Rapidly growing vehicle and industrial battery market: huge replacement demand, all growth being funded by internal accruals, leader in several battery segments, no 2 in OE: EPS of ~25 in FY 2010.
Both Exide and Amara Raja are like Asian Paints: replacement demand will continue to drive business: paints: home repainting every 5 to 7 years with house base increasingly every year. Likewise battery need to be replaced and the base population of batteries keeps growing every year.
Significant re-rating possibility for Amara: should quote at 12 to 13 times FY 10 earnings ie Rs. 300.
EPS should be more like 21-22. But yes, stock should be re rated. Being a small cap, it is getting missed. Exide does less than 3 times its turnover (with similar margins) but trades at 6 times its market cap.
Even if one excludes the valuation of ING vyasya Life stake, the gap is huge.
I believe Amara has more headroom to grow and that too in a growing industry. The pie is getting bigger and Amara will definitely get a better share of the pie.
In march 08, it was trading 13x FY08 earnings. price has gone down and come back to same level. Earnings have doubled.
At 7x FY10 earnings, it is a no brainer.
If you compare Amara Raja results with Exide, you will find Revenue Growth for the qtr for both companies is almost nil but in case of Exide, decrease in RM cost is 40% whereas in case of Amara Raja RM cost is same as per last qtr. Means Exide has procured its RM more efficiently. Amaron has been able to show bottomline because of exceptional item effect of 15Cr for the qtr that is because last year it has charged off currency exchange gain/loss in P&L. At operational level, Exide has performed much better for the qtr. Exide has given more than 90% growth in net profit whereas Amaron has given less than 50% excl exceptional items.
| NIFTY 
