Hope you are doing well.
Recently, I was going through the details of Amara Raja Energy & Mobility Ltd.
Earlier its name was Amara Raja Batteries and is a very well known brand in the automotive batteries space.
We used to track this company before and even recommended it back in May 2012 to Alpha and Alpha + members around 150 odd levels and closed it with 300% + gain 2 years later in Sep 2014.
I think we did well by closing it around 600 odd levels in Sep 2014 as 9 years later the price is still around 650.
Nevertheless, the company has grown since then and is entering new energy spaces like Lithium-ion cell and pack manufacturing, EV charging products, etc.
Source: Amara Raja Q4 FY 23 presentation
Below, we have shared interesting insights from the Q1 FY 24 con-call of Amara Raja Energy and Mobility to understand the current situation and the outlook for the company. Hope you find the details useful for your own investments or to add the stock to your watch list.
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Amara Raja Energy & Mobility – Insights from Q1 FY 24 con-call of the company
- We had a revenue of Rs 2,795 crore of which about 4% is coming from the new energy business
- The overall Lead acid revenue still has a mix of 70% from Automotive which includes 4W, 2W and the inverters and 30% from the industrial segment
- Lead acid battery business growth was around 4% YOY
- 4W grew at about 5%; within 4W, the after market has grown at around 7-8%
- 2W grew at about 9%
- there was a reduction of about 20% as far as inverters and other applications are concerned both due to poor season as well as lack of complete production facilities as the tubular factory was gutted in fire in the month of January
- During the quarter, replaced the entire tubular range with the traded products; of the total turnover, around 15-16% is coming from traded products which also had an impact on margins
- The industrial segment has shown a strong growth of about 15% on a YOY basis
- Capacity utilization on the automotive side for the quarter was around 75% and 95-97% on the industrial side
– New energy business
- 107-108 crore sales during the quarter
- This is 3.5 times increase in sales on YOY basis 23% on QOQ basis
- Today we are supplying the battery packs to mostly 3 wheeler applications
- We are also supplying battery chargers to again 3 wheeler OEMs
- For first phase, customer qualification plant, 2 GWh (gigawatt hour) cell line and a lab will cost around Rs 1,500 crore; revenue from this should start coming in from FY 26
- The asset turns could be 1-1.2 and can improve to 1.4-1.5 as well
- As far as profitability is concerned, at the operating level we believe 10-12% kind of a margin is possible at this point of time
- We expect that the volumes will run up in the export segment again and then we continue to maintain these healthy growth rates of 15-20% a year as we move ahead
- The aftermarket demand outlook for 4Ws is still in the range of 6-7%
- 2Ws are growing strong at about 11-12% we are growing a shade more than that as far as two wheeler aftermarket is concerned
- We have seen a strong uptick in the demand for Telecom batteries because of the tower augmentation requirements; Telecom is now growing at around 16-17%
- The UPS segment also has shown a very strong growth domestically…earlier we used to see a growth of around 7-8%…this quarter we have seen a growth of 10-12%
- We expect that both these Telecom and UPS demand at this demand levels may sustain during the current year
- QOQ reduction due to trading mix and higher insurance cost…these two are compensated by reduction in the power cost due to higher usage of self generated solar power
- New energy business will also impact EBITDA margin negatively considering this being a new business the EBITDA levels are still to mature
– Lead pricing
- Net average for the quarter was around Rs 194 per KG while currently the lead base is still hovering around 2,150 dollars; the currency depreciation is keeping the lead level elevated
- Around 150 to 170 is where we can look for a 15% kind of an EBITDA margin beyond that EBITDA margins do get diluted
- FY 23 we will close with EBITDA of 13%
Disclaimer: This is not a recommendation to buy/sell Amara Raja Energy & Mobility. The securities quoted are for illustration only and are not recommendatory.
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