Active TopicsActive Topics  Display List of Forum MembersMemberlist  CalendarCalendar  Search The ForumSearch  HelpHelp
  RegisterRegister  LoginLogin

Emerging companies - Mid caps that can become large cap
 The Equity Desk Forum :Investment Ideas - Creating winning portfolios! :Emerging companies - Mid caps that can become large cap
Message Icon Topic: Is Amararaja Batteries a growth stock or Value Post Reply Post New Topic
Page  of 23 Next >>
Author Message
manishdave
Senior Member
Senior Member


Joined: 05/Aug/2006
Location: India
Online Status: Offline
Posts: 1371
Quote manishdave Replybullet Topic: Is Amararaja Batteries a growth stock or Value
    Posted: 14/Aug/2006 at 10:28am

Or both?

Company is trading at p/e of 10. Not very high but not too low either. But It plans to grow by 100% in two years. I like management as they never came out with rights issue. Company is almost always debt free. They have good technology and succesfully entered automative batteries against dominant player Exide. Exide should be afraid of Amararaja. The way auto industry growing in India, replacement cycle will be mint for this comapany.
Some investors worry about lead price but I believe that all manufacturers will pass on the increase of metal price(that is also called inflation).
 
This is also among very few companies that hit new high after recent mkt crash.


Edited by basant - 31/Oct/2006 at 10:32pm
IP IP Logged
Vivek Sukhani
Senior Member
Senior Member
Avatar

Joined: 23/Jul/2006
Online Status: Offline
Posts: 6675
Quote Vivek Sukhani Replybullet Posted: 14/Aug/2006 at 11:40am
Excellent pick. But the dividend yield is pathetic. I would wait for the time the management becomes more confident regarding its future performance.Also, to my surprise, I see lot of fluctuations in EPS, which makes me a bit tentative. But its a buy on declines for sure.However, technically speaking, this scrip faces a good probability of entering a mid-term decline stage, and a fall to 240-250 cannot be ruled out.On the higher side, I would pare some holdings @410 and then @570.But a good observation, and I would be very keenly watching this company hence on.

Edited by Vivek Sukhani - 14/Aug/2006 at 11:41am
IP IP Logged
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Posted: 15/Aug/2006 at 6:41pm
                                 Amara Raja Batteries - Growth or Value
 
Amara Raja Batteries (CMP 332) is a small cap company having  technical backing of Johnsons Control of US. The company is a major player in the valve regulated lead acid (VRLA) batteries that are used in automobiles, industrial applications such as telecom, power and information technology, among others.

 

Amar Raja ventured into the automotive battery market in the late 1990s. It has since made a steady progress in the automobile segment, which now accounts for over 50% per cent of the turnover

 

Over the past few quarters the company managed to increase its profits which had taken a backseat due to lower realizations in the industrial battery market and also because of the rising advertisement costs.

 

Last year the company bagged exclusive orders to supply batteries to Swift — Maruti's latest model in the passenger car market. This along with the bagging of orders for other Maruti models has provided further impetus to growth.

 

The Board of Amar Raja Batteries recently approved a scheme to invest Rs 88.2 crores to increase its automotive battery capacity by 50% from 3.6 mm units per annum to 5.4 mm units per annum by Fy 08. The completion of present expansion shall increase the capacity (54 lac unites) by over 400% from September 2001.

 
Many companies manage to do what Amar Raja has done but few manage to do it the way they have done it. The company has increased capacity without diluting any equity over the past 4 years

 

Over the next 5 years the Indian car market is going to explode and also with increasing Industrial activity demand for the Amar Raja’s products is bound to go up in future.

The Company has also expanded its retail network to 135 franchisees from 125 at the end of the previous fiscal. The Company currently has a pan India sales and service network with 135 franchisees, 99 Pit stops and over 12000 active retailers. The company is also focusing on the replacement market by expanding its retail outlets across the country. It has also launched batteries across different price segments and is targeting new customers in the original equipment market.

Announcing the investment plans the management says that they have been extremely successful in expanding the OE & replacement business and also increased their Export business.

 

Financial Snapshot

Current Market price         

332

Market Capitalization

Rs 378 crores

Book Value

Rs 176.73

Sales FY 07 Q1

Rs 124.42

Net Profit FY 07 Q1

Rs 9.42

Operating Margins Fy 07 Q1

14.74%

Annualized EPS

Rs 33.12

PE

10 times

Market cap to current year Sales

0.75

Sales after completion of present expansion (in 2 years)

Rs 1000 crores

Estimated Market cap  (in 2 years)

Rs 750 crores

Stock Price in 2 years

Rs 650+

 

 

The expansion in operating margins by over 330 bps to 14.74% from 11.24% over the corresponding quarter of the previous year was a remarkable achievement especially so in the backdrop of higher lead prices. This shows that the company has managed to comfortably pass on the increase in cost to the customers. The company hopes to consistently scale up capacity to gear itself to tap the growing batteries market. The Management expects the turnover to exceed Rs 1000 crores post the expansion. Assuming that these plans fructify the stock could see some serious buying before the expansion actually takes place.

 

 Recommendation: If the company manages to scale up its business the way the management expects it to the stock could double in about 2 years time. Investors could buy on declines and also take initial positions. Interestingly institutions have not yet started buying this stock. The scope for PE expansion is limited since the market leader EXIDE trades at a current year expected PE of 15 times but EPS growth should be enough to drive the stock higher over the coming quarters.

