24 May , 2021 By : Kanchan Joshi
Amara Raja Batteries Ltd posted decent earnings in the March quarter. The company's operational performance was better-than-anticipated despite raw material cost pressures with Ebitda margins at 15.1%. Ebitda is short for earnings before interest tax depreciation and amortization.
Margins were aided by lower employee expenses and write-back of provisions. To tackle cost pressures, the company has taken price hikes of around 1.5% in April. Revenue at Rs2,100 crore also beat analysts' expectations, thanks to robust sales of inverter and other industrial segments.
Analysts at Emkay Global Financial Services Ltd point out that the when compared on a two-year CAGR basis, the company has done well on these parameters. CAGR is short for compounded annual growth rate.
However, the company’s lack of investments in the lithium-ion technology for electric vehicles is seen an overhang for the stock.
"Electric vehicle penetration remains a structural risk in the medium term, as companies such as Amara Raja will have to make large investments in research & department and for setting up lithium battery manufacturing capacities, leading to a dilution in return on equity," said the Emkay research report dated 23 May. The entry of new players could also increase competition and negatively impact margins, they added.
Sharing a similar concern, analysts at Motilal Oswal Financial Services Ltd said that falling cost of lithium batteries poses a threat to industrial batteries companies. "In auto, e-2wheelers/e-3wheers do not require a lead acid battery as an auxiliary power source. This would in turn impact 15-20% of revenue for lead acid battery players," the domestic brokerage house said in a report.
On the valuation front, the stock is trading at a one-year forward price-to-earnings multiple of around 16 times, which is in the fair value zone, analysts at Nomura said. However, on the valuation front, they prefer Exide Industries on attractive valuations.
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