We maintain buy on Amara Raja Batteries with a target price of R560 per share. Considering Q1 performance and improved business outlook, we upgrade FY15e and 16e ebitda by 5% and 6.8%; though EPS upgrade is restricted to 1.8% and 3.2% on higher depreciation charge. The stock trades at 21.1x and 16.6x FY15e and 16e EPS of Rs 24.5 and 31.1, respectively.
Amara Raja's Q1FY15 operational performance was above expectation driven by higher-than-expected revenue and margins. Net sales grew 15.1% y-o-y (up 15.9% q-o-q) to Rs 10.3 billion (versus estimates of Rs 9.8 billion). Ebitda margin at 17.1% (estimated 16.6%) improved by 80 bps y-o-y/160 bps q-o-q. Other expenditure declined 130 bps q-o-q (100 bps y-o-y) driven by lower share of home UPS (trading business) and cost reduction measures (particularly for power & fuel). Despite the robust 20.7% y-o-y ebitda growth, PAT growth was restricted to 8.3% to Rs 1.06 billion (estimated Rs 1.03 billion) on higher depreciation charge (as per the provisions of new Companies Act).
Key takeaways from management are: Robust volume growth in industrial (22% y-o-y) and 2Ws (78% y-o-y). 4W volumes grew 2% y-o-y, with OEM growth of 3%. A 15%-growth in 4W replacement demand was offset by a decline in demand in private label manufacturing. Exports grew 20% (~5% of revenue). Demand outlook remains robust across segments.