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SYNOPSIS

Amara Raja Batteries Ltd. is the

largest manufacturer of Standby

Valve Regulated Lead Acid (VRLA)

batteries in the Indian Ocean Rim

region in collaboration with Johnson

Controls Inc., USA.

During the quarter ended, the robust

growth of Net Profit is increased by

66.26% to Rs. 659.27 million.

Amara Raja commits Rs. 1900 million

for capacity expansion in a new

location.

Amara Raja Batteries Limited (ARBL)

has expanded the network to 240

franchisees and over 18,000 retailers

in AMARON® format.

ARBL’s market share is around 42%.

Net Sales & PAT of the company are

expected to grow at a CAGR of 24%

and 17% over 2010 to 2013E

respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 17647.98 2641.77 1480.96 17.34 16.74

FY 12E 23979.48 3836.73 2245.49 26.29 11.04

FY 13E 28295.79 4493.71 2653.42 31.07 9.34

Stock Data:

Sector: Auto Equipment

Face Value Rs. 2.00

52 wk. High/Low (Rs.) 299.00/158.00

Volume (2 wk. Avg.) 43000.00

BSE Code 500008

Market Cap (Rs in mn) 24793.07

Share Holding Pattern

1 Year Comparative Graph

A. R. Batteries BSE SENSEX

C.M.P: Rs. 290.30 Target Price: Rs. 331.00 Date: Feb. 25th 2012

BUY

Amara Raja Batteries Ltd Result Update: Q3 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Amara Raja Batteries 290.30 24793.07 17.34 16.74 3.84 230.00

Bosch Ltd. 7692.35 24153.13 335.03 22.96 5.89 400.00

Amtek India Ltd. 99.20 2745.61 5.32 18.65 1.58 20.00

Lumax Industries Ltd. 397.75 371.81 11.42 34.83 2.53 60.00

Investment Highlights

Q3 FY12 Results Update

Amara Raja Batteries Ltd. has reported net profit of Rs 659.27 million for the

quarter ended on December 31, 2011 as against Rs 396.53 million in the same

quarter last year, an increase of 66.26%. It has reported net sales of Rs 6131.30

million for the quarter ended on December 31, 2011 as against Rs 4255.13 million

in the same quarter last year, a rise of 44.09%. Total income grew by 44.77% to

Rs.6183.59 million from Rs. 4271.35 million in the same quarter last year. During

the quarter, it reported earnings of Rs 7.72 a share.

Quarterly Results - Standalone (Rs in mn)

As At Dec-11 Dec-10 %change

Net sales 6131.30 4255.13 44.09%

PAT 659.27 396.53 66.26%

Basic EPS 7.72 4.64 66.26%

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� Break up of Expenditure

� Capacity expansion in a new location

Amara Raja Batteries Ltd has approved the capacity expansion in a new location at

a capital outlay of Rs. 1900 million.

Company Profile

Amara Raja Batteries Limited (ARBL) is the technology leader and is one of the largest

manufacturers of lead acid batteries for both industrial and automotive applications in

the Indian storage battery Industry. ARBL was incorporated as a private limited

company in 1985 and converted into a public limited company on 6th September

1990. A fresh Certificate of incorporation was obtained on 8th November 1990 from

the Registrar of Companies Andhra Pradesh. The company has its fully integrated

world class manufacturing facility in the holy city of Tirupati, Andhra Pradesh. It

received ISO Certification in February 1997. The company has 26% equity each from

Galla Family and the world's largest battery manufacturing alliance Johnson Controls

Inc., USA.

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ARBL is the largest manufacturer of Standby Valve Regulated Lead Acid (VRLA)

batteries in the Indian Ocean Rim comprising the area ranging from Africa and the

Middle East to South East Asia.

In India, Amara Raja is the preferred supplier to major telecom service providers,

Telecom equipment manufacturers, UPS sector (OEM & Replacement), Indian

Railways and to Power, Oil & Gas among other industry segments. Amara Raja is a

leading manufacturer of automotive batteries under the brands - Amaron ® and

Powerzone ™, which are distributed through a large pan-India sales & service retail

network.

In January 2000, Amaron automotive batteries launched. The company supplies

automotive batteries under OE relationships to Ashok Leyland, Ford India, General

Motors, Honda, Hyundai, Mahindra & Mahindra, Maruti Suzuki and Tata Motors.

The Company has bagged the third prize in the category “ Private-Manufacturing –

Large Organizations” in the National Awards for Excellence in COST MANAGEMENT-

2010, instituted by The Institute of Cost and Works Accountants of India (ICWAI), New

Delhi. This Award stands in testimony to the quality of the cost management systems

practiced in the Company.

Global Exposure

The company's Industrial and Automotive batteries are exported to Asia Pacific, Africa

and Middle East. It includes Singapore, Malaysia, Hong Kong, Thailand, Indonesia,

Vietnam, Taiwan, Philippines, China, Japan, Greece, Srilanka, Mauritius, Australia,

Kuwait, Dubai, Iran, Yemen, Omen, Bahrain, Qatar, UAE, Kenya, Tanzania and South

Africa.

