Amara Raja Batteries: There's scope for uninterrupted rise

The stock of Amara Raja Batteries has more than doubled year to date, outperforming not only industry leader Exide Industries, but also most stocks in the auto ancillary sector.

Despite the sharp rise, the stock still trades at a discount to Exide. But given the improvement in operational performance in recent quarters and growth potential, there is room for further appreciation. Over the past six quarters Amara Raja – the makers of batteries under the Amaron brand – has grown its sales 35% on average every quarter and profit, not less than 35%.

Its sales growth has come both from OEMs (original equipment manufacturers) and the growing replacement market, which contributes two-fifths to its automotive segment sales.

In the industrial segment, UPS or uninterrupted power supply batteries have been the growth driver. This device, which provides battery backup when electrical power fails, will continue to drive sales as long as the demandsupply gap for power in the country remains.

It has also shown consistent improvement in its operating profit margin in recent quarters, benefiting from the fall in the price of lead – a key raw material. The rise of the rupeewill benefit the company.