Amara Raja-Exide Industries battle enters new phase
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Amara Raja Batteries Ltd, the second largest manufacturer of lead-acid batteries in the country, flagged off a good start to FY17.
A robust 16.8% jump in net revenue for the June quarter compares very well with the relatively tepid growth in the earlier quarters.
The moot question is: will the June quarter numbers reinstate confidence on the Street that the firm’s sales will gain traction in both automotive and industrial batteries in the coming quarters?
Amara Raja’s stock performance sagged in the last six months on the back of a tepid 10-11% growth in annual sales for FY16. On the other hand, its competitor, Exide Industries Ltd, did well on the back of strong marketing and a capacity ramp-up. Therefore, Amara Raja’s stock gained only 2.3%, while Exide’s jumped 40%, albeit from a beaten down base.
As a result, the market capitalization gap between Amara Raja and its competitor and market leader, Exide Industries, has narrowed significantly. Note that three years ago, when Amara Raja’s sales grew at a scorching pace when compared with Exide’s, its market capitalization had soared to about two-and-a-half times that of Exide.
Against this backdrop, Amara Raja’s June quarter sales growth is good news. Dealers say Amara Raja’s share in both the two- and four-wheeler market is slowly but surely again gaining traction in the replacement market. The increase in auto sales led to higher original equipment sales, too. That’s not all—a media release said robust exports during the quarter helped increase capacity utilization.
Further, the markets have given a thumbs-up to the firm’s ability to sustain steady operating margins. The June quarter’s operating margin was in line with what Bloomberg consensus estimates pegged at 17.2%. This was also better than Exide’s. Although a tad lower than the year-ago period, it is commendable, given that input costs soared as a percentage of sales on the back of rising lead prices. The numbers say that contained “other expenses” did the trick.
That said, it remains to be seen how the markets will react to the moderate 7% growth in Amara Raja’s net profit, given that Exide’s profit jumped 26%. The caveat, however, is that the former’s “other income” fell, while the latter reported a huge growth in it.
At Rs.902 apiece, Amara Raja’s stock trades at 26 times Bloomberg’s consensus earnings estimate for FY17. Exide still trails at 19 times. And Exide is still the market leader, controlling nearly half the market for automotive batteries. But the Street likes growth in business and stable operating performance. It’s here that Amara Raja has the edge. The firm has steadily chipped away to command about one-third of the market from zero a decade ago.