Amararaja Batteries Limited: Powering Ahead

(Arun S G) #161

AMARA RAJA __Letter to Arun.pdf (600.7 KB)

Sorry for delayed response, but one could not upload documents earlier, its much easier now. :water_buffalo:

(kv) #162

Sorry in case this has already been discussed in the thread. Does anyone know the size of the unorganized segment in the auto batteries segment? Amara Raja’s annual report mentions:
"The replacement market also has a sizeable unorganised component, which is continuously shrinking."
However I could not spot the number in the report; neither have I had success with googling. While people do mention that Exide and Amara Raja make up 90% of the organized sector haven’t been able to find the number on the unorganized sector nor its decline rate.

(P Sharma) #163


The figure for both Exide and Amararaja is around 60%. This has been taken from the Q3 Exide conference call. The CEO of Exide admits that these are his guesstimates based on market information.

Therefore the unorganised figure is 40%. This is primarily in the three wheeler, tractors and heavy vehicles( trucks). The reason this exists is the price difference primarily on account of the fact that the unorganised sector doesn’t pay any excise duty or state sales tax. This price diff comes to around 25-30%. Hopefully this changeover to the organised sector will accelerate with the advent of GST.

(Mithun Raj) #164

"Amara Raja Batteries Limited (Amara Raja) clocks Highest Ever Revenue and Profit in a financial year 2015-16"
To me this sound like window dressing, considering that the QOQ growth was nothing to talk off (6% profit growth for Amara raja vs 28 % for competitor EXIDE). The stock was rightly hammered today.

@Dhwanil Desai. Your take on result will be welcome.

(sharrmasks) #165

Amara raja can’t grow at the pace it has been growing for the last five years.more er valuation has skyrocketed with pe of 35 and pb of 10. On the other hand exide is at very moderate 20 and 3 respectively. It is more likely that amara raja stock underperformed exide for the next five years as it has low valuation base and operating at lowest ever margin. It has invested heavily in technology and capacity enhancement which will start bearing fruit shortly. During earlier good cycle for exide between 2005 and 2010 both book value and pb multiple grew and took it from around 10-15 to 150. All indications are that cycle may repeat itself. Cheery concensus about amara raja is scary.

(sharrmasks) #166

Just one more point book value of exide grew from 25 to 50 during last five years but price is same as market is seeing only the current earning and earning gowth totally disregarding the book value growth and Earnings power being created by the company.

(Dhwanil Desai) #167


I personally do not see any “window dressing” in the statement as it may be fact that they are representing. Just because the percentage increase is on the lower side, should not take away the merit of absolute number! :slight_smile: Also, I am sure management very well knows that the window dressing is hardly of any help as the numbers are just before everybody and at the end of the day whatever management says, market will take its own clues from the numbers!

On the results, my take is that as an investor, we shall also acknowledge the fact that even the businesses with the highest quality and excellent management pedigree do face headwinds from time to time. Hence, it is unreasonable to expect them to perform in linear fashion. The businesses operate in very dynamic environment with many variables, many a times, some of these variables are even out of control of the management. At other times, management makes some conscious choices that may be negative in short term but have very good long term impact. Hence, we shall look at numbers in holistic perspective.

In this context, I personally prefer to evaluate performance of a company on yearly basis and only get alerted if we see any trend developing over 2-3 years. We also shall evaluate the performance in the backdrop of the industry dynamics and Macro factors. So, I feel on yearly basis, in a challenging environment, ARBL has given a decent performance (not a block buster one as in the past). The topline growth has definitely slowed down. Whether this slow down is transient or has a permanent knock down can only be determined once we have enough data points. However, this is something worth keeping close track of so that we do catch the trend early…if there is any.

(Mithun Raj) #168

Thanks Dhwanil. It’s a pleasure reading your comments in the forum.

(P Sharma) #169

I agree with what Dhwanil has said. A quarter is definitely a very short period to assess the performance of any company and in my opinion, even a year is not long enough for a company which operates in a duopoly.

