We expect sales, PAT to grow at 6.6%, 9.3% CAGR, respectively, in FY19- 21E. Our outlook on ARBL remains cautious given the continued slowdown in the auto OEM space and emergence of volatility in the business profile brought about by expected increase in usage of lithium ion technology going forward. We maintain our REDUCE rating on the stock with an unchanged target price of | 590 i.e. 17.5x P/E on FY21E EPS of | 33.8.
Amara Raja reported strong results in 1QFY20 in challenging conditions. Net profit jumped 25% YoY to Rs 1.4bn, due to sharp margin expansion of 300bps and a low base. We remain positive about the Indian batteries market, as we expect 1) replacement demand to further improve, given healthy primary sales in the past three years, 2) a market share gain from unorganized players, after GST, and 3) an uptick in the nascent e-rickshaws /solar batter. We forecast Revenue/EBITDA/PAT CAGR of 8%/11%/10% over FY19-21E. At CMP, the stock trades at 19/18x for FY20/21E EPS (vs 5 year historical multiple of 28), we recommend an Accumulate rating, with a TP Rs 684 (20x FY21E EPS).
We believe volume in the telecom batteries has bottomed, and we expect low single-digit growth in the telecom battery segment over FY19-21E. However, the automotive replacement segment continues to grow in the double digits, led by capacity addition in 2W and 4W segments. Sustained double-digit growth in the replacement segment remains a key positive, in our view. The auto replacement contribution of ~40% would aid AMRJ in smoothened revenue growth over FY20- 21E despite OEM slowdown. We reduce our FY20-21E EPS by 3-4% to factor in lower auto OEM growth. We recommend Accumulate with a new TP of INR 745 from INR 840 on 20x (22x earlier) FY21E EPS as we roll forward.
We cut FY20/21 EPS by 8%/12% as we trim revenue estimates by 7%/10% due to weaker auto OEM outlook and weak lead prices. We expect the replacement market growth to remain strong for organized players; some stability in telecom segment volumes and soft lead prices should support margins. With exit of Johnson Control, promoters are expected to play a pivotal role in the long-term strategy as well as in technology sourcing. We estimate revenue/ EBITDA/PAT to grow 10%/15%/16% CAGR (FY19-21E). The stock trades at 18.8x/16.4x FY20E/21E EPS. Maintain Buy with a TP of INR761 (20x Mar’21 EPS).
We expect sales, EBITDA and PAT to grow at -0.4%, 8.3% & 7.5% CAGR, respectively over FY19-21E. With the slowdown in the auto OEM space amid a decline in discretionary spend and muted growth prospects in the industrial domain (telecom space), we downgrade the stock to REDUCE with a revised target price of Rs 590 i.e. 18x P/E on FY21E EPS of Rs 32.7 /share.