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MOSL: AMARA RAJA (Neutral)-Cost pressures dilute benefit from strong revenue growth

AMARA RAJA: Cost pressures dilute benefit from strong revenue growth

(AMRJ IN, Mkt Cap USD1.6b, CMP INR697, TP INR780, 12% Upside, Neutral)

 

• AMRJ’s 2QFY22 performance was in line, as RM cost pressures were diluted by strong revenue growth. Near term headwinds (rising RM prices) could affect a recovery in margin. The company has taken the first steps towards its next phase of growth in the new energy business by supplying Li-ion battery pack to 3Ws, but it is yet to finalize its full-fledged entry into lithium cell manufacturing.
• We cut our FY22E/FY23E EPS estimate by 7%/6% to account for high RM and other costs. We maintain our Neutral rating with a TP of INR780 (18x Mar’23E EPS). 

RM cost inflation continues to hurt margin

• Revenue grew 17% YoY and 20% QoQ to INR22.6b, while EBITDA/adjusted PAT declined by 21%/28.5% YoY (+8%/+16% QoQ) to INR2.7b/INR1.44b in 2QFY22.
• Gross margin declined by 475bp YoY and 120bp QoQ to 29.9% (est. 30%), impacted by higher commodity costs. Lead was higher by 20-22% YoY.
• EBITDA margin declined by 570bp YoY and 140bp QoQ to 11.9% (est. 12.9%), impacted by higher other expense. EBITDA declined by 21% YoY (+8% QoQ) to INR2.7b (in line).
• Adjusted PAT declined by 28.5% YoY (+16% QoQ) to INR1.44b (est. INR1.5b).
• The company declared an interim dividend of INR4/share.