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AMRJ’s Q2 reported in-line performance with revenue/EBITDA growth of 4%/7% YoY. We have built in ~9%/~9% revenue/EBITDA CAGR over FY24- 26E, factoring in continued recovery in the base lead acid business (amid a modest uptick in replacement demand and stability in raw-material prices). We have tweaked our FY24E/FY25E/FY26E EPS by 1%. Importantly, SOP for phase-1 of lithium cell capacity (2 GWh) remains at least two years away (AMRJ plans 16 GWh by 2032), hence immediate triggers on the new technology front remain absent. We retain our HOLD rating with a revised TP of Rs615 at unchanged 11x P/E (roll-fwd. to FY26E). Key upside risk: Large order wins in lithium cells. Key downside risk: Adverse commodity prices.

Amara Raja Energy & Mobility: Financial Snapshot (Standalone)

Steady performance; to invest further Rs5bn in lithium-ion subsidiary

AMRJ's revenue grew by 4.1% YoY to Rs28.1bn (Emkay est.: Rs29bn; Consensus est.: Rs28.9bn), ~3% below estimates. EBITDA grew 7.4% YoY to Rs3.87bn, in line with Emkay estimates (Rs3.83bn) and ~2% above Consensus estimates (~Rs3.8bn). EBITDA margin expanded by 42bps YoY (101bps QoQ) to 13.8%(Emkay est.: 13.2%; Consensus est.: 13.1%). Sequential gross margin expansion was chiefly on account of lower rawmaterial cost, with gross margin up ~270bps QoQ. EBITDA margin expansion was restricted by higher other expenses. PAT grew by 6% YoY to Rs2.1bn, ~3.5% above Emkay/Consensus estimates. The company has declared an interim dividend of Rs4.8/share for FY24. The company further plans to invest of Rs5bn in its wholly owned lithium-ion battery subsidiary, Amara Raja Cell Technologies.

Earnings call KTAs

i) 2W/4W aftermarket grew by 12%/8% YoY, while the 2W/4W OEM segment grew by modest 2%/3% YoY; overall, the 2W segment grew by 6.5%; AMRJ’s OEM market share remains stable at 35-36%, telecom grew by 9% due to an uptick in demand owing to the 5G network's growth; the inverter segment witnessed a decline of 11%. ii) Can register >15% margin, if lead prices drop to Rs175/kg (vs. Rs200/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 to be spent by FY26E; iv) Management expects Phase 1 of the lead recycle plant (smelters) with 100k MT capacity to start production from Q1FY25, which will lead to savings of at least 1-2% on raw-material cost; v) Expects 10-11% growth in the export market in FY24; vi) Would evaluate participating in the proposed 20GWh re-auction of the PLI scheme if conditions are reasonable; vii) Slight uptick seen in lead prices and currency depreciation but raw-material prices are stable QoQ.

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