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Uncertain times ahead; maintain Hold

* Q4FY21 EBITDA margin of 15.1% came in above estimate of 14.3% on lower employee expenses due to a write-back of provisions. Revenues stood at Rs21bn - above estimate of Rs19.4bn on higher-than-expected sales in inverter and other industrial segments.

* We trim FY22/23 EPS estimates by 3%/1% to Rs46.2/56.7. We are introducing FY24E EPS of Rs64.7, factoring in 11% revenue growth and 17.1% EBITDA margins. There could be downside risks to our estimates, if the company announces investments in lithium battery manufacturing capacities.

* EV penetration remains a structural risk in the medium term, as companies such as Amara Raja will have to make large investments in R&D and for setting up lithium battery manufacturing capacities, leading to a dilution in ROE. The entry of new players could also increase competition and negatively impact margins.

* Despite expectations of an improvement in economic activity and automobile sector recovery ahead, we maintain Hold rating due to imminent technological disruption. Our revised TP stands at Rs850 (Rs860 earlier), based on 15x FY23E EPS.

EBITDA margin above estimate:

Considering the low base in Q4FY20, results have been compared with Q4FY19 (2-year CAGR). Revenue grew at 16% CAGR to Rs21bn (est.: Rs19.4bn). This beat was due to higher-than-expected revenues in inverter and other industrial products. Gross margin contracted to 32.6% (est.: 32.7%) from 34.8% in Q4FY19 due to increasing lead prices. EBITDA margin contracted to 15.1% from 15.5% in Q4FY19 but came in above estimate of 14.3% on lower-than-expected employee expenses due to a write-back of provisions. Overall, adjusted PAT grew at 26% CAGR to Rs1.9bn and was above estimate of Rs1.6bn due to higher operating profit and other income. Other income grew at a 125% CAGR to Rs3.2bn. It includes one-time income of ~Rs100mn relating to BSNL and other receivables.

Maintain Hold:

We trim FY22/23 EPS estimates by 3%/1% to Rs46.2/56.7. We are introducing FY24E EPS of Rs64.7, factoring in 11% revenue growth and 17.1% EBITDA margins. Applying a P/E multiple of 15x, we arrive at a TP of Rs850 (Rs860 earlier). Considering the risk of technology disruption in the battery space, we maintain our Hold rating on the stock. Key downside risks: announcement of investments in lithium battery manufacturing capacities, lower-than-expected demand in Automotive and Industrial segments, and adverse currency/commodity prices.

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