Amara came out with decent results, sales grew by 9.6% and EPS by 12%. Its interesting to see that they are already decently profitable in their new energy business which is scaling quite fast, having reached last year revenue in H1FY24. They are seeing higher growth in telecom segment with rollout of 5G. Additionally, they are now guiding for 15-16% EBITDA margin even at lead prices of 180/kg, previously they used to do these margins when lead prices were around 150-160/kg, so they have been able to build in operational efficiencies to improve margins. The smelter plant commissioning in Q1FY25 will lead to 1-2% further improvement in RM costs. Concall notes below
FY24Q2
-
Lead acid battery: 6.4% YOY growth
o 4-W volumes: growth of 7%. OEM: 3-4%, after-market: 8%
o 2-W volumes: growth of 9%. OEM: 2-3%, after-market: 12-13%
o After-market 4-W demand has softened due to lower car sales 3 years back, there is a 2-3 year lag which they generally see. Expect 6-7% growth in 4W and 12-13% growth in 2W after market in FY24
o Industrial volumes: growth of 8-9% (telecom: 9-10%, UPS: 7-8%). Operating at 85-90% utilization in telecom. It is possible at a given lithium price (@$100/kwh) that lithium ion batteries gain adoption in telecom
o Home inverter volumes: decline of (-11%)
o Exports: Witnessed some shipment delays due to name changes, sales of which will come in Q3. Should see double digit growth in FY24
o Did not see any market share loss in OEM business, quarterly growth depends on production schedule of OEMs and on the models -
New energy business:
o 150 cr. (vs 108 cr. in Q1 and 62 cr. in Q2FY23). Reported EBIT of 11.6 cr. (vs 4.2 cr. in Q1)
o Witnessed volume growth in chargers + 3-W battery packs
o Approved investment of 500 cr. in Amara Raja Advanced Cell Technologies, for lithium ion battery manufacturing.
o NMC and LFP cell manufacturing will be reasonably fungible - 15-16% EBITDA margin is now possible even if lead prices stays at 175-180/kg
- One time consultancy fees of 10 cr. incurred for enhancing throughput
- Capex for lead: 200-300 cr. growth, 100-150 cr. maintenance
- Got 93 cr. from tubular plant scrap sale in H1FY24
- Amara Power Systems acquisition completed in September 2023, expected to strengthen charging solution offerings (2-W, 3-W and storage applications)
- Amalgamation of Mangal Industries plastic division will result in 7.15% equity dilution and increase promoter shareholding to 32.86% (vs 28.06% now)
- Recycling plant will be commercialized in 2 stages (total capacity: 1.5 lakh MT, 1 lakh MT will commercialize in Q1FY25). 1 lakh MT smelter plant will account for 25-30% of their lead requirements. Expect 1-2% gross margin benefit
Disclosure: Invested (position size here, bought shares in last-30 days)