We should take a 2-3 year view on Amararaja. The operating margins are steadily improving over the years. There could be a GST tailwind when at least a certain percentage points of market share moves from the unorganised to the organised sector. This coupled with the soft lead prices which are not being passed on to the after sales customers is also helping in margin expansion. There is no telling which way the lead prices would go, but continued softness in lead prices is a reasonable bet to make.

This company is a classic case of having the ability to absorb huge amounts of capital at high rate of returns. The duopoly nature of the market in all probability will ensure that there is no senseless price war hurting both Exide or Amararaja in terms of returns.

A certain amount of growth is also assured with the increased sales of both the four wheelers and two wheelers. There could be ups and downs as automotive is a cyclical industry, but the secular growth in India can be assumed for some years to come.

Therefore all the right ingredients are there is place for this company to give reasonable returns in the future.

Please listen to Q3 concall of Exide. The management didn’t see the better Q4 results coming. Either they were trying to downplay the improved performance of Q4 or they were clueless. Given the performance of Exide management in the last few years, i would bet on the latter.

(kv) #170

Looking at the cash flow statement page 86 in the annual report; I am confused by the sale/purchase of mutual fund units in section B.

These numbers are in million Rs; but I don’t see any correspondingly large number in the balance sheet; shouldn’t there be a corresponding number there?

(JKS) #171

Q1 results came out at 2PM today. For 16.5% topline growth, the NP growth is 6.23%. Could have been better but will take it…I think, it is a ‘hold’ kind of result, at first glance

PS - invested

(Abhishek Basumallick) #172

Quite flattish kind of results when compared to Exide in this quarter. Maybe the tides are turning now.

(P Sharma) #173

The lower profitability is on account of the higher depreciation and employee costs. They have just undertaken an expansion and it will take a few quarters before the operational leverage on account of the new capacity kicks in.

(Abhishek Basumallick) #174

Amara Raja-Exide Industries battle enters new phase

(Finrahul9) #175

While going through the annual report

" The finished goods have gone up , all most double compared to the previous year, also inventories have increased. It seems that the company might be stocking as it might be foreseeing a slow on growth , or worse the sales is not happening. Some proof of the same is slowing growth in sales "

(kanvgarg123) #176

Hi all,
I was going through ARB’s AR and wasn’t able to find out the Key customers for the company and the proportion in which they supply the batteries to them. @Finrahul9 even I found the sudden increase in inventories surprising but with sudden spurt in the automotive sales (Domestic no.s of Maruti, TVS, Bajaj, Hero etc), I am expecting the inventory to come to normal levels. Ofcourse for that, ARB’s should be a big supplier of the above mentioned companies.


(us121) #177

In Automotive as i know they are OEMs to almost all manufacturers. Recently i was at Honda show room and on inquiring they told all cars at present coming with Amron.
As regards to industrial batteries, especially Telecom, customer has to book in advance and await for the delivery schedule. this is confirmed by experience.
Large inventory, though i have not checked, but may be due to on-going capacity expansion on regular basis.

(Abhishek Basumallick) #178

Q2 Results : Average results

(Dhwanil Desai) #179

Yes, it is quite average result. In fact, if we look at last few quarters, the growth momentum has indeed slowed down. Probably, Exide has finally got its act together.

What is quite interesting is, that ARBL’s GM has dropped sharply YoY. In contrast, Exide has improved GM YoY. To me it looks like that ARBL’s product mix change towards OEM (their entry into two wheeler OEM market) and increasing competition in telecom may be the reasons behind the GM drop.

Overall, I feel things are getting quite interesting…with Exide slowly but surely inching up while ARBL is feeling the heat. From investing perspective, the key question to ask is

Why should market/investor pay premium to ARBL in changing scenario when the market leader is available at much lower valuation and also has an optionality of value unlocking of insurance business?

(gautham1) #180

I agree its an average result considering the valuation. But not many companies have delivered 18% top line growth in this environment. eps growth is also decent at 10%. So its not bad actually.
I hold both amararaja and exide.