Since January, the shares of Amara Raja Batteries Ltd, the country’s second-largest battery maker, have outperformed those of the market leader, Exide Industries Ltd. The stock has returned 67.2% in a year in spite of the slowdown in the automotive sector and when Exide’s shares lost 16.2%. Strong sales and profit growth in the June quarter sustained the stock’s momentum; it jumped by 21% to Rs.190.8 in the last week.
Most striking was the 75.6% rise in operating profit toRs.119.5 crore from the year-ago period. The key driver was a strong product mix—higher sales of uninterrupted power supply (UPS) systems besides a greater share of replacement market sales in automotive batteries. Besides, other expenses were lower on account of prudent promotional expenses.
Operating margin, which grew by 430 basis points (bps) from the year-ago period to 17.2% was the highest scaled in the last 11 quarters, according to a report by Prabhudas Lilladher Pvt. Ltd. High sales volume, reflected in the 32% jump in the quarter’s net sales, was also a kicker to profitability. One basis point is one-hundredth of a percentage point.
Amara Raja’s performance shines in comparison with Exide. In spite of a 25% year-on-year increase in net sales during the June quarter, Exide’s operating margin dipped by around 230 bps to 15.6%. One cannot underestimate Exide’s prowess, which it could regain, as capacity constraints at a time when the auto industry was booming was its biggest failing. The market leader also lost some share to Amara Raja.
The clincher was Amara Raja’s stellar 95% jump in net profit to Rs.76 crore. In the same quarter, Exide’s net profit receded by around 7% as profitability took a toll on performance.
Consequently, the valuation gap between the two battery firms is steadily narrowing down. Amara Raja’s stock historically traded at around eight times one-year estimated earnings, while Exide’s shares commanded a premium valuation of around 13-14 times until a year ago.
In the last few quarters, Amara Raja’s robust performance has seen a rerating of the stock. Its current market price discounts fiscal 2014 earnings around 11.5 times, while Exide’s stock trades at the same valuation.
We welcome your comments at marktomarket@livemint.com
Photo: HT
Most striking was the 75.6% rise in operating profit toRs.119.5 crore from the year-ago period. The key driver was a strong product mix—higher sales of uninterrupted power supply (UPS) systems besides a greater share of replacement market sales in automotive batteries. Besides, other expenses were lower on account of prudent promotional expenses.
Operating margin, which grew by 430 basis points (bps) from the year-ago period to 17.2% was the highest scaled in the last 11 quarters, according to a report by Prabhudas Lilladher Pvt. Ltd. High sales volume, reflected in the 32% jump in the quarter’s net sales, was also a kicker to profitability. One basis point is one-hundredth of a percentage point.
Vivek Bhardwaj/Mint
Amara Raja’s performance shines in comparison with Exide. In spite of a 25% year-on-year increase in net sales during the June quarter, Exide’s operating margin dipped by around 230 bps to 15.6%. One cannot underestimate Exide’s prowess, which it could regain, as capacity constraints at a time when the auto industry was booming was its biggest failing. The market leader also lost some share to Amara Raja.
The clincher was Amara Raja’s stellar 95% jump in net profit to Rs.76 crore. In the same quarter, Exide’s net profit receded by around 7% as profitability took a toll on performance.
Consequently, the valuation gap between the two battery firms is steadily narrowing down. Amara Raja’s stock historically traded at around eight times one-year estimated earnings, while Exide’s shares commanded a premium valuation of around 13-14 times until a year ago.
In the last few quarters, Amara Raja’s robust performance has seen a rerating of the stock. Its current market price discounts fiscal 2014 earnings around 11.5 times, while Exide’s stock trades at the same valuation.
We welcome your comments at marktomarket@livemint.com
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