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* Weak revenue growth dragged down AMRJ’s overall performance in 4QFY23. Its New Energy business has started contributing, albeit marginally. It has finalized investments for the li-ion cell manufacturing plant, with the first phase of 2GWH expected to commence in FY25, though it is yet to decide on a technology partner for this foray.

* We raise FY24E/FY25E EPS by 9%/12% to factor in the benefit from falling RM costs (margin gains). We maintain our Neutral rating with a TP of INR690/share (12x Mar’25E EPS).

New Energy business contributes INR2.5b in revenue in FY23

* 4QFY23 revenue/EBITDA/adj. PAT grew 11%/53%/75.5% YoY to INR24.3b/ INR3.4b/INR1.7b (v/s est. INR26.2b/INR3.8b/INR2.1b). FY23 revenue/ EBITDA/adj. PAT grew 19%/32.5%/43% YoY.

* 4QFY23 saw 6-7% volume growth in both PV aftermarket and OEMs. 2W OEMs and replacement recorded 20% volume growth. Industrial batteries grew 7% YoY. Tubular batteries declined due to a fire at the plant.

* In FY23, volume growth stood at 9-10% for PV aftermarket and 15% YoY for OEMs. Volume growth for 2W OEM and aftermarket came in at 20% YoY. The Industrial segment saw 12% volume growth.

* Gross margin expanded 510bp YoY (-40bp QoQ) to 33% (est. 33.2%; 29.8% for EXID).

* Better gross margin was partially offset by higher other expenses, resulting in EBITDA margin of 13.9% (+380bp YoY/-110bp QoQ; est. 14.4%; 10.4% for EXID). EBITDA grew 53% YoY to INR3.4b (est. INR3.8b).

* AMRJ incurred a loss of INR477m due to a fire at its plant in AP, which was recorded as an extraordinary item.

* Adj. PAT stood at INR1.7b (est. INR2.1b).

* The company has declared a final dividend of INR3.2/share. Total dividend for FY23 stood at INR6.1/share v/s INR4.5 for FY22. ? FCFF improved to INR4.8b (v/s outflow of INR1.3b in FY22), led by a better operating performance of INR9.3b (v/s INR6.3b in FY22) and lower capex of INR4.5b (v/s INR7.6b in FY22).

Highlights from the management commentary

* Demand outlook: AMRJ expects demand momentum to remain strong in FY24 for both OEM and replacement markets. Exports are expected to sustain a 13-14% CAGR going forward.

* Li-ion cell manufacturing facility: It is setting up a 2GWh capacity in the first phase with investment of INR13b and targets to increase it to 16GWh by FY32. It would take another 2.5 years to start commercial production in the first phase, including trials with customers. This facility will focus on e-2W batteries and NMC chemistry in the initial phase.

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