The way I see Amara Raja is as a two-engine story.
On one hand, you have the legacy lead-acid business - solid, cash-generating, well-run operation that’s available at attractive valuations. While not headline-grabbing, it provides stability, predictability, and a margin of safety. With efforts in backward integration (recycling), digital manufacturing (Industry 4.0), and global expansion, this legacy business is far from being a sunset play. Promoters have always been good capital allocators (haven’t raised equity for decades now, very little debt), plus like others have written above, they have been displaying more skin in the game since last year.
On the other hand, you have deep, strategic optionality in the New Energy Business. Lithium-ion gigafactories, early OEM relationships, investments in R&D and BMS, and alliances with global technology leaders are laying the groundwork for a potentially transformative future. If ARE&M executes even moderately well in this vertical, the market may have significantly underappreciated the upside.
Valuing ARE&M purely on the basis of today’s earnings misses the forest for the trees. The lithium-ion business might be sub-scale today, but it’s a decent optionality to play. With time, execution, and scale, what seems like a cost center today can become the engine of disproportionate value tomorrow. ARE&M’s early investments in technology and manufacturing give it a real shot at being among the first scaled Indian cell makers.
Honestly this seems like a no brainer, valuations are more than reasonable, earnings yield ~7%, never mind that the share price hasn’t moved for years now. It’s a classic case of buying a quality legacy business at fair value, with the lithium optionality thrown in for free. The valuation you give to the optionality is the long term upside that you should expect at the least.