Neutral Amara Raja; target of Rs 740: Motilal Oswal

Moneycontrol • 1 day ago

Original source

Key Investment Pillars

  • Stable margin performance: Amara Raja's 2QFY27 PAT of INR1.8b came in 13% higher than estimates, driven by a 2% price hike and stable EBITDA margin at 10.1%.
  • New energy business growth: The company's new energy business revenue grew 37% YoY, with the Board approving an additional INR23.2b capex for a 5GWh LFP prismatic cell gigafactory.
  • Lead-acid business recovery: Management expects the lead-acid business to sustain medium-term growth of 8-10%, supported by automotive aftermarket, home energy, and a potential recovery in international markets.
  • Raw material cost pressures: Higher procurement costs of alloys, sulphuric acid, and polypropylene are expected to weigh on profitability, with further inflation in acid and poly prices during 2Q.

Thesis Validation Checklist

  • Margin expansion: Watch for signs of margin expansion from current levels, driven by raw material cost normalization, international volume recovery, and operating efficiencies.
  • New energy business ramp-up: Monitor the progress of the new energy business, including the completion of the 5GWh LFP cell gigafactory and enhanced pack assembly capacity.
  • Lead-acid business growth: Track the growth of the lead-acid business, including the recovery of international markets and the expansion of home energy and UPS segments.
  • Debt-funded investments: Keep an eye on the company's debt-funded investments in the new energy business and their impact on interest costs and return ratios.