Investment Note: Amara Raja Batteries- A Well Positioned Investment for the Growing Battery Market
Introduction
Amara Raja Batteries Limited (ARBL) is a technology leader and one of the largest manufacturers of lead-acid batteries for both industrial and automotive applications in the Indian storage battery industry. It is headquartered in Tirupati, Andhra Pradesh, India.
ARBL manufactures a wide range of batteries, including:
Automotive batteries under the brands Amaron® and PowerZoneTM
Industrial batteries under the brands PowerStack®, Amaron VoltTM, Amaron SleekTM, Amaron VoltTM Amaron BruteTM and Amaron Quanta®
ARBL is a major supplier to major automobile and industrial companies in India and abroad. It is also a leading exporter of batteries to most of the countries in the Indian Ocean Rim.
Company Overview
ARBL was founded in 1985 by Mr. Ramachandra Galla. The company started its operations with a small manufacturing facility in Tirupati. Over the years, ARBL has grown into a major player in the Indian battery industry.
ARBL has a strong focus on research and development. It has a state-of-the-art R&D center where it develops new battery technologies and products. The company is also investing in the development of new manufacturing technologies to improve its efficiency and productivity.
<CNBC Interview from 3 weeks ago targeting $3BN in revenue>
ARBL has a strong commitment to quality. It has a quality management system that is certified to ISO 9001:2015 and ISO/TS 16949:2009 standards.
Industry Outlook
The Indian battery market is expected to grow at a CAGR of 16.5% during the period 2022-2027. This growth is expected to be driven by the following factors:
Increasing demand for electric vehicles: Electric vehicles are becoming increasingly popular in India. This is driving the demand for batteries for electric vehicles.
Increasing demand for batteries in the telecom and data center sectors: The telecom and data center sectors are also driving the demand for batteries.
Increasing demand for replacement batteries: As the Indian car fleet ages, the demand for replacement batteries is expected to increase.
Competitive Landscape
The Indian battery market is dominated by two key players: Exide and Amara Raja. Exide is the market leader with a share of around 50%, while Amara Raja has a share of around 35%.
Exide is primarily an OEM supplier, which means that it supplies batteries to automobile manufacturers. Amara Raja, on the other hand, caters more to the replacement market, which means that it supplies batteries to consumers who need to replace the batteries in their vehicles.
Investment Thesis
Amara Raja Batteries is a well-established company with a strong track record of growth. It is a leader in the Indian battery industry and has a strong brand presence. The company is also investing in research and development and expanding its production capacity to meet the growing demand for batteries in India.
Amara Raja Batteries is expected to benefit from the following factors:
Increasing demand for electric vehicles: Amara Raja is developing batteries for electric vehicles. This is expected to drive the company's growth in the coming years.
Increasing demand for replacement batteries: Amara Raja is a major player in the replacement market for batteries. The increasing demand for replacement batteries is expected to drive the company's growth in the coming quarters.
Government support for the electric vehicle industry: The Indian government is supporting the growth of the electric vehicle industry. This is expected to benefit Amara Raja Batteries, which is developing batteries for electric vehicles.
Financial Performance
Amara Raja Batteries has a strong track record of financial performance. The company's revenue has grown at a CAGR of 15% over the past three years. The company's Return on Equity has remained consistent at 15% over the past 5 years.
Valuation
Amara Raja Batteries is currently trading at a price-to-earnings ratio of 13.8x. This is lower than the P/E ratio of its peer group. Amara Raja Batteries is also trading at a discount to its historical P/E ratio.
Comparison with Exide:
The following are some of the risks associated with investing in Amara Raja Batteries:
Cyclical industry: The battery industry is cyclical. This means that the company's performance could be affected by economic downturns.
Competition: The battery industry is competitive. Amara Raja Batteries faces competition from Exide and other players in the industry.
Dependence on key customers: Amara Raja Batteries is dependent on key customers such as automobile manufacturers. A loss of business from a key customer could have a negative impact on the company's performance.
Disclosure: This company is a part of our portfolio <Sector Advantage> and hence the team, clients and associates have a vested interest in the company. This post is strictly for educational purposes and does not qualify as an investment advice. Do you due diligence before investing in the stock markets. Contact your adviser for more details or let us work together.
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