IGI Logo

AMRJ’s Q1 revenue beat expectations, while margins missed estimates (down by 110bps QoQ to 12.8%; Emkay: 14.4%), on adverse mix and higher insurance spends. We build-in ~10%/~12% revenue/EBITDA CAGR over FY23-25E, factoring-in sustained recovery in the base lead-acid business (amid uptick in replacement demand and stability in RM prices). We introduce FY26 estimates and reduce FY24E EPS by 4.4%, to reflect the Q1 margin miss, keeping FY25E EPS unchanged. Importantly, with SOP for phase-1 of lithium cell capacity (2GwH) at least 2 years away (with uncertain financials), there is a lack of immediate triggers on the new technology front. We retain HOLD, with unchanged TP of Rs590/share at 11x its FY25E PER. Key upside risk: Large lithium cell order wins. Key downside risk: Adverse commodity prices

Mixed operational performance; margins below estimates

Revenue grew 6% YoY to Rs27.7bn (at a ~3% beat); at the consolidated level, lead-acid revenue was up 4% YoY, with 4W/2W/Industrial revenue up 5%/9%/15%. EBITDA margin declined by 110bps QoQ to 12.8% (Emkay: 14.4%), amid a poorer mix (higher traded component in tubular batteries) and higher insurance costs. PAT stood at Rs1.9bn, almost 10% lower than expected. AMRJ received insurance proceeds of Rs1bn towards the fire incident in Jan-23; Company is confident of realizing the remainder loss of Rs4.4bn recognized, in due course. The Board has approved the change in the name of the company to Amara Raja Energy & Mobility Limited from Amara Raja Batteries Limited.

Earnings call KTAs

i) 2W/4W aftermarket growth is expected in low double-digits/high single-digit, incl. ~150bps/~50bps of market-share gains, respectively; exports, telecom and UPS to also sustain double-digit growth this year. ii) Expects to further improve on FY23 margin (~13%), adjusted for mix impact from the bought-out tubular batteries; can clock >15% margin, if lead prices drop to Rs150-170/kg (vs Rs190-200/kg now). iii) Rs15bn combined capex envisaged for Phase-1 of the lithium ion facility (2GWh), initial pilot facility (for customer validation, etc) and research lab; Rs2-3bn to be spent this year; the balance by FY26E. iv) Mgmt expects Phase-1 capacity to see some production from FY26; lithium ion cell pricing expected to be at par with import pricing; would evaluate participation in the proposed 20GWh re-auction of the PLI scheme for advanced cell chemistry. v) Lithium ion project may be slightly dilutive for return ratios; but Company plans to enter the space and thereafter explore ways to improve profitability with scale and other efforts; 10-12% margin may be possible in lithium ion, with asset turns possibly reaching up to ~1.4x (~1.2x expected earlier). vi) Pack & charger revenues comprised 4% of overall sales in Q1 vs. ~1% last year (up ~23% QoQ); current pack & charger capacity of 500MWh can be increased to 2GWh; at full utilization, this can contribute ~Rs30bn revenue. vii) FY24 lead-acid capex seen at Rs4bn.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf &

SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer