Good operational performance from Amara Raja

While operating profits at Rs 142 crore were up 20%, net profit was up 35% on a year on year basis

The stock of battery maker Amara Raja Batteries was up seven per cent this week, on better than expected results as well as valuation re-rating. In fact, on Thursday the stock rose to its highest levels this year at Rs 342 before ending the day gaining 1.4 per cent to Rs 336.  

The company reported better-than-expected results for the quarter ended September on operating profits and earnings. While operating profits at Rs 142 crore were up 20 per cent, net profit was at Rs 94.5 crore was up 35 per cent on a year-on-year basis. While the operating profit and the net profit were above estimates to the tune of 12 per cent and 14 per cent respectively, revenues at Rs 807 crore, were up 12 per cent were below estimates.

The results according to analysts were better than Exide which saw a revenue fall of six per cent year on year for the quarter. Weak demand from original equipment manufacturer (OEM) and inverter segments were responsible.

Exide’s Ebitda margins too were down 220 basis points (bps) to 14.1 per cent. Exide, however, indicated that the performance was due to rupee depreciation of 12 per cent and its price increases were not enough to cover the  cost of rising lead prices and the higher import costs.

The company is confident of regaining the 16 per cent margins achieved in the June quarter on the back of volume growth as well as increase in prices. The company continues to maintain a market share of 66 per cent in the OEM auto segment while Amara Raja has a market share of 28 per cent.

Operating profit margins for its competitor Amara Raja on the other hand came in a strong 17.6 per cent up 124 bps over the year-ago quarter. A sharp fall in purchase of traded goods of the lower margin UPS segment (down 54 per cent year-on-year to Rs 24 crore) helped boost margins, believes Yaresh Kothari of Angel Broking. Lower share of the OEM segment and price hikes also helped beat margin estimates, believes Gaurant Dadwal of Nirmal Bang Institutional Equities Research.

Lead costs which accounts for a major chunk of its expenses were higher than the year ago quarter. As a per cent of sales, raw materials were at 63 per cent up 500 bps over the year-ago period.

However, the company has been taking price hikes continuously in the replacement segment to offset the raw material cost increase. The company has already taken three price hikes this year, the last one in this month. Strong volumes expansion in the four and two-wheeler replacement battery segment as well as price hikes helped aid expansion of gross margins.

Despite capacity constraints and subdued demand in inverter segment, the company’s industrial segment too recorded a double digit growth. It is the operating performance that helped the company improve its net profits which grew 35 per cent to Rs 94.5 crore.