Amar Raja Batteries’ (AMRJ) Q2FY14 Ebitda was 7% ahead of our and 5% ahead of consensus estimates, as stronger-than-expected margins more than offset lower revenues. Disappointment on revenue was entirely due to lower trading revenue in the home UPS segment. As per management, volume growth in the 4-wheeler replacement segment remained strong (15-16% in H1) and will likely remain in double-digits in H2 as well. We believe AMRJ has gained some market share as EXID’s volumes were up by ~5-8% in 1H.
This reflects customers’ growing acceptance of the AMRJ brand which will be taken positively by the market, in our view. AMRJ took a 3% price increase in the replacement segment in Oct-13, which we estimate should largely take care of the increase in lead prices and help the company maintain margins at ~16%. We fine-tune our FY14- 15F estimates – revenue cut by 3-4% owing to lower trading revenues and delays in expansion plans; however, we raise our EPS estimates by ~2% owing to our higher margin and other income estimates. Overall, we expect earnings momentum to remain strong and expect AMRJ to deliver 17% EPS CAGR over FY13-15F. We assign ‘buy’ on the stock.