Amara Raja Energy and Mobility Ltd’s weak profit margins in the September quarter masked a 12% year-on-year growth in its standalone revenue.
The revenue was in line with analysts’ expectations and was driven by growth in three segments: two-wheeler and four-wheeler aftermarket, two-wheeler OEMs and exports.
But rising input costs, especially lead prices, and a higher proportion of low-margin traded products have hurt profitability. The independent gross profit margin decreased by 100 basis points (bps) annually to 32.4%, and the Ebitda profit margin decreased by 14.1% annually, lower than expected.
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Despite this squeeze, company management reiterated near-term profit guidance of 14-14.5%, assuming lead prices remain stable at $200,000/ton. Expected export growth and continued process improvements also support the outlook.
To protect profits, Amara Raja implemented an after-sales price increase of 1.5%.
Even so, some brokerages have lowered their profit expectations. Taking into account lower margin assumptions, Nuvama Research has cut Amara Raja’s Ebitda forecast by 3-4% for fiscal 2025-27.
Moving to lithium-ion batteries
At the same time, the battery industry is gradually shifting from lead-acid batteries, the core of Amara Raja’s business, to lithium-ion batteries. Amara Raja has started assembling lithium battery packs and manufacturing chargers, and is investing in building lithium-ion capacity to meet demand, mainly from electric vehicles.
In fact, the company has increased the investment limit for battery manufacturing subsidiaries to $20 billion rupees $It was earlier proposed to invest Rs 1,000 crore to set up gigafactories.
Investment in lithium battery business (new energy business) will reach $Revenue will reach Rs 1,200 crore by the end of fiscal 2025, management said during the company’s second-quarter earnings call.
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Motilal Oswal Financial Services said in a report on November 6 that while Amara Raja can fund the initial few years of its lithium-ion program through internal accruals, it will need to raise funds to fund the remaining program. Provide funding.
Sure, Wall Street is excited about the prospects of the company’s lithium-ion business, but it’s still a low-margin, highly competitive business. Amara Raja must balance partnerships with OEMs and capital returns against challenges surrounding the long-term viability of the technology.
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High capital expenditures, expensive valuations
Amara Raja’s total standalone capex for FY25 is expected to be approx. $5 billion rupees, approx. $Rs 385 crore has been spent in the first half of the current financial year.
Management said capital expenditures increased relative to previous expectations as the company must move forward with plans to expand its 4W capacity plant. There are concerns that higher capital expenditure requirements will impact the company’s return rates.
Meanwhile, Amara Raja stock has gained nearly 60% so far this year, well ahead of larger peers Exide Industries and Nifty500. The sharp gains suggest Wall Street is focusing on the positives, but slowing domestic OEMs and replacement demand could lead to lower-than-expected revenue growth.
Plus, valuations are expensive. According to Bloomberg data, based on the price-to-earnings ratio for fiscal 2026, the price-to-earnings ratio of Amara Raja stock is 20.9 times.
