Amara Raja Batteries Shares Drop After Q3 Results
Amaron Batteries on display (Photo: BloombergQuint)  

Amara Raja Batteries Shares Drop After Q3 Results

Shares of Amara Raja Batteries Ltd. fell the most in nearly two months even as profit and revenue rose in the third quarter.

Net profit of the battery maker rose 18% over the year-earlier to Rs 193.2 crore in the three months ended December, according to an exchange filing. That’s in line with the consensus estimate of analysts tracked by Bloomberg.

Its revenue increased 12% year-on-year to Rs 1,960.1 crore, compared with the Rs 1,983.7-crore forecast.

That, according to the company, came on account of consistent growth in OEM and the aftermarket segment, along with robust exports. “The telecom and commercial UPS market segments have also recorded a strong growth in the third quarter,” the filing said.

Other Key Highlights (YoY)

  • Operating profit, or earnings before interest, tax, depreciation and amortisation, rose 8% to Rs 306.4 crore, against the estimated Rs 326.8 crore.
  • Ebitda margin narrowed 60 basis points to 15.6%. Analysts had pegged the metric at 16.5%.

Capex Plans

Amara Raja Batteries will set up a 50-megawatt solar power plant in the Chittoor district of Andhra Pradesh with a total outlay of Rs 220 crore, according to a separate filing. This, it said, will further reduce the cost of power and simultaneously bring down the carbon footprint of the company.

The battery maker will also set up a greenfield lead recycling unit with a 1-lakh-tonne capacity. The total capital outlay for this project is expected to be Rs 280 crore, which will be spent over the next 18 months.

“The planned investments in solar and lead recycling plants will further strengthen our resolve towards a cleaner environment through a sustainable circular economy and aid reducing costs and provide long-term support to our key raw material procurement,” S Vijayanand, chief executive officer at Amara Raja, was quoted as saying in the filing.

Nomura and Motilal Oswal, however, are not happy.

“[In] near term, we see margin pressures with lead prices having increased by nearly 7% from Q3 FY21, but price hikes could be taken in the future,” Nomura’s Kapil Singh and Siddhartha Bera said in a post-earnings note. “Demand is also unlikely to go up with the recovery as it is dependent on cars sold over the past many years,” the brokerage said as it downgraded the stock to ‘neutral’ from ‘buy’.

According to Motilal Oswal, sustenance of demand momentum may dilute the impact of higher raw material costs through price pass-through and operating leverage. But current valuations, it said, fairly capture the estimated growth, while leaving its estimates unchanged.

Shares of Amara Raja Batteries fell as much as 7.5% in early trade on Monday to Rs 914 apiece. Of the 23 analysts tracking the company, 14 have a ‘buy’ rating, six suggest a ‘hold’ and three recommend a ‘sell’, according to Bloomberg data. The average 12-month consensus price target implies an upside of 1.5%.

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