17% growth forecast for Amara Raja in FY22

Expecting a strong demand to return on the easing lockdowns and strong product off-take, analysts are upbeat on Amara Raja Batteries Ltd as they forecast 17 per cent growth in FY22 and 13 per cent in FY23.

Amara Raja's continuous market-share gain in automotive and strong volume growth by replacements, will build a strong position in its business verticals, according to a latest report by Anand Rathi Share and Stock Brokers Ltd, a brokerage and equities-research firm.

"We expect margin expansion in the next two years. We continue to be positive on

the stock, with a Buy rating at an unchanged target price of Rs1,131 (22x FY23e)," said the report.

It expects a 15 per cent revenue CAGR over FY21-23, and the margin to expand to 16.1 per cent. Accordingly, earnings to register a 17 per cent CAGR over FY21 and FY-23 to Rs8.8bn. This will lead to an EPS of Rs51.

The company hopes for margin expansion in the next two years. The company reasoned lockdowns for volume decline in various segments and posted a 10-15 per cent sequential volume decline across segments except exports.

Exports grew five per cent sequentially. Analysts expect FY22 revenues across verticals to grow, primarily led by two and four-wheeler OEMs, home inverters and industrial business. While the company operated at 90 per cent capacity in Q4 FY21, it would operate at similar levels in Q2 FY22, as expected strong demand to return on the easing lockdowns and strong product off-take. Accordingly, it expects 17 per cent growth in FY22, and 13 per cent in FY23 for Amara Raja Batteries Ltd.

According to the report, in Q1 FY22, gross margin contracted 147bps sequentially due to higher lead costs plus a greater proportion of traded inverter goods. Lead costs went up 5.3 per cent in Q1 FY22 and the company had raised prices across product categories 1.5-2 per cent each in April, July and August. In our view, if lead prices remain at $2,400, it believes another round of price hikes is a possibility. With a favorable product mix and expectation of strong volume growth, we expect stable margins of 16 per cent in FY22 and FY23, it further added.