Revenue beat on strong replacement demand and market share gains
* Q2 revenue grew 14% yoy to Rs19.4bn (est.: Rs18.4bn) and came in above estimates on robust 2W/4W replacement growth of 11%/16% and market share gains in 2W OEM segment. AMRJ’s market share with Hero MotoCorp and TVS Motors saw an increase.
* EBITDA margin expanded 30bps to 17.6% (est.: 17.5%), supported by a marginal fall in lead prices, better mix, cost-control measures and the reversal of a provision related to BSNL receivables. In Q2, AMRJ was able to retain the benefits of lower lead prices.
* Robust replacement demand, coupled with a pick-up in OEM/industrial segments, is expected to support revenue performance going ahead. AMRJ’s market share gains are also expected to continue.
* We expect revenue/earnings CAGR of 10%/14% for FY20-23E, with an average ROCE of 24% and FCF of Rs5.7bn/year. We maintain our Buy rating with a revised TP of Rs863 (Rs803 earlier), based on 15x FY23E EPS (Sep’22E EPS earlier).
All-round growth: Q2 revenue grew 14% yoy to Rs19.4bn (est.: Rs18.4bn), driven by 40% volume growth in 2W, 8% in Automotive and 6% in Industrial segments. In 2Ws, OEM volume grew 110% on market share gains with Hero MotoCorp and TVS Motors, while replacement grew 16%. In Automotive, OEM volumes grew 4% and replacement volumes grew 11%. In comparison, within the Industrial segment, inverters grew 35%, Telecom grew 11% and UPS grew 8%. EBITDA margin expanded 30bps to 17.6% (est.: 17.5%), supported by a marginal fall in lead prices, better mix, cost-reduction efforts and the one-time benefit from a provision reversal of BSNL receivables worth Rs70-80mn. Employee expenses increased 19% to Rs1.2bn on salary hikes and the reversal of pay-cuts for Q1. Overall, PAT fell 8% to Rs2bn, broadly in line with our estimates.
AMRJ remains a formidable No.2; maintain Buy: In the duopolistic batteries market, AMRJ continues to be the formidable No.2 behind Exide Industries. The company’s excellent franchise model and operational efficiency have enabled it to deliver a strong performance, and we expect the momentum to persist. We increase FY21E EPS by 9% to Rs37.5 due to higher revenue assumptions and retain FY22/FY23E EPS broadly unchanged at Rs48.4/Rs57.5. We estimate revenue/earnings CAGR of 10%/14% for FY20-23E, with an average ROCE of 24%. Maintain Buy with a TP of Rs863, based on 15x FY23E EPS. Although the shift toward EVs remains a structural risk for AMRJ, we believe that EV penetration will be a gradual process. Other risks are lower-than-expected revenue from OEMs, lower replacement demand in the Auto segment, weak demand for industrial batteries, higher competitive intensity, and adverse currency/commodity prices
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