Shares of Amara Raja Batteries, India's second-largest lead-acid battery manufacturer, have jumped 28.33 percent in the last three months, rallying from ₹505 apiece to the current level of ₹648.10. The stock saw its bull run after the company posted solid numbers for the September quarter.
Since its Q2 results announcement on November 03, the stock experienced a one-way spike, climbing from ₹519.75 to hit a new 52-week high of ₹668.2 on December 09.
At current levels, the stock is trading 48 percent higher than its one-year low of ₹438.
Despite such strong gains, domestic brokerage firm Sharekhan raised its target price on the stock and maintained its "buy" rating, citing a brighter outlook and comfortable valuations.
The brokerage expects the battery industry to benefit from robust demand from the automotive sector, driven by pent-up demand, a preference for personal mobility, and a faster-than-expected recovery in infrastructure, mining, and other economic activities.
With increased OEM offtake, the battery sector is well-positioned to grow in the future. Besides robust OEM growth in recent quarters, the brokerage expects growth from the replacement segment to remain robust over the next few years.
Industrial battery volumes have shown healthy growth, especially in the telecom segment, driven by the 5G rollout preparations in the country, it added.
Sharekhan stated that the company’s management is taking several strategic initiatives to take advantage of the rapidly emerging new opportunities to accelerate growth in the medium term.
"Amara has announced "Energy and Mobility" as its new theme for growth, driven by transformative changes in key operational markets. The company has laid out a vision to remain a dominant battery player in the Indian Ocean Rim and one of the leading global players in batteries through enduring partnerships," said the brokerage.
The company's board recently approved the demerger of plastic components for battery businesses from Mangal Industries. The brokerage noted that the proposed transaction is expected to be EPS accretive from the first year itself through margin improvement and annual recurring post-tax synergies.
The company is present in more than 35 countries, and exports contribute 12 percent to total revenues. With its aggressive foray into the new energy business, the company expects to grow faster in exports than domestic revenues, and the company is open to growing inorganically in export markets as well, according to brokerage.
Amara will establish a new energy SBU encompassing lithium cell and battery packs, EV chargers, energy storage systems, advanced home energy solutions, and other related products and services. The company has announced the incorporation of a wholly owned subsidiary that will set up a multi-gigawatt-hour lithium-ion cell manufacturing facility.
The company is debt-free and generates free cash flow (FCF) of Rs. 300–400 crore every year, sufficient to meet its strategic goals. The company has strong long-term revenue visibility, given its focus on the aftermarket segment. The company plans to grow in the new energy space through partnerships, the brokerage pointed out.
Sharekhan's target price of ₹756 apiece hints towards an upside potential of 16.64 percent from the stock's previous closing price.
In Q2 FY23, the company posted a 39.43 percent YoY jump in its consolidated net profit at ₹201.2 crore, which is the highest to date. Sequentially, the net profit was up by 52.4 percent. It posted a net profit of ₹132 crore in the preceding quarter.
During the quarter, the company recorded its highest-ever sales at ₹2,724.4 crore, a growth of 18.93 percent YoY. The operating profit came in at ₹358.7 crore for the September quarter, an increase of 33.29 percent when compared to ₹269.1 crore in the corresponding quarter of the last fiscal.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.