Battery categories

ARBL has diversified its batteries product in two segments as follows:

a) Automotive batteries

b) Industrial batteries

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Automotive Batteries

� Amaron PRO Hi-life

� Amaron FLO

� Amaron GO

� Amaron Black

� Amaron Fresh

� Amaron Hi-way

� Amaron Harvest

� Amaron Shield Inverter

Batteries

� Amaron Pro Bike Rider

� Optima Batteries

Industrial Batteries

� Amaron Sleek

� Amaron Quanta

� Amaron Volt

� Powerstack

Group Companies

� Galla Foods

� Amara Raja Electronics Ltd

� Amara Raja Power Systems Ltd

� Mangal Precision Products Ltd

� Powerzone

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 14673.60 17647.98 23979.48 28295.79

Other Income 28.04 54.43 95.45 107.86

Total Income 14701.64 17702.41 24074.93 28403.65

Expenditure -11658.12 -15060.64 -20238.20 -23909.94

Operating Profit 3043.52 2641.77 3836.73 4493.71

Interest -67.72 -14.52 -44.75 -49.22

Gross profit 2975.80 2627.25 3791.98 4444.49

Depreciation -429.45 -417.12 -456.19 -501.81

Profit Before Tax 2546.35 2210.13 3335.79 3942.67

Tax -876.02 -729.17 -1090.30 -1289.25

Profit After Tax 1670.33 1480.96 2245.49 2653.42

Equity capital 170.81 170.81 170.81 170.81

Reserves 5265.62 6288.46 8533.95 11187.37

Face value 2.00 2.00 2.00 2.00

EPS 19.56 17.34 26.29 31.07

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E

Description 3m 3m 3m 3m

Net sales 5254.45 5604.05 6131.30 6989.68

Other income 9.20 13.96 52.29 20.00

Total Income 5263.65 5618.01 6183.59 7009.68

Expenditure -4576.09 -4722.36 -5068.42 -5871.33

Operating profit 687.56 895.65 1115.17 1138.35

Interest -2.10 -10.60 -15.26 -16.79

Gross profit 685.46 885.05 1099.91 1121.56

Depreciation -106.16 -116.54 -119.74 -113.75

Profit Before Tax 579.30 768.51 980.17 1007.81

Tax -189.35 -249.99 -320.90 -330.06

Profit After Tax 389.95 518.52 659.27 677.75

Equity capital 170.81 170.81 170.81 170.81

Face value 2.00 2.00 2.00 2.00

EPS 4.57 6.07 7.72 7.94

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(in mn) 85.41 85.41 85.41 85.41

EBITDA Margin (%) 20.74% 14.97% 16.00% 15.88%

PBT Margin (%) 17.35% 12.52% 13.91% 13.93%

PAT Margin (%) 11.38% 8.39% 9.36% 9.38%

P/E Ratio (x) 14.84 16.74 11.04 9.34

ROE (%) 30.72% 22.93% 25.80% 23.36%

ROCE (%) 54.71% 41.24% 44.21% 40.24%

Debt Equity Ratio 0.17 0.15 0.12 0.09

EV/EBITDA (x) 8.15 9.39 6.46 5.52

Book Value (Rs.) 63.65 75.63 101.92 132.99

P/BV 4.56 3.84 2.85 2.18

Charts:

Net Sales & PAT:

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P/E Ratio(x):

Debt Equity Ratio:

10

EV/EBITDA:

P/BV:

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Outlook and Conclusion

At the current market price of Rs. 290.30, the stock is trading at 11.04 x FY12E

and 9.34 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs. 26.29 and Rs. 31.07 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 24% and

17% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 6.46 x for FY12E and 5.52 x for

FY13E.

Price to Book Value of the stock is expected to be at 2.85 x and 2.18 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.331.00 for Medium to Long term investment.

Industry Overview

Indian auto component industry is robustly driven by the growth in demand for

automobiles. The sector has become a lucrative business proposition for global

players, majorly owing to two factors. First, needless to say, the demand for

automobiles is increasing day by day in the country. India, a market with high

potential for the automobiles sector, is expected to witness a three-fold increase in

demand for automobiles by 2020. Secondly, all major global auto-makers are

establishing their bases here due to highly positive business environment, favorable

policies and government support.

According to a study by UK-based global financial advisory firm-Rothschild, India

would become the third largest auto industry by volumes after China and the US by

2015. This would give immense support to the growth of ancillary sector as well.

Major developments, investments and Government initiatives relating to the sector are

discussed hereafter.

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Indian Auto Components Industry Profile

According to a recent study by the Automotive Component Manufacturers' Association

of India (ACMA), original equipment manufacturers (OEMs) account for 41 per cent of

the auto components consumed in the Indian aftermarket.

