there is no question of quality of business and duopoly businesses have created wealth for their owners (Coke & Pepsi, Visa & MasterCard, Exide & Amara, Boeing & Airbus, etc.), increasingly I don’t feel comfortable with Amara Raja even though I feel it is a good business to own.


(HG) #143

Vivek -

details of the resolutions -

http://www.moneycontrol.com/livefeed_pdf/Sep2014/Kaveri_Seed_Company_Ltd_220914.pdf

To understand the second part of your question - are you asking if I suggested that this is the sole reason why the price has dropped? If so, no - I didn’t.

Its frustrating to see such actions of promoters. Looks like a similar thing has happened at Kaveri Seeds where a related party land transaction resolution got 23% negative votes. That stock is getting hammered…


(Arun S G) #144

@ Ashwin.

Actually, my point was not about the size of the deal per se. Its about the fact that why would anyone with so much at stake do something stupid and tarnish the image over peanuts. While image can be considered “soft” asset, over the long term, this is one of the most valuable assets and I am sure the Gallas are not naive enough to not know that.

Playing the devil’s advocate here, are we investors jumping to conclusions is what I wanted to explore. IOW, was the deal really bad, or was there some merit in it in that the land was genuinely needed, but perhaps the rate was higher than market price?

Speaking of Coke, when their management raised salaries to unjustifiable levels, even WB did not vote against it, but merely abstained. His reason? He “likes” the management.

On a pragmatic note, should we as investors be a little more tolerant of some foibles? I hope this does not sound blasphemous!

Thanks!

Arun


#145

What was the management justification to buy the land? It may come handy in the future. When you’d already had leased the land in previous two tranches, is it really required in the foreseeable future? Coming to the argument that it is a minuscule deal to tarnish image. Why not make the deal “favourable” to Amara Raja shareholders (and anyway you own 52%)? If it is peanuts, why ask 33% more in a month? Why should anyone pay upfront? The lease agreement resolution got over 20% negative votes.

I’m not sure if now and then it is OK to “adjust” with the follies of the management but there is an opportunity cost involved as an independent investor.


(Arun S G) #146

"When you’d already had leased the land in previous two tranches, is it really required in the foreseeable future? Coming to the argument that it is a minuscule deal to tarnish image. Why not make the deal “favourable” to Amara Raja shareholders (and anyway you own 52%)? "

_**I **_have not leased any land ever.

I do not own 52%.


(Arun S G) #147

"When you’d already had leased the land in previous two tranches, is it really required in the foreseeable future? Coming to the argument that it is a minuscule deal to tarnish image. Why not make the deal “favourable” to Amara Raja shareholders (and anyway you own 52%)? "

_**I **_have not leased any land ever.

I do not own 52%.


#148

Haha! “You” meant the Galla family. :smiley:


(vinay ambekar) #149

Have not read any finer details, but if the deal is for 99 years at flat rate, which is just 33% above the recent rate, then its a good deal for the one who will be paying the lease. It assumes that the lease will increase @ just 0.3% per annum for the next 99 years so that at the end of the 99th year, the lease will be 33% more than today’s rate. Even if you assume a nominal 1% increase per year, the lease at the end of 99 years would be 167% more than today’s.

The argument would ofcourse change if there is a rent escalation clause built in.


(Krishna Agrawal) #150

Hi Everyone,

Looks like thread is dead !

In the meanwhile company is performing well and share price too !

Disc: Holding shares from around 200.


(Arun S G) #151

Hi ,

I had written to the company secretary and Jayadev Galla. The CS did respond to me with clarifications on the deal. Unfortunately, the longish response is in a pdf file with copy protection, so I cannot copy content to be able to post it here. Any ideas on how to make the content available to those interested ?

I want to mention two points though -

1). The brand Amara Raja is owned by the Galla family (not ARBL)

2). The multinational agency which provided the valuation isJones Lang LaSalle Property Consultants India Private Limited

Regards

Arun


(Varadharajan Ragunathan) #152

Arun

can you please post the gist of it - would like to understand.


