Amara Raja Share Price Analysis 2024

Doing a thorough Fundamental Analysis (FA) is important for any investor planning to invest in any company. Fundamental analysis supports your opinion of any company and prevents you from getting negatively influenced from the market fluctuation. We thought Amara Raja Share Price Analysis would be a better pick after predicting their share prices for next upcoming years. 

This is where we understand what is happening inside this company. Just because the stock prices are high doesn’t mean the company is investable or vice-versa. Any investor should think that they are investing in a business but not the stocks because, at some point in time, the share prices will correct themselves to adjust to the core values of the company. 

1. FA Stage 1: 

Here, we understand how, who, what, and why about Amararaja. We try answering a few sets of questions and attributes to dig deeper into this company. 

Who are the major Competitors for Amara Raja Batteries?

The current direct competitor for Amara Raja would be Exide Industries. While Amara Raja has a market cap of Rs 14314 Crs, Exide acquires a market cap of RS 25,521 CRS 50% plus. Other than Exide, we have HBL power and Eveready industries competing with Amara Raja head-on. 

What Amararaja Energy and Mobility Itd the company do? 

Amara Raja has been making batteries for over 30 years, and they’re doing well in various sectors like automotive, industrial, telecom, solar, railways, UPS, international markets, and defense. They’re now worth about Rs 14,000 Crores, which shows they’re trusted by investors and have room to grow even more. Their success comes from being able to meet the needs of different industries, which is important for staying strong in the market. 

What is the Business Moat of Amara Raja Batteries?  

Any company’s moat is defined as its ability to do something unique that cannot be easily replicated by its competitors to protect its profits in the long term. It could be at prices, quality, production, or business model levels. 

At Amararaja, They have mostly been pioneers in most of their products launched in the markets. For example, back then they were the first company to introduce VRLA technology in India.

Amara Raja is among the first companies in India to invest in Li-ion technology. While others stick to the norm, they boldly innovate, relying on state-of-the-art tech to drive their business forward. This daring approach sets them apart in an industry that often shies away from change.

For many years now they have been known for giving excellent after-sales service to the point that their prime competitor had to up their game by improving their respective after-sales service too. 

Demand dynamics of what Amara Raja manufactures?

Regarding volume, In FY23, India made 7.4 million four-wheelers, up from 6.2 million in FY22. Two-wheeler production also rose from 17.7 million in FY22 to 19.5 million in FY23. Looking ahead, India’s vehicle numbers are set to explode. By 2028, there could be about 252 million two-wheelers and over 96 million four-wheelers across the country.

The telecom industry is seeing a surge in demand, driven by the installation of new 5G towers and the upgrade of 3G/4G networks. This trend is not only in India but also internationally. As more towers go up and networks expand to rural areas, the need for batteries is increasing both at home and abroad. 

Data centers are set to double in capacity, going from 950MW to 2000MW by 2025. This growth means a greater demand for UPS batteries, as the need for continuous power increases. 

 Lead acid batteries are here to stay despite increasing buzz around electric vehicles and alternate energy. The demand from UAE, Africa, Singapore and other international markets is projected to increase by 40% next year. 

Scrutinizing the above points, it is evident that the demand is good enough for the company to sustain its profits and keep improving its sales in the future. 

How many plants do Amara Raja Batteries own and where are they located?  

Amara Raja operates 7 plants and 23 offices, all based in India. Remarkably, all manufacturing facilities are situated in Chittoor District, Andhra Pradesh. This smart choice from the company helps save on costs, as setting up plants in prime locations, whether national or international, can be pricey. Amara Raja seems to have a well-organized strategy in this regard.

What kind of raw material is being used?  

The lead batteries have been in the market for ages. The main raw material for such batteries are lead, sulfate and sulfuric acid. Amara Raja also recycles 70% of the raw materials to make new inventories. Generally lead batteries have a 99% recycling rate and we don’t see any future threat of government policies intervening in business.  

Likewise, Amararaja Energy and Mobility ITD recently started making Lithium batteries. But globally, only about 5% of Li-ion batteries are recycled because recycling Lithium requires special methods.

Though EV is in boom, our analyst forecast potential government policies interfering business by possibly restricting few process. We believe the less the government regulation interference the better it is for the business generally. 

Who are some major shareholders of Amar Raja Batteries?  

Investors invested in any company speak volumes. At Amara Raja below are a few Institutional investors,

Recently Clarios ARBL Holdings LP offloaded their 14% equity holding from Amara Raja Post company declared revenue profit in Q3 2023.

Do they plan to launch any new products?

