Anand Rathi upgrades Amara Raja Energy to 'Buy' on growth, new BESS plans

Anand Rathi expects Amara Raja Energy to gain market share in the lead-acid battery segment, supported by a favourable outlook for automotive and industrial demand.

Domestic brokerage Anand Rathi Share and Stock Brokers has upgraded Amara Raja Energy and Mobility to a ‘Buy’ rating, following the company’s latest quarterly results and strategic announcements.  The brokerage noted that the company reported standalone earnings before interest, tax, depreciation, and amortisation (Ebitda) of ₹374.5 crore, down 10 per cent year-on-year (Y-o-Y), which was marginally below their estimate of ₹394 crore.

 

Despite this, analysts expect the company to gain market share in the lead-acid battery segment, supported by a favourable outlook for automotive and industrial demand.

 

Margins are also expected to improve with the commissioning of a new tubular battery and recycling plant. Additionally, Amara Raja plans to establish a lithium-ion cell manufacturing facility, expected to commence operations by the end of FY27. The company has also secured approval for a 5GWh battery energy storage system (BESS) plant, with potential revenues of up to ₹28 billion by FY30, the brokerage said in its note.

 

Anand Rathi projects revenue, Ebitda, and PAT growth of 8 per cent, 12 per cent, and 14 per cent, respectively, for FY28. It added that the BESS announcement adds to the company’s positive outlook. At the current market price, the stock is valued at 15x FY27 and 13x FY28 estimated earnings, which is reasonable.

 

The company's standalone revenue grew 6 per cent Y-o-Y to ₹3,351 crore, marginally below Anand Rathi’s estimate of ₹3,439 crore. Gross margins contracted by 140 basis points to 31.8 per cent. The tax rate fell to 22.2 per cent from 35.5 per cent a year earlier, resulting in adjusted PAT of ₹195 crore, down 3 per cent year-on-year and below the forecast of ₹206 crore.

 

Looking ahead, analysts at Anand Rathi expect the parent company’s revenue and Ebitda to grow at a CAGR of 9 per cent and 18 per cent, respectively, over FY26–28. While higher input and operating costs, along with lower other income, have led the brokerage to cut EPS estimates by 19-29 per cent for FY26/27, it remains positive on the company’s long-term prospects.

 

The brokerage has revised its target price to ₹1,050 from ₹1,125, valuing the stock at 12x FY28 estimated EPS. Additionally, it assigned ₹210 per cent share to the new lithium energy unit (Amara Raja Advanced Cell Technologies) and ₹73 per share to the BESS business, projecting ARACT revenue/PAT of ₹432/216 crore by FY31 and BESS revenue/PAT of ₹2,240 crore/67.2 crore by FY30, using a 25x multiple on discounted PAT.

 

Analysts highlighted slower growth in lead-acid batteries, weaker-than-expected orders for lithium-ion/BESS plants, and adverse commodity price movements, among the key risks for the firm.  Disclaimer: The views or investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.