Motilal Oswal Securities has initiated 'Buy' on Amara Raja Batteries with target price of Rs 515 as against current market price (CMP) of Rs 413 in its report.

Commenting on the investment rationale, the stock broker said, ''Amara Raja Batteries (AMRJ) has emerged as a formidable challenger to leader Exide Industries (EXID), with leadership in telecom (46% share) and UPS (32% share) segments.

AMRJ is gearing up to be a leader through a combination of i) consolidating in existing areas, ii) entering new business opportunities within battery space, mainly home UPS, Solar and Motive Power and iii) aided by capacity and network expansion.

Over FY14-17E, we expect earnings CAGR of 18.7% driven by net sales CAGR of 19.3% and steady margins at 16.5%. Key drivers in our view are a) demand recovery in auto OEMs, industrial segment with b) continued share gains in auto OEMs, 4W replacement and c) ramp-up in 2W business.

Considering superior earnings growth prospects, strong FCF generation (Rs 8.4 billion), return ratios (average 38.4% RoCE) over FY14-17E and debt free status, we initiate coverage with a Buy and target price of Rs 515 (17x FY16E EPS), 25% upside.''

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