The company manufactures lead acid storage batteries for industrial and automotive applications in India. Their business is divided into two segments: industrial batteries (40% of revenues) and automotive batteries division (60% of revenues). The products are distributed to various users like telecom, railways, power control, uninterruptible power supply (UPS) or to automobile original equipment manufacturers (OEMs) and the replacement market. The company was founded by Ramachandra Naidu Galla in 1985 (who still manages the business today), and established a joint venture for automotive batteries with the global leader Johnson Controls.
It's main battery brand 'Amaron' is the second largest selling automotive battery brand in India, outsold only by it's close competitor Exide. The two companies hold a dominant market share in India, Amara Raja maintains it's leadership in Telecom (46%) and UPS (32%) markets. The company is quite dependent on the automotive industry in India, which has been experiencing some difficulties lately, as 2013 represents the second consecutive decrease of car sales since 2002. However, the company grew revenues by 26% in the last year, and increased it's return on equity to 30%, from it's 5-year average of 28%. Increasing efficiency has brought their operating profit margins to 16% (from 14.3% in 2011), and their net profit margin to 9.6% from 8.4% in 2011.
Risks
Lead is a major component in the manufacture of batteries, representing over 65% of total costs. A sharp increase in lead prices would decrease company's profits, despite their efforts to source it from cheaper locations. The automotive sector is cyclical in nature, any wide swings in car demand or production would case significant volatility for the stock (although the company grew revenues even during the global crisis in 2008).
It's main battery brand 'Amaron' is the second largest selling automotive battery brand in India, outsold only by it's close competitor Exide. The two companies hold a dominant market share in India, Amara Raja maintains it's leadership in Telecom (46%) and UPS (32%) markets. The company is quite dependent on the automotive industry in India, which has been experiencing some difficulties lately, as 2013 represents the second consecutive decrease of car sales since 2002. However, the company grew revenues by 26% in the last year, and increased it's return on equity to 30%, from it's 5-year average of 28%. Increasing efficiency has brought their operating profit margins to 16% (from 14.3% in 2011), and their net profit margin to 9.6% from 8.4% in 2011.
Risks
Lead is a major component in the manufacture of batteries, representing over 65% of total costs. A sharp increase in lead prices would decrease company's profits, despite their efforts to source it from cheaper locations. The automotive sector is cyclical in nature, any wide swings in car demand or production would case significant volatility for the stock (although the company grew revenues even during the global crisis in 2008).
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