Mid Cap Battery Stock That Catches The Eye Of Sharekhan, Buy For Higher Returns

Sharekhan appears bullish on leading Auto Ancillaries sector stock, Amara Raja Batteries Ltd and assigned buy call with a target price of Rs 756 apiece. According to Sharekhan, "We reiterate Buy rating on Amara Raja Batteries Ltd (ARBL), owing to a positive outlook for batteries going forward and comfortable valuations." If you buy Amara Raja Batteries shares now, you will receive likely 17% return soon. Check details below:

1. Amara Raja Batteries Stock Outlook & Return

The last trading price of the stock is Rs 648 apiece with an intraday gain of 1.42%. The stock's 52-week high is Rs 669 apiece and 52-week low is Rs 438 apiece, respectively. The stock has given 28% return in last 3-months and 5% in last 1-year. The stock has declined 11% in last 3-years and 20% in last 5-years. The company has a market capitalisation of Rs 11,071 crore.

2. Beneficiary Of Better Automobile Demand And Global Revenues

According to Sharekhan, "We expect battery industry to benefit from a robust demand from the automotive sector, driven by pent-up demand, preference for personal mobility and a faster-than-expected recovery in infrastructure, mining and other economic activities."

The battery industry is well-positioned to gain momentum in the future, backed by higher OEM offtake. The ripple effect of OEM demand will likely result in steady growth for the replacement demand going forward.

3. Management Remains Committed To Develop And Expanding New Energy Business

The management remains committed towards establishing a new energy SBU encompassing Lithium cell and battery pack, EV chargers, energy storage systems, and advanced home energy solutions.

The company is open to growth through partnerships, joint ventures and acquisitions. The company has guided for a 15-17% revenue CAGR in the next five years versus an 8% revenue CAGR during FY16-FY21.

4. Valuation & Key Risk

According to Sharekhan, "Amara is one of the largest manufacturers of lead acid batteries, commanding a market share of ~40% in the organised market. The stock price has risen 20% in the last three months, led by robust demand from OEMs. We remain positive on the growth prospects and expect replacement demand to be the key growth driver in the medium term. The stock trades below its historical average at P/E multiple of 12.7x and EV/EBITDA multiple of 5.8x its FY25E estimates. We reiterate Buy rating on ARBL with a revised PT of Rs756, owing to a brighter outlook for batteries going forward and comfortable valuations."

Key Risks: Prolonged supply constraints of OEMs can affect our future projections. Moreover, if the Hon'ble Court gives a verdict against the company, there could be uncertainties regarding the production of products in its plants in Chittoor district (Andhra Pradesh).

5. About Amara Raja Batteries

Amara is the flagship company of Amara Raja Group. The company is one of the leading manufacturers of lead acid storage batteries catering to the needs of both industrial as well as automotive space.

In the automotive segment, the company makes batteries for 4Ws and 2Ws and caters to the OEM as well as aftermarket segments. Products for the automotive segment are marketed under the Amaron and Powerzone brands.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.