The company has already expanded its battery manufacturing capacity form 100 mAh to 200 mAh at its Hyderabad plant since July 2008.
The expanded capacity is already operating at near peak capacities and it supplies telecom batteries with 10% market share.
It plans to further enhance its capacity and has a vision to expand its market share of the telecom batteries to 15% and 10% of the total battery market by 2014.
The company has also set up 100 mAh facility at Panoli in Gujarat in March 2009. The plant is ramping up its operations and has already started contributing to the overall revenues and profits for the company.
Initially it would manufacture telecom batteries and later on foray into batteries for UPS and power sector. Going forward its capacity can be expanded to 200 mAh.
The company had acquired 100% stake in Bahrain based Gulf Powerbeat WLL with capacity of 150 mAh for Telecom and 150 mAh for automotive batteries. Currently it is making some components of the telecom batteries and exporting it to Hyderabad plant.
Going forward it plans to manufacture batteries for the automobiles and sell in the global market through its Bahrain plant.
The volumes sold by the company grew by 33.3% to 160 mAh in FY09. While the volumes grew by 33.3% the revenues grew by 13.3% to Rs1.5 billion as the lower prices of its key raw material i.e. lead were passed on to the customers.
The operating margins were up 40 bps to 29.1% and EBIDTA was up 15% to Rs437 million. However PAT was actually down 14.1% to Rs223 million.
We have revised the earnings estimates to account for higher than expected revenues and profitability of the of battery business of the company.
For FY10E, we now expect TTL to report revenues of Rs9.8 billion (up 2.3%), EBIDTA margin of 21.5% (up 0.3%) and PAT of Rs975 million (up 3.8%).
Accordingly we expect TTL to report higher EPS of Rs4.7 and CEPS of Rs6.5 in FY10E as against our earlier estimate of Rs4.5 and Rs6.1 respectively.
We have also accounted for the better than expected working capital cycle in FY09 as against our earlier estimates and have made changes going forward resulting into better cash generation.
We have valued TTL on DCF method of valuation with 13.2% WACC and 4% terminal growth rate (no change). Thus the price target is revised upwards form Rs60 to Rs65.