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AMRJ’s Q2FY23 EBITDA grew by 34% YoY (3-yr CAGR: 7%) to Rs3.6bn, coming in 21% above our estimates as benefits from easing commodity prices and product price increases were higher than our expectations. Revenue increased by 19% (3-yr CAGR: 17%) to Rs27bn, standing at a 5% beat due to higher than estimated growth in the auto segment. Factoring-in better revenue & margin assumptions, we increase our FY23- 25E EPS by 2-8%. Despite losing out in the PLI-ACC scheme, AMRJ plans to commence construction work on lithium-ion cell manufacturing facility and production may commence after two years. However, as we do not see any near-term triggers, we retain HOLD with TP of Rs550/share, based on 11x Dec-24E EPS (Sep-24E earlier). Key downside risks: Lower-than-expected demand in key geographies, increased competitive intensity, and adverse movement in commodity prices/currency rates.

Q2 EBITDA notably above estimates: Revenue grew by 19% YoY (3-yr CAGR: 17%) to Rs27bn, above our estimates of Rs25.7bn, due to higher growth in the auto segment. Within auto, two-wheelers (2Ws) have seen higher growth. Within industrials, the telecom segment has witnessed better growth. EBITDA grew by 34% (3-yr CAGR: 7%) to Rs3.6bn, standing 21% above our estimates, led by higher-than-expected revenue and gross margin. EBITDA margin expanded by 150bps to 13.3% (Emkay est.: 11.6%). Gross margin improved by 80bps YoY (+390bps QoQ) to 30.5%, on price hikes of 2-2.5% in the aftermarket and notable correction in prices of lead. Accordingly, PAT grew 40% (3-yr CAGR: -3%) to Rs2bn, above our estimate of Rs1.6bn, on higher operating profit.

What we liked:

1) Strong revenue performance in the auto & industrial segments;

2) Improvement in gross margin.

What we did not like:

1) Company’s selection under the PLI-ACC scheme is not foreseeable, despite exit of players like Hyundai.

2) Work on the lithium-ion cell manufacturing facility project will commence soon. However, commissioning of the project is not expected for the next 2 years.

Management-Call KTAs:

1) Q2FY23 volume performance: PV segment volume grew by 13-14%, led by growth of 18-20% in OEM and 10% in the aftermarket segments. The 2W segment grew by 10%, led by growth of 7-8% in OEM and 10-11% in aftermarket. The telecom segment grew by 15%, and other industrial segments grew by 8-10%. The home inverter segment witnessed a 10% decline.

2) INR depreciation may affect gross margins ahead.

3) FY23 capex is expected to be Rs5-6bn.

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