MOSL: AMARA RAJA BATTERIES (Buy)-Above est.-healthy revenue across segments drives PAT

Amara Raja Batteries: Above est.; healthy revenue across segments drives PAT; EBITDA margin at 13.5%

(AMRJ IN, Mkt Cap USD2.0b, CMP INR772, TP INR902, 17% Upside, Buy)

• Strong revenues supported by growth in Auto/Industrial/Exports: Net sales grew 23% YoY (-1% QoQ) to INR17.5b (our estimate: INR16b), led by healthy growth in Auto (4W: +19% YoY; 2W: +13% YoY), Industrial (+35% YoY) and Exports segments. AMRJ did not take any price increase in Auto segment in 2QFY19. Management indicated market share gains in Auto segment and double-digit growth across Industrial segment in the quarter. Confronted with pricing challenges, Telecom segment growth was driven by volumes recovery, albeit off a low base. Higher exports to South-East Asia and Middle East countries (4W: +40% YoY) also aided revenue growth.
• EBITDA margin driven by favorable mix and lower lead price: Gross margin improved 240bp QoQ (-310bp YoY) to 30.9% (our estimate: 30.5%), led by a favorable product mix (low share of traded batteries) and a decline in lead price. However, INR depreciation partially negated the impact of lower lead price. Consequently, EBITDA margin expanded 110bp QoQ (-320bp YoY) to 13.5% (higher than our estimate of 13.2%, and 12.4% in 1QFY19). Other income increased 16.4% YoY (+3.9% QoQ) to INR142m (in-line). Tax rate of 34.9% was higher than our estimate of 33.5%. Thus, adj. PAT declined 5.5% YoY (+6.4% QoQ) to INR1.2b (our estimate: INR1.05b). For 1HFY19, revenue/EBITDA/adj. PAT grew 20.7%/6%/2.7% YoY, implying residual growth of 15.8%/14.3%/7.9% YoY for 2HFY19.