Stock Idea: Amara Raja Batteries

HDFC securities has maintained its buy rating on Amara Raja Batteries with a target price of Rs 245 in its June 11, 2008 research report. "We estimate ARBL to post 45.7% CAGR in revenues between FY07-10E on the back of capacity expansion, both in automotive and industrial segments. On the back of robust topline growth, Net profit growth is estimated at a CAGR of 51.4% between FY07-FY10E. We see ARBL as a major beneficiary of the robust domestic batteries market. The company has garnered a market share of 22%+ in automotive batteries and 27%+ in industrial batteries in the domestic space."
"ARBL’s strong presence in the batteries space helps us to build earnings CAGR of 51.4%+ (FY07-10E). At the same time, we find valuations for the company compelling at a PE multiple of 7.0x and 5.5x FY09E and FY10E earnings respectively, at which ARBL stands at a huge discount to Exide Industries. Also, we remain comfortable with ARBL’s EV/EBIDTA multiple of 4.8x FY09E EBITDA. We maintain our BUY rating and a target price of Rs 245, giving an upside of 55% from current levels. At our target price, the stock would trade at a PE multiple of 11x FY09E EPS," says HDFC securities' research report.