Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Market / Mark-to-market/  Rising costs and moderating sales hit Amara Raja’s margins
BackBack

Rising costs and moderating sales hit Amara Raja’s margins

Amara Raja's net revenue rose by 10% from the year-ago period to Rs1,382 crore, a tad below the Street's forecast

Amara Raja’s net profit too fell by around 17%, quite a rare phenomenon in the firm’s decadal track record. Photo: MintPremium
Amara Raja’s net profit too fell by around 17%, quite a rare phenomenon in the firm’s decadal track record. Photo: Mint

Amara Raja Batteries Ltd (ARBL), the second largest lead-acid battery maker in the organized sector, put up a tepid show in the December quarter. The demonetisation of high-value currency notes did not drag down the firm’s sales, but then costs rose significantly during the quarter to impact profitability.

ARBL’s net revenue rose by 10% from the year-ago period to Rs1,382 crore, a tad below the Street’s forecast. But the price of lead, the main raw material used in batteries, was up by about 10% and 40% when compared to the September and year-ago quarters, respectively.

That was not all. The firm’s marketing and advertising campaigns have been maintained to pump up sales, amid stiff competition from both the organized and unorganized markets for batteries.

Indeed, this has paid off. ARBL has been gaining mileage steadily at the expense of its competitor and No. 1 player Exide Industries Ltd. Yet, ARBL is cautious. Dealers say that ARBL’s products are normally priced at a slight discount to those of Exide.

Meanwhile, the quarter saw a rise in freight and transport costs too. Together, the operating costs jumped by around 15% year-on-year (y-o-y) to outpace revenue growth. Thus, operating profit took a beating. At Rs203 crore, it was not only around 11% lower than a year ago but it also slipped below Bloomberg’s 12-broker average estimate.

This was mirrored in profitability. Operating margin at 15.4% was a huge 360 basis points (bps) lower y-o-y. Importantly, it was lower than what analysts had pencilled in. According to Elara Securities India (Pvt.) Ltd, the four-wheeler replacement segment continues to outperform the industry, but the two-wheeler original and replacement segment was badly hit due to the impact of demonetisation, but should gradually get back to normal in the current quarter.

Further, the firm’s telecom and uninterrupted power supply (UPS) business was not very exciting.

On the whole, therefore, the combination of rising costs and moderating sales took a toll on profits. Net profit too fell by around 17%, quite a rare phenomenon in ARBL’s decadal track record.

So the stock did let off steam soon after the results were announced on Friday. At Rs886 apiece, ARBL’s shares trade at about 24 times FY2018 estimated earnings, a fair valuation, given that earnings growth may rev up in the March quarter on the back of better revenue growth.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 26 Jan 2017, 01:35 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App