Amara Raja’s Q1FY22 result was broadly in line with our expectations. Amara Raja's sales increased by 64% YoY to Rs 19 billion as automotive and industrial sales rebounded strongly; even exports and OEMs sales witnessed sharp increase. EBITDA jumped 64% YoY to Rs 2,500 million, although EBITDA margin remained flat YoY but fell 179 bps on QoQ to 13.3% on rising prices of raw materials (mainly lead). Amara Raja's net profit nearly doubled YoY to Rs 1,241 million.

Commenting on the result review, IDBI Capital Equity Research said, "We broadly maintain our FY22/FY23 sales forecasts. However, we lower our FY22-FY23 EBITDA margin estimates by ~100 bps to account for higher price of raw materials. Thus, our net profit estimates for FY22/FY23 stand lowered by 4%/7%. Nevertheless, we continue to value the stock at a PER of 20x FY23E EPS to derive a target price of Rs 918 (earlier Rs 990). We maintain our BUY rating on the stock."

Key Highlights and Investment rationale

Demand strong despite lockdown: Despite regional lockdowns witnessed in Q1FY22, the aftermarket demand across product segments in automotive and industrial segments was strong. The Automotive segment sales grew on the back of strong growth in Exports and OEMs on a YoY basis. In the industrial segments, Telecom and UPS applications registered strong YoY growth.

Recovery likely from H2FY22: While the second wave of Covid-19 is likely to impact Amara Raja’s H1FY21 performance, we expect strong recovery in battery sales from H2FY22 and expect further improvement in FY23 mainly led by improvement in demand from replacement/exports segments.

Outlook: We expect Amara Raja’s sales/EBITDA/net profit to grow at a CAGR of 14%/10%/10%, respectively over FY21-23E. The recent decline in stock price provides an attractive entry point in the stock in our view as it has gained market share in some sub-segments in the past one year. Hence, we maintain our positive stance on the stock with a Buy rating

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