The study estimated current size of Indian components business at Rs 24,800 crore

(US$ 4.87 billion), 49.7 per cent of which is formed by two-wheeler segment.

Passenger vehicles, commercial vehicles and three-wheelers follow with 24.7 per cent,

23.1 per cent and 2.5 per cent of the share respectively.

According to Arvind Kapur, President, ACMA, a large market in Indian spares business

is dominated by organised, semi-organised and a number of small, unorganised

players. He thus acknowledged the need for a process of accreditation to ensure better

customer service.

The study further projected that OEM-authorised network of service stations would

account for 20-30 per cent of the Indian auto components market by 2017 while that

of multi-brand organised service chains would grow to 5-10 per cent from 1-2 per

cent. Similarly semi-organised service centers’ and unorganised garages’ market share

would be 20-30 per cent and 45-55 per cent, respectively, in 2017.

India – The Global Auto Hub

Canada is looking for substantial investment opportunities in Indian auto components

market through the comprehensive economic partnership agreement (CEPA) which is

being discussed and negotiated by the two Governments. The agreement is likely to get

finalised by 2013. If fructified, the agreement would facilitate an annual increase of

economic output in two countries by almost US$ 6 billion and boost the two-way trade

by 50 per cent.

UK sees immense potential in the Indian auto ancillary sector, especially in the city of

Rajkot as it is known for auto components manufacturing. Peter Beckingham, British

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Deputy High Commissioner for Western India, also indicated possible ventures

between UK and Rajkot companies in near future.

According to industry sources, Rajkot's auto component industry, with over 500

manufacturers aggregating a net turnover of around Rs 1,500 crore (US$ 294.5

million), grows at an annual rate of 15-20 per cent.

Furthermore, 60 French automobile component suppliers are contemplating on

business opportunities to set up a vendor park near Sanand in Ahmedabad district.

The proposed vendor park would accommodate tier-1 and tier-2 auto-component

suppliers who would supply spares to the recent auto entrants in the State and even

to others.

Sanand is already home to a number of global auto-makers, like Ford and Peugeot.

Indian Auto Components Industry: Key Developments and Investments

Global private equity (PE) firm Actis PE has bought 10-13 per cent stake in Indian

auto component manufacturer Endurance Technologies for about US$ 71 million.

Endurance Technologies is a part of the automotive component major Endurance

Group and caters to companies like Bajaj, Yamaha, Suzuki, Honda Motorcycles and

Scooters and Royal Enfield. Global car makers such as Daimler, Audi, Fiat and

Porsche are the company's customers in passenger car segment.

German auto component maker Schaeffler Group is on an expansion spree in India.

The company plans to invest over Rs 1,000 crore (US$ 196 million) during 2012-15 in

the country to set up a manufacturing facility and to expand its existing plants. To

support its growth, the company would also double the number of its engineers and

recruit 1, 200 employees in the country.

Federal-Mogul's new facility in Chennai will commence its operations by March 2012.

The plant, being set up for producing braking and friction materials, will initially focus

on after market products like linings and brake pads. Federal Mogul is a global

automotive components manufacturer.

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Government Initiatives

The Government of India is in the process of forming a National Automotive Board

(NAB) which would become a formal set-up to look into the issue of recall of vehicles

and hence improve manufacturing standards. The prospective body, to oversee

technical and safety aspects of vehicles, will have representatives from all the nodal

ministries and automotive bodies such as the Automotive Research Association of

India (ARAI).

The Government of Gujarat has always been on a high to promote its industrial space

especially it's the automobile sector. In order to boost the State Government's efforts

in this regard, Gujarat Government's Industrial Extension Bureau, along with

Automotive Components Manufacturers Association, French Vehicles Equipment

Industries (FIEV) and French auto-major Peugeot, organized a seminar and business

meeting on January 9, 2011 wherein 60 French automobile component makers were

briefed on opportunities to set up vendor park near Sanand (Gujarat's auto hub) in

Ahmedabad district.

Similarly, the Government of Gujarat has also announced its plan to disburse 240

acres of land at Sanand to the All India Plastic Manufacturers Association (AIPMA) to

set up a plastic park that could attract an investment of about Rs 5000 crore (US$

981.65 million). The Government's move marks its eye for detail as the measure has

come in the light of the fact that a finished car would require about 150 kgs of plastic.

Road Ahead

Ratings agency Fitch has maintained a stable outlook towards the Indian auto

components industry for the year 2012. The industry is expected to perform well owing

to OEM’s robust demand for localized spares.

According to a report by ACMA, the Indian auto component industry would garner

US$ 113 billion of turnover by 2020-21, growing at a compounded annual growth rate

(CAGR) of 11 per cent through 2011-21. Not only domestic demand, India is poised to

scale new heights in terms of exports as well as the report estimates exports to be

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worth US$ 29 billion by 2020-21, growing at a CAGR of 18.8 per cent through the

forecast period.

______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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