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Charged Up

Amara Raja Batteries has shown impressive growth even in the midst of a slump in the automobile sector

Why invest?
The Indian automobile sector is in the midst of its worst slump, but that's not slowed Amara Raja. Revenues have grown by 25 per cent annually in the past three years and earnings by 34 per cent. Brisk business that OEMs did in 2010-11 when demand growth was upwards of 25 per cent have now come up for battery replacement, keeping production lines at 90 per cent levels.

Technology has also done its bit; the self-start mechanism on the new bikes makes the battery a critical component, that wears off faster, requiring a quicker replacement than those on conventional bikes. It has largely held on to its margins even in the slump. While battery leader Exide saw margins erode 500 basis points in the six months ending December 2013, Amara Raja's margins are still close to its 15-quarter highs.

Caution: A prevailing slowdown that can continue to run this year may catch up with Amara Raja in the form of lower volumes on the battery replacement front in the next three-four years. Also, lead which accounts for 85 per cent of cost of manufacturing is susceptible to global fluctuations and can impact margins.

  • India's second largest automotive battery manufacturer
  • Market leader in batteries used in telecom towers
  • ROCE averaged at 35% in last five years and was 41% in FY13
  • Inching up to snatch the leadership position in the automotive segment from Exide