Yes, Amararaja Energy and Mobility Itd have been leading the way in providing batteries for different industries. They’ve recently put Rs 500 crore into setting up a new manufacturing unit and offices to make Li-ion batteries.

Does Amara Raja Batteries plan on expanding to different countries?

The annual reports show that leaders want to grow their business in other countries. They plan to expand in places like the Middle East, Africa, and Asia-Pacific (APAC). While they think the lead acid battery business might slow down in India, they believe there will still be strong demand internationally. So, they’re planning to start businesses in Europe, North America, and South America too.

Investors usually avoid stocks linked to scandalous agencies, but Amara Raja seems to have reputable agencies on its side, making its stock more appealing.

Does the company make products that could be easily copied in a country where labor is inexpensive?  

Battery business is huge but not any player can come and get overnight success here. Battery manufacturing needs initial huge cost setup, raw material combination acquiring with efficient and cost-effective ways needs good contacts and reputation, a lot of safety issues have to be addressed, separate R&D costs and finally scaling up the business. All of this needs time, patience, finance, and experienced planning in place to face the already set competition out there. 

Management Analysis –

Dr. Ramachandra N Galla, the founder chairman of Amararaja Group, still guides Amararaja Energy and Mobility Ltd. He has a strong electrical engineering background from a US university and over 30 years of experience in the battery industry, making him a visionary leader.

Mr. Jayadev Galla, the co-founder and chairman of Amararaja Energy and Mobility Ltd., has successfully grown the business to a turnover of over 10 crores. Before this role, he worked as an International Sales Executive at GNB Battery Technologies, Inc., USA.

The overall board of director management is experienced and has had a huge experience background in the energy businesses. 

Recently a renowned publishing agent studied how the company’s management handled labor issues and reduced the attrition rate in the company.

2. FA Stage 2 – Core Financial Ratios

You may find a lot of common pre-calculated financial ratios on the annual reports too but it is imperative to understand the core numbers of the company to arrive at the intrinsic value of Amara Raja’s share price. Annual reports sometimes could be misleading in some sections trying to just portray the good part while diluting the bad part. However, it is not that easy as these things are tightly governed and regulated by the Ministry of corporate bodies. 

So we have calculated the below ratios defining the performance of Amar Raja

Revenue & PAT Growth

You can clearly see Revenue and Profit After Tax getting affected in 2021 and 2022. All of us know how covid affected world’s economy. Company says, the covid periods observed work from home trend which resulted in dip in batteries demand. By 2023, the numbers looks growing again though.

Earnings Per Share (EPS)

If both EPS and PAT are growing at similar rates, it means the company isn’t diluting earnings by issuing new shares. This is good news for current shareholders.

Gross Profit Margins (GPM)

Our checklist mandates a GPM of 20% minimum to qualify the company to be put on investor’s radar. We see FY2020 and 2023 doing better in GPM. Taking into consideration the covid scenarios, we suggest digging more on historical data to know more about the GPM% here.

Debt Levels

Despite going through tough periods, the company has brought down its debt, which is a fantastic quality. A highly leveraged endeavors always have a risk of breakdown. Amara Raja has been consistently getting out of the leverage factor to make them more cash rich.

Inventory Check

This ratio applies only to the manufacturing companies.

When inventory rises alongside increasing PAT, it’s a sign of a growing company.

A steady inventory turnover suggests that management is maintaining operational efficiency to some degree.

Sales and Receivables

Looking at the table, it’s clear that a big chunk of their sales doesn’t depend in receivables, which is a good thing. Many companies try to hamper the numbers by buying their own products to give some fake assurances to their investors.

Cash Flow from Operations

The increasing numbers clearly state that Amara Raja batteries is able to generate cash and their core business model could be termed successful

Return on Equity

We personally invest in companies with ROE greater than 20%.

3. FA Stage 3 – Calculating the Intrinsic Value

We applied one of the famous financial models i.e DCF Analysis model where we arrive at the intrinsic value of the share based on the available free cash flow and debt of the company. 

Our team calculated the intrinsic value of Amararaja’s share price to be RS 560 approx. The present value of Amaraja’s share price is RS 772 making it overvalued by 38% in 2024. We also know that assumption factors are part of mathematical models so we can further factor in a 10% margin of safety bringing the intrinsic price of the share to RS 615. 

Conclusion

We see the fundamental price of the share now but a lot of financial ratios listed above show how strong the company has been operating for this long, For example, the company is almost debt-free or how they have been giving out dividends consistently to their investors for very long now. A smart investor invests in a company when the stock prices complement the core values of the organization. 

Our research team has laid out the facts in front of you guys. Use these facts to form an opinion about Amara Raja before you invest. In case you find more interesting information that we missed here, please feel free to share it in the comment section.