Shares of battery makers have done relatively better amid concerns about the slowdown in automobile sales. Compared to an 18% fall in the Nifty Auto index of the National Stock Exchange, shares of Amara Raja Batteries Ltd and Exide Industries Ltd have lost 12% and 2%, respectively in the last six months.

To be sure, the stocks have underperformed the benchmark Nifty. But on a one-year scale they did better than the Nifty and the Nifty Auto index.

Analysts pared their earnings estimates for battery makers for the current fiscal year, tracking input cost pressures and a drop in margins in the first half of the year. But revenue estimates have been largely left unchanged. Even after the changes, brokers such as Emkay Global Financial Services Ltd expect the firms to report double-digit growth in revenues and profits for the current and next fiscal years.

The expectations underline the continuing momentum in the demand for batteries. Amara Raja, which released its September quarter (Q2) results on 9 November, said its revenue rose 23% on market share gains in the automobile segment and strong growth in industrial batteries businesses.

Exide, which released its results earlier, said revenue increased by about 15% helped by good growth in automobiles, inverters and industrial batteries.

The companies expect the business momentum to remain positive. Strong automobile sales in recent years indicate good visibility for the replacement market, points out HDFC Securities Institutional Research.

According to ICICI Securities Ltd, after the implementation of the goods and services tax (GST), organized sector firms such as Exide are gaining market share in the commercial vehicle and tractor segments. Further, with the company’s low-cost brand (Dynex) gaining traction, analysts expect Exide to continue to maintain the growth momentum. “The demand in automotive segment continues to remain strong led by Dynex as well as core Exide brand according to our channel checks," Elara Securities (India) Pvt. Ltd said in a note.

Expectations are upbeat at Amara Raja as well. The company continues to see good prospects in the automobile segment. According to Motilal Oswal Securities Ltd, Amara Raja is aiming to gain market share in the original automobile equipment segment and the replacement market.

At around 20 times one-year forward earnings estimates, the valuations of the stocks are not cheap. The commentary should help.

That said, several risks exist. One is a prolonged slowdown in automobile sales. It can impact sales to the original equipment makers (automobile companies), a key business segment.

The second is the rise in input costs. After rising sharply and impacting profitability in the first half, prices of lead, a key raw material, softened recently. This has stoked hopes of a revival in profitability.