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/  Robust sales, soft lead prices power Amara Raja’s margin to 5-year high
BackBack

Robust sales, soft lead prices power Amara Raja’s margin to 5-year high

The benefits of higher operating leverage kicked in with higher sales, translating into better profitability in June quarter

Amara Raja’s share in the automotive battery market is a strong 27%, challenging market leader Exide Industries. Photo: Deepshikha Bhardwaj/MintPremium
Amara Raja’s share in the automotive battery market is a strong 27%, challenging market leader Exide Industries. Photo: Deepshikha Bhardwaj/Mint

The Amara Raja Batteries Ltd stock is up more than 15% in the past five days, with the company posting power-packed results for the June quarter, setting the pace for a year of revenue and profit growth. A robust 18.2% operating margin was 110 basis points (bps) above the year-ago period. It was also the highest in over five years and significantly higher than the consensus estimate on the Street. One basis point is 0.01%.

More important, however, are the strong growth prospects for the company. So far, in spite of the economic downturn, the firm has maintained its leadership position in telecom batteries, commanding nearly two-thirds of the market. Meanwhile, its share in the automotive battery market is a strong 27%, challenging market leader Exide Industries Ltd. The June quarter’s revenue growth at 11% was in line with the Street expectations and compares favourably with Exide, whose sales contracted during the period.

Timely and steady capacity expansion in segments like two-wheelers and increasing share in the original equipment segment should translate into a 20% plus compounded growth rate in revenue over the next two years.

For the June quarter, the benefits of higher operating leverage kicked in with higher sales, translating into better profitability. That said, lower lead prices gave a leg-up for margins too, as raw material cost as a percentage of sales dipped by 260 bps from a year ago. Consequently, the revenue growth percolated down to a 19% rise in operating profit to 208 crore, in line with Bloomberg’s forecast. In comparison, Exide’s operating profit contracted year-on-year on account of lower sales.

That said, the Amara Raja stock has returned 180% over the last one year, mainly as steady earnings growth and market share increase also resulted in its re-rating.

Analysts expect the net profit to grow at a compounded annual growth rate of around 25-30% over the next two years. Yet, the current market price factors in most of the positives as it trades at about 23 times estimated 2016-17 earnings per share.

The writer does not own shares in the above-mentioned companies.

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: 19 Aug 2015, 06:57 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App