(JKS) #153

Q1 results are out


Topline & NP 1115 vs 1029 cr, 122 vs 106 cr, EPS 7.5 vs 6.2
Another seemingly well executed qtr…EPS being 16% up is the icing…
PS -Views are positively biased because of investment. Pl do your research


(JKS) #154

There is allround positeness to report both on 4 wheeler and 2 wheeler battery sales growth. With expanded capacity for 4 wheeler batteries kicking in this quarter, this is amazing news. Add the icing on the cake of industrial strength doing well, it was firing in all cylinders from this powerhouse.
You can read more from here but here are some excerpts -
Commenting on the Q1 performance, Mr. Jayadev Galla, Vice Chairman & Managing Director, Amara Raja Batteries Limited said, “We are delighted to report the highest revenue and profit for a quarter. We have completed the auto batteries expansion at the appropriate time when the demand from OEMs and aftermarket are beginning to gain traction. Production capacities for industrial and automotive sectors are adequately available and the company is moving towards becoming market leader in all the sectors. We are also gearing up to explore and grab emerging opportunities in various sectors of the economy relating to energy storage solutions”
Commenting on the Q1 performance, Mr. S V Raghavendra, Chief Financial Officer, said, “ The operating cash flow generation remained strong driven by improved profitability in various segments. The Company continues to have sequential quarterly growth and healthy liquidity position. The major projects of two wheeler expansion, inverter tubular batteries unit, LVRLA expansion are progressing as envisaged. Raw material prices are moving favorably and the company is pursuing cost improvement projects aggressively. All the efforts should lead to improved profitability in due course of time.”
http://www.amararaja.co.in/news_14_aug_15.asp


