BackShares of Amara Raja Batteries powered up after Q4FY20
Replacement demand should offer some comfort in the coming daysLower commodity prices are likely to have a positive influence on the margins
PremiumShares of battery maker, Amara Raja Batteries Ltd rose more than 5% in early deals on Monday, after the company announced better-than-expected March quarter results on Saturday.
True, the company’s revenues increased by about 1% last quarter over the same period last year to ₹1581 crore, which seems unexciting. However, this is better than ₹1481 crore that a Bloomberg poll of analysts had estimated. Plus, these are difficult times for companies, as covid-19 crisis weighs on demand and in turn sales.
Even so, better replacement demand was expected to come to the rescue of battery companies. Analysts from Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a report, Amara Raja’s 1% revenue growth despite weak OE/industrial indicates that replacement demand was resilient. OE refers to original equipment.
Overall, Amara Raja’s earnings before interest, tax, depreciation and amortisation (Ebitda) margin declined marginally year-on-year to 15.4%. This is despite the fact that raw material costs as a percentage of revenues declined by 154 basis points. One basis point is one-hundredth of a percentage point. A relatively faster pace of increase in employee costs and other expenses ate into the gains from lower input costs. Note that gross margins expanded to 36.3% during the March quarter from 34.8% last year.
Robust other income growth and a decline in tax out lead to a 14% jump in the net profit to ₹137 crore. This, too, was better than Bloomberg estimates of ₹111 crore.
Unsurprisingly, investors are thrilled with the company’s earnings beat. The Amara Raja stock has seen a stunning recovery of almost 85% from its lows in March on the NSE. The shares currently trade at about 17 times estimated earnings for this financial year, according to Bloomberg data. As mentioned earlier, replacement demand should offer some comfort in the coming days. According to Nomura, Amara Raja derives nearly 70% of its Ebitda from replacement segment. Additionally, lower commodity prices are likely to have a positive influence on the margins. The stock’s sharp appreciation in recent months suggests investors have taken note of these factors.
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