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EBITDA below estimates; all eyes on entry into lithium battery space

* Q4 EBITDA declined by 31% yoy to Rs2.2bn (est.:Rs3.2bn), below estimates due to lowerthan-expected revenue and delay in passing on commodity inflation. Revenue grew 4% to Rs21.8bn (est.:Rs24.4bn), below estimates, owing to a volume drop of 20%/25% in 2W/ inverter segments. Management expects FY23 volume growth in auto replacement to be in double-digits, and industrial segments such as Telecom/UPS to see 7-8% growth.

* We reduce our FY23/24 revenue estimates by 3% each and EBITDA by 5% each. We build in a revenue CAGR of 11% over FY22-24E, supported by a pick-up in Auto OEM and consistent growth in the auto replacement/industrial segments. Following the pass-through of commodity price increases and better scale, margins should improve.

* AMRJ plans to commence work on a small Lithium-ion cell manufacturing facility this year with capability of multiple cathode cell chemistries. Any progress in this regard, such as the announcement of a project plan and forming tie-ups with OEMs for battery supplies, could provide clarity on long-term survival and growth.

* We retain our Hold rating on the stock. Our TP of Rs610 (Rs655 earlier) is based on 13x Jun’24E EPS (13x Mar’24E earlier). Apart from the announcement of the lithium cell manufacturing project, other stock catalysts could be in the form of higher-than-expected demand in Automotive and Industrial segments and a benign commodity environment.

EBITDA below estimates: Revenue grew 4% yoy to Rs21.8bn (est.: Rs24.4bn), below estimates owing to lower-than-expected revenues in 2W and inverter segments. 2W volumes were lower by 20% due to lower OEM production and production loss due to changes in the manufacturing line. Inverter segment volumes were lower by 25% owing to a high base and muted demand. RM/sales increased 470bps to 72.1%, owing to a delay in the pass-through of commodity inflation. EBITDA declined by 31% to Rs2.2bn, notably lower than our forecast of Rs3.2bn due to lower-than-expected revenues and gross margin. EBITDA margin contracted by 500bps to 10.1%. Consequently, PAT declined by 48% to Rs1bn (est.: Rs1.7bn), below estimates.

FY23 volume growth expectations: Management expects Auto replacement growth to be in double-digits, and industrial segments such as Telecom/UPS to see 7-8% growth.

Maintain Hold: Despite losing out in the PLI-ACC scheme, AMRJ plans to commence work on a small Lithium-ion cell manufacturing facility this year. Any progress in this regard could provide clarity on long-term survival and growth. It is already working with Piaggio 3Ws for supplies of lithium-ion batteries. Retain Hold with a TP of Rs610. Key downside risks: lower-than-expected demand in key geographies, an increase in competitive intensity and a further increase in commodity prices

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