 

P.S: Manish you could add something more on this since you hold this stock for quite sometime now.I must admit i never looked at it seriously till date  but it seems to have both growth and value built into it.



Edited by basant - 15/Aug/2006 at 6:46pm
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
manishdave
Senior Member
Senior Member


Joined: 05/Aug/2006
Location: India
Online Status: Offline
Posts: 1371
Quote manishdave Replybullet Posted: 15/Aug/2006 at 12:32pm
Viviek,
yield is pathetic because things have changed for better recently for the company. You are right about fluctuation in EPS. I will explain there things further. But I dont agree with you that management is not confident abt. future. In fact they are very confident.
 
Basant,
Thanks for nice writeup. I know I dont write good and may be I am lazy too.
 
I think Amararaja is misunderstood company. There was some speculative activity in this company at time of KP, may be he was involved with that. But company pays good amt of tax and they never came with rights issue so I am least worried abt moral part. Company is BV of 175+ without rights premium. Every ruppee they have earned after tax and company is not really very old.
 
Company started with maintenance free industrial battery. Performed good. They they added automative batteried and that was tought nut to crack. It required brand. So this is reason for fluctuation in EPS. But now they have established themselves in automative segment and I see better future.
 
Company used have more payout on dividend but recently they have been adding capacity agressively and they dont dilute equity so less dividend. Company had capacity of 1m batteries in sept 2001 and will have capacity of 5.4m in mid 2007, without diluation.
 
What I m looking for in this company is replacement cycle. Auto boom started in 2003. That replacement cycle should start anytime now so even if auto industry doesn't grow, replacement will keep on going up. There much more money to be made on replacement batteries. If somebody is buying 200,000 batteries, they will negotiate to tooth and nail. They know cost of everything. Replacement is where they make nice profit.
They have started concenpt of pit stop. They collect your old battery for some money and then recycle lead. Brilliant idea.
 
Now they got the scale I think company is in sweet spot.
 
Amararaja started supplying to OEM so replacement they will get preference too.
 
Parent company of EXIDE is truggling hardly. Partner of Amararaja is very strong. This will help in future.
 
Higher energy price should help battrery mkt. Where ever you use solar, you need battery. Hybrid/electric cars will need bigger batteries.
 
 
IP IP Logged
Vivek Sukhani
Senior Member
Senior Member
Avatar

Joined: 23/Jul/2006
Online Status: Offline
Posts: 6675
Quote Vivek Sukhani Replybullet Posted: 15/Aug/2006 at 12:39pm
Mr. dave, I didnt know much about the management but I treat low dividend declaratiion in that fashion. Kindly carry on...The management may be very confident but I become confident of the confidence of the management, if they start to pace up their dividends.I take back my words.
IP IP Logged
manishdave
Senior Member
Senior Member


Joined: 05/Aug/2006
Location: India
Online Status: Offline
Posts: 1371
Quote manishdave Replybullet Posted: 15/Aug/2006 at 3:29am
Viviek,
I love higher dividend too. But think as if you are running Amararaja Batteries. If you see lot of opportunity and you need to invest 82 Cr - which they are planning to do - you would conserve cash. in past company has distributed upto 40% of profit.
 
I rate management good for two reasons:
1. They have high BV just our of profit and after tax.
2. They have successfully penetrated automative battery mkt.
 
What are your picks? You mentioned TIL somwhere. Do you own that stock? I do by the way.
IP IP Logged
Ajith
Senior Member
Senior Member
Avatar

Joined: 06/Aug/2006
Location: India
Online Status: Offline
Posts: 1284
Quote Ajith Replybullet Posted: 15/Aug/2006 at 8:45am

 The key,I think,as mentioned by Mr. Basant is the tie-up with Johnson Controls which also has an equity stake if  I remember correctly.It all depends on how good Johnson Controls is.

Recently I sold off Exide because I do not think their stanglehold on the market can last in the longterm.I recently saw an ad for a Bosch battery.
 
IP IP Logged
manishdave
Senior Member
Senior Member


Joined: 05/Aug/2006
Location: India
Online Status: Offline
Posts: 1371
Quote manishdave Replybullet Posted: 17/Aug/2006 at 10:26am

CNBC's Interview with CFO:

 
Highlights:
Growth last year was 66%.
In Q1 growth was 85%YoY.
Replacement mkt share is 20% which they plan to increase by 5-7%.
projected turnover in two years 1000cr.
 
IP IP Logged
Page  of 23 Next >>
Post Reply Post New Topic
Printable version Printable version

Forum Jump
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot delete your posts in this forum
You cannot edit your posts in this forum
You cannot create polls in this forum
You cannot vote in polls in this forum



This page was generated in 0.156 seconds.
Bookmark this Page

Join Theequitydesk.com Today!

It’s easy to Join and it’s free.

Here's why members would love to be a part of theequitydesk.com

  • Equity Desk focuses on why to buy shares and invest in share rather than what to buy.
  • Live discussion forum wherein members can discuss the current Indian share Market trend, BSE Sensex or the Nifty Index.
  • Have huge cache of information on Indian and World Share Market.
  • Analysis of Indian stock market, Global events, Investing insights, portfolio management strategies and thoughts,
  • Meet investors from round the globe check their investing strategies share experiences and learn for their experiences on stocks and shares, evaluate opinions on investing in India.

Register now while it’s free!

Already a member? Close this window and log in.

Join Us           Close