Amara Raja Batteries Limited (ARBL) is the technology leader and one of the largest manufacturers of lead acid batteries for both industrial and automotive applications in the Indian storage battery industry. The company holds a dominant market share in the telecom industry, UPS sector (OEM & Replacement) and maintains a significant presene among other industry segments. Both Johnson Controls Inc. and Galla Family own stakes in the company.
Amara Raja is also a leading manufacturer of automotive batteries under the brands - Amaron® and Powerzone, which are distributed through a large pan - India sales & service retail network. The company supplies automotive batteries under OE relationships to Ashok Leyland, Ford India, Honda, Hyundai, Mahindra & Mahindra, Maruti Suzuki, and Tata Motors. The company’s Industrial and Automotive batteries are exported to Asia Pacific, Africa and Middle East
Amara Raja is the second largest automotive battery manufacturer and the largest supplier of Industrial storage battery in India. It entered the automotive battery segment only in FY01 post its JV with Johnson Controls Inc (JCI, USA) when it
introduced AMARON batteries based on Zero maintenance technology for the first time in India.
Competition
Amara Raja is also a leading manufacturer of automotive batteries under the brands - Amaron® and Powerzone, which are distributed through a large pan - India sales & service retail network. The company supplies automotive batteries under OE relationships to Ashok Leyland, Ford India, Honda, Hyundai, Mahindra & Mahindra, Maruti Suzuki, and Tata Motors. The company’s Industrial and Automotive batteries are exported to Asia Pacific, Africa and Middle East
Amara Raja is the second largest automotive battery manufacturer and the largest supplier of Industrial storage battery in India. It entered the automotive battery segment only in FY01 post its JV with Johnson Controls Inc (JCI, USA) when it
introduced AMARON batteries based on Zero maintenance technology for the first time in India.
Competition
Financials
The company is growing steadily and increased revenues even during the financial crisis of 2008-2009, during which many automotive and industrial companies slump. Margins and sales growth have decreased in recent years, however the operating and net margin are slowly rebounding. This might also be a result of lower lead prices, which represent 80% of costs for Amara Raja's products.
Valuation
Using a three stage DCF model, I have derived an estimated value with these assumptions:
- Profit growth of 20% for the first 5 years, 10% for years 5-10 and 2% thereafter
- discount rates of 12,13 and 14%
Valuation
Using a three stage DCF model, I have derived an estimated value with these assumptions:
- Profit growth of 20% for the first 5 years, 10% for years 5-10 and 2% thereafter
- discount rates of 12,13 and 14%
At current prices (488 Rs.), Amara Raja Batteries seems to be fairly valued or slightly overvalued. The problem with valuations is, that even if you get it right, the stock might continue to much higher levels, and you can miss out on a lot of profit. That's why I will keep holding this one and sell only if it starts declining.
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