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In-line results; scouting for a partner for lithium ion foray Capex guidance of INR15b for FY25-26 each vs. INR8b in FY24 ? Amara Raja (ARE&M) reported in-line 4QFY24 results, with EBITDA margin up 10bp YoY at 14.6% (est. 14.7%). For its new lithium-ion business, the management expects to achieve EBITDA margin of 10-11% (vs. blended fiveyears average margin of 14.3%) and ROE of 12-13% (vs. blended five-year average ROE of 15.1%) at a scale of 10-12GWh. ? While the market seems to be upbeat about ARE&M’s lithium-ion foray, we remain circumspect about the returns from the business. Moreover, after the recent run-up, the stock at ~24x/21x FY25E/FY26E EPS appears fairly valued. We, hence, maintain our Neutral rating on the stock with a revised TP of INR1,090 (based on 18x FY26E EPS). Operational performance in line with estimates ? The company has restated its financials after the demerger of the plastic component business from Mangal Industries. ? 4QFY24 revenue/EBITDA/adj. PAT grew 15%/15%/30% YoY to INR28b/ INR4.1b/INR2.3b (in line). FY24 revenue/EBITDA/adj. PAT increased 8%/15.5%/21% YoY. ? FY24 revenue from the new energy business stood at INR5.2b (up 2x YoY). ? Gross margin contracted 30bp YoY to 34.5% (vs. est. 32.5%). ? Higher other expenses (+50bp YoY; as a % of sales) led to limited EBITDA margin expansion, which improved just 10bp YoY (-50bp QoQ) to 14.6% (est. 14.7%). Other expenses were high due to stamp duty charges of INR200m paid for the merger transaction. ? Adj. PAT stood at INR2.3b (in line, grew 30% YoY). ? The board declared a total dividend of INR9.9/share for FY24 (vs. INR6.1/share for FY23). ? FCFF improved to INR8.7b (vs. INR4.9b in FY24) mainly due to improved operating cash flows, which stood at INR13.1b (vs. INR9.6b in FY23). Capex stood at INR8b in FY24 (vs. INR4.6b in FY23). Highlights from the management commentary ? Industrial segment revenue is expected to grow 6-7% YoY in FY25. With the expansion of data centers in India, demand for UPS is expected to get a boost. ? ARE&M has commenced the NMC 2170 project for manufacturing lithium ion cells for the 2W segment with a Chinese partner, which has a good presence in the South Asian markets. SOP is expected to start in 2HFY26. ? FY25 capex would be INR15b (INR3-4b for LAB/INR10-11b for NEB). FY26 capex would be same as FY25 with a slightly lower allocation to the LAB business.

Valuation and view ? While the market seems to be upbeat about ARE&M’s lithium ion foray, we remain circumspect about the returns from the business. Moreover, after the recent run-up, the stock at ~24x/21x FY25E/FY26E EPS appears fairly valued. We, hence, maintain our Neutral rating on the stock with a revised TP of INR1,090 (based on 18x FY26E EPS).

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