(Hemant V Bhatia) #155

Mr. S V Raghavendra, CFO, Mr. Rajesh Jindal, VP & CMO of Automotive division,& Mr Srinivasa Rao Ganga, VP & CMO of Industrial division,addr the call.Highlights by Capital Mkt**
Amara Raja Batteries has registered 9% growth in net sales revenue to Rs 1158.29 crore for the second quarter ended September 2015. The growth was powered by demand from original equipment manufacturers and sales in the aftermarket.The Company’s Automotive Battery business continued its robust growth across all verticals. The four wheeler batteries volume grew phenomenally backed by improved sales in replacement battery segment in both of our preferred brands of Amaron and PowerZoneTM. The volume growth momentum in two wheeler batteries in both Amaron and PowerZoneTM brands continued, further adding to the performance of the business unit. During the quarter, sale to OEM sector grew aided by growth in the OEM production of automobiles. The Company growth in aftermarket and OEM beyond the industry growth helped in gaining market share in both four and two wheeler segments. The Company continued trading operations in tubular batteries to sustain the growth, during a quarter which is treated as an offseason for the inverter business.
The Company’s Industrial Battery business registered moderate volume growth over Q2 of previous financial year, in a challenging & competitive market conditions. The growth in demand from telecom sector is primarily driven by data growth and the drive for energy optimization by Tower Companies. The demand for UPS batteries is moderate. Increased Imports due to our country’s Preferential Free Trade Agreements with ASEAN are a concern since the raw materials continue to attract higher import duty. Amidst these challenges, the industrial battery business improved the overall performance by virtue of its “preferred supplier status” with all major customers, efficient after sales service, customer relationship management, optimal product mix and consistent product performance of its flagship brands PowerStack, Quanta and QRS Series batteries. The Company has progressively started providing total solutions to customers enabling it to forge strategic alliances.
The Company 4W business grew 21% YoY while the 2W business grew 20% YoY in Q2FY16. On segment wise growth- 4W OEM rose 17% YoY and 4W Replacement grew 22% YoY, meanwhile, 2W OEM grew 15% YoY and 2W Replacement grew 24% YoY.
During the quarter, prices of major raw materials have been lower but the gains were partly offset by sharp depreciation of rupee against dollar. The reduced prices were passed on to the customers as per the contractual obligations resulting in marginal reduction in topline. However, the realization per unit for certain products and services have been better on account of cost improvements and better value proposition to various customers. The operating cash flow generation remained strong driven by improved profitability. The Company continues to have healthy liquidity position. The major projects of two wheeler expansion, inverter tubular batteries unit, LVRLA expansion are progressing quite well and are on track.
The Company capacity utilization for the 4W and 2W segment stood at 85% and 90%, respectively, in Q2FY16. 4W capacity has increased from 6 million to 8.25 million. Further increase in capacity to10million is possible in a short time frame of ~5 months when the need arises. 2W capacity will increase from the current 8.4 million to 11 million by end of the year. The Company expects that with the above mentioned capacity expansion it is well placed in the automotive segment to meet demand until early FY18
The Company capacity utilization for the LVRLA and MVRLA stood at 98% and 80%, respectively. LVRLA capacity will increase 20% to 1.4 billion AHby FY16 end. MVRLA capacity is 800-850 million AH with no plans of capacity expansion. However, incase of requirement, capacity can be added in a short time frame.
The Company plans aninvestment of ~Rs 500 crorein the tubular battery plant with total capacity of 1.5 million units. First phase with capacity of 0.9 million units is likely to be commissioned by end of thisyear and the remainder 0.5 million will be setup by December 2016. The Company presently sources tubular batteries from smallerplayers and plans to reduce or end sourcing fromthese players once its own plant ramps-up. Also, with its own capacity in place, the Company expects profitability from the segment is likely to increase by 400-500 bps. The Company expects the plant to achieve full capacity utilization of the initial 0.9 million units by end of FY17E.As per management estimates, the inverter market in India is ~8 million units. Currently,Company sells ~0.36 million units through the trading route.
The Company Powerzone brand priced ~10% lower than Exide and is growing at ~25%.Powerzone is positioned as a brand somewhere between the small/unorganized/localbrands and established brands like Exide/Amaron. In terms of margins it is not significantlydilutive, owing to its single level distribution model vs two-level distribution model forAmaron
The Company automotive replacement segment market share increased to~27% from 25%in FY15 while Exide’s market share stood at 30%. The Company market sharein telecom segment stood at ~60% and in UPS segment stood at ~33%.
The Company plans Capex of ~Rs 600 crore for FY16Ecapex of ~Rs 300 crore for FY17.
The Company guides slowdown in replacement growth to 7-8% in medium term owing to poor OEM sales in the last 4 years. Telecom segment is likely to grow at ~8% driven by tower additions, in a bid to improve voiceclarity/calldrop scenario and on replacement demand. Industrial segment is likely to grow in double digit driven by revival in business cycle.


(JKS) #156


one key change seems to be the shift to OEM focus. The lesser margins is perhaps offset by lower raw material prices. I hope that at the right time, ARBL will make the right investments in new upcoming areas like Solar batteries
PS - invested and no major transaction except 1 tiny addition in qty today


(JKS) #157

Q3 numbers came out. Could not have asked for anything better. Awed by the consistency.
http://www.moneycontrol.com/stocks/stock_market/corp_notices.php?autono=2774961


https://www.researchbytes.com/Amara-Raja-Batteries-Limited-A0233.htm
Results came out well before close of market but somehow, mr.m ignored it. I am not sure whatelse an industrial producer can do, more than this
PS - Invested; views might be biased


(nikhil) #158

why do they still have pledged shares


(JKS) #159

0.69% of overall. So, not a biggie in my eyes. Perhaps not even worth having


(bbbhutra) #160

Though the company is great and is a clear market leader, at a PE of 30 I think the company is fairly priced. I have only allocated .25% of my portfolio in it, will look to increase more once available around 750 or below.