Are there any updates on PCB issue. I believe they had previous put a closure order.
High Court of Andhra Pradesh has extended the interim suspension of said closure orders of APPCB and the next hearing is scheduled on January 24, 2022.
It seems Court is also upset with PCB after it fails to submit reports again in January
There is a high possibility that case may go in favor of Amara Raja tomorrow.
Once the Court case issue is solved, Amara raja might see some recovery
I had an interesting discussion with @Rafi_Syed about Amara Raja and am trying to capture the same on VP. Prices have gone down by 40%+ from a peak of ~1000 in January 2021.
That was also the time of peak operating margins, since then margins have come down (for both Exide and Amara Raja) due to increase in lead prices.
They also ran into environmental compliance problems starting in Q4FY21.
All this being said, they are trading at ~16x P/E on trailing profits (which are depressed due to cyclical low margins). On a normalized PAT margin of ~10%, they are trading at ~11x P/E.
Also, the next generation has been inducted in leadership roles and are prioritizing investments in lithium ion batteries.
Comparison with exide: Growth and margin performance has been better than Exide.
During the cyclical auto downturn, they managed to grow sales and profits.
So it seems company is investing in future technology, gaining market share and trading at reasonable valuations. A cyclical uptick along with a resolution of their compliance problems can benefit company’s performance. Key risk remains the high level of investment required in building lithium ion capabilities which will hamper free cash generation.
Disclosure: Invested (position size here)
Galla Jaydev the promoter of Amara Raja and sitting MP from TDP
There is fight going on between Jagan Reddy - YSRCP and Amara Raja
There was rumor that due to ongoing tussle between ruling and opposition Amara Raja thinking of moving to nearby industrial city Chennai
AP government taking back the lands given to them at throwaway prices by previous government (TDP)
Please factor in these developments.
The lands were allotted in 2010 i.e during congress rule and not during TDP rule (2014-19). Galla Jayadev’s maternal grandfather and mother were with Congress party for decades (since 1970s) and they have a very good reputation. They were unhappy with the way congress govt bifurcated the state and left the party before 2014. Galla Jayadev contested as MP from TDP in 2014 and 2019 and won. The YCP govt has been allegedly harrassing TDP and it’s cadre since they came to power in 2019. But if you do some fact check, they also have a reputation of losing most of the cases when challenged in the court. Since I follow AP politics very closely, I can only say one thing. If they had done something wrong, Galla Jayadev would have long left TDP and joined other parties. This guy has some guts and character to fight with the state govt head on.
Infact I started studying the stock only after the court case. The fall was a good opportunity for me to accumulate since I know the circumstances behind the PCB order.
Disc: Invested, biased and have political affiliation.
As I said, there is always an easy way out with such politically motivated cases. You can defect /change your loyalties and save your company. When one chooses to fight and not take the easy route, either one is confident or foolish. I believe that in this case, it is the former. Hope justice will prevail.
Anyway I just wanted to give more information and add value to the discussion. The posts can be deleted if it is otherwise.
@zygo23554 , would love to know your thoughts on Amara Raja. Looks really enticing
To me, it seems one major reason for large under-performance of stock for past 5-7 years has been the narrative around Li ion and Lead Acid batteries becoming obsolete (other than the huge run up in valuations prior to that).
- Lead acid batteries are not going to vanish for number of reasons
- not enough Li and other metals needed for Li ion batteries (atleast not at reasonable price)
- no clarity/widespread adoption of recycling of Li ion batteries
- Lead acid technology proven and Li ion relatively new
I think the market realizes all this but the overall selloff hasn’t let this realization get reflected in the stock price.
Major negatives may be the Pollution Control Board uncertainty and large capex for Li-ion hurting potential free cash flow generation.
Apart from that, Log9 was also in news recently
Hoping Amaraja throws more light on court case as only it’s resolution will bring company back on track
Company announces merger of plastic division of Mangal Ind into the public co. I think the acquisition is very fair (592 cr. being paid in shares based on today’s price on FY22 sales of 569 cr.). My notes from today’s call is below.
26.09.2022 (merger of plastic division of Mangal Industries)
- 1.22 cr. shares to be issued to promoters for merging plastic division of Mangal Industries Ltd. with Amara Raja. The plastic division did sales of 569.4 cr. in FY22 (412 cr. in FY20, 421 cr. in FY21). 17% EBITDA margins and 10% PAT margins. Asset turnover is 2.5x
- CMP: 485 (valuation of 591.7 cr.) as on 26.09.2022 (net debt is 99 cr. and will be taken over by Amara Raja). Valuation exercise has been done on a relative basis where plastic division of Mangal Industries has been valued at a 25% discount on P/E vs Amara Raja
- 10% of raw materials in their current operations is plastic components
- 65 equity shares of Amara Raja is being issued for 74 shares of MIL
- Caters exclusively to Amara Raja
- Capacity of 37’000 MTPA (running @90% utilization) with 150 injection molding machines at 3 locations (Chittoor, Tirupati, Petamitta). Petamitta facility will be moved to Chittoor and Tirupati
- Backward integration: Will bring plastic molding capabilities in-house
- Will improve margins, bring recurring annual synergies of 5-6 cr. and is EPS accretive from first year
- Expected to finish in 12-14 months
- Low voltage components in an electric vehicle is serviced by an auxiliary battery which is lead acid based. Confident of growth in lead acid batteries for at least 15 years
- For lithium ion business, mega scale plant will be setup using own balance sheet and bank debt. Currently not looking for any strategic investors
- Seeing some shift to lithium ion batteries in telecom business
Disclosure: Invested (position size here, no transactions in last-30 days)
They are merging only the portion which is supplying battery moulds. Rest will continue to operate separately. Is it still a fair valuation? Why to invest 600 crores now on this considering the debt takeover?
i think this makes sense wrt to backward integration
To Be Excluded From Futures & Options
Existing unexpired contracts of expiry months Oct, Nov, Dec-2022 would continue to be available to be available for trading till their respective expiry
No contracts wef Dec 30, 2022
Tata Elxsi was excluded from FNO in dec 2019. As I was holding the shares I didn’t know what it meant but holding on was the best decision I had made at that time.
Disc - Holding Amara Raja and adding
Any update on the fire in one of the factories? Per disclosure its responsible for 700 crs of revenue. I am wondering on the number of quarters that revenue will be impacted.