Will price cuts discharge Amara Raja’s powerful Q1FY20 performance1 min read . Updated: 22 Jul 2019, 11:32 AM IST
- Investors were also appeased with the 300 bps (yoy) expansion in Ebitda margin to 15.4%
- Performance was driven by a 6% beat in net sales at ₹1,815 crore
Mumbai: Amara Raja Batteries Ltd shares opened higher on Monday on the back of power packed June quarter results declared on Saturday. The battery maker that enjoys the No.2 position in the organized sector beat the street’s estimate on all counts.
Performance was driven by a 6% beat in net sales at ₹1,815 crore. The slowdown in original equipment (OE) sales, was more than compensated by the thriving replacement market. Overall sales volume rose by 7% year-on-year. A report by Motilal Oswal Securities Ltd says that inverter sales were flat and telecom sector continued its lacklustre trajectory. However, strong market for uninterrupted power supply (UPS) driven by the industrial segment offset this.
An added punch came from softer lead prices that were nearly 10-12% lower yoy. This along with better realistions in the replacement market drove Ebitda up by 26% to ₹279 crore. Ebitda is earnings before interest, tax, depreciation and amortization.
Investors were also appeased with the 300 basis-points (bps) yoy expansion in Ebitda margin to 15.4%.
However, its time to turn cautious. There is no respite from falling auto sales. Spreading economic gloom may also touch other sectors, if things don’t improve. On top of this, battery makers have the challenging of coping with the transition to electric vehicles. The trend towards OEs entering tie-ups directly for lithium-ion batteries is increasing. Will this dent the market for the duopolistic market held by Amara Raja and market leader Exide Industries Ltd?
Even in the near term, there are reports from dealers about a price war in the replacement market. Amara Raja reacted to the 5-6% price cut recently to the 5-6% price cut in the two-wheeler replacement market by Exide. Also, the warranty period was increased by six months across auto segments, which may raise costs. This can hurt blended realisations on sales and weigh on profitability ahead.