Investors weren’t pleased with the financial performance of Amara Raja Batteries Ltd for the quarter ending March 2013 and sent the stock down 5% in reaction to the numbers.

The disappointment came on the margin front even as revenue growth was satisfactory at 19% on a year-on-year basis to 804 crore, still the lowest in the last four quarters. Revenue growth was primarily driven by strong traction in the automotive replacement market and double-digit growth in the UPS segment.

Operating profit margin stood at about 14% last quarter, slightly lower than in the same period last year. But then, operating margin was lower than in the first three quarters of the last fiscal year too. One reason for lower margin is the higher cost of lead. In fact, raw material cost as a percentage of total revenue was the highest in the last four quarters. Higher depreciation and tax outgo resulted in a mere 2% net profit growth to 60 crore.

For the year as a whole though, Amara Raja Batteries has performed relatively better. Revenue increased by 25% in FY13 compared to last year. The company said that both the automotive battery business and the industrial battery business posted double-digit revenue growth. The automotive segment revenue growth was supported by an increase in volume of 20% in four wheeler and 37% in two wheeler batteries. On the other hand, the industrial batteries segment was helped by improvement in price realizations. For FY13, net profit at 287 crore increased by one-third compared to the last fiscal.

Amara Raja Batteries could well capitalize on the expected replacement demand from vehicles thanks to strong automobile sales seen in FY10, which was a good year for automobiles. Moreover, the company is sitting on a strong balance sheet with free cash of over 350 crore at the end of last year. While all that is encouraging, investors seem to be factoring most of the positives. The Amara Raja stock has increased substantially by 87% in the last fiscal year and outperformed the BSE 200 index of the Bombay Stock Exchange since the beginning of this calendar year. This could very well mean that near-term upsides are limited. It’s no wonder then that broking house Prabhudas Lilladher has downgraded its rating on the stock to “reduce" from “accumulate" earlier.

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