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Amara Raja Batteries-VRK100-Snapshot 18092009

Amara Raja Batteries-VRK100-Snapshot 18092009

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This document authored by Rama Krishna Vadlamudi describes Amara Raja Batteries Limited, listed on NSE and BSE in India. The analysis is from a fundamental perspective of the stock. The analysis will be useful for equity analysts, professionals, brokers, general readers and other market men. The analysis describes the company's prospects from a stock market perspective.
This document authored by Rama Krishna Vadlamudi describes Amara Raja Batteries Limited, listed on NSE and BSE in India. The analysis is from a fundamental perspective of the stock. The analysis will be useful for equity analysts, professionals, brokers, general readers and other market men. The analysis describes the company's prospects from a stock market perspective.

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Categories:Business/Law, Finance
Published by: RamaKrishna Vadlamudi on Sep 18, 2009
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AMARA RAJA BATTERIES LTD A SNAPSHOT 
Rama Krishna Vadlamudi vrk_100@yahoo.co.inMUMBAISeptember 18th, 2009
PROMOTER SHAREHOLDING:
The total promoter shareholding in Amara Raja Batteries Limited is 52 per cent as at the end ofJune 30
th
, 2009. Indian promoters, Galla family, hold 26 per cent and another 26 per cent is by aforeign promoter company, Johnson Controls. Johnson Controls is a leading US player in theworld with superior technology in batteries.
FII & MUTUAL FUND HOLDING:
FII holding is around three per cent and Mutual funds hold 13.75 per cent stake in the co as on30.6.09. Out of the MF holdings, Franklin Templeton MF sold 1.55 lakh shares in the first week ofSeptember 2009.
EQUITY SHARES:
The total outstanding shares are at 8.54 crore, with paid-up equity being Rs 17.08 crore (facevalue of share is Rs 2 per share). Compared to its main rival, Exide Industries’ paid-up equity ofRs 80 crore, this is quite low.
 
 Rama Krishna Vadlamudi, MUMBAI. vrk_100@yahoo.co.in. Sep. 18, 2009
Page 2 of 4
BUSINESS MODEL:
The co gets its business from two segments, viz, industrial and automotive battery divisions. TheIndian storage batteries market is estimated at Rs. 9,000 crore. Of this, industrial batteriesaccount for Rs. 3,700 crore and automotive batteries for Rs. 5,300 crore. The domesticorganised sector in the storage battery market is estimated at about Rs. 6,800 crore, withindustrial batteries accounting for Rs. 3,500 crore. The unorganised sector accounts for a largeproportion of the automotive battery segment.
INDUSTRIAL BATTERY DIVISION (IBD):
IBD is powered by telecom and UPS segments. Other user segments are Indian Railways (for itsAC coaches) and power utilities. During 2008-09, the co doubled its large VRLA (Valve RegulatedLead Acid) battery capacity (Powerstack) to 90 crore. The co is expanding its capacity in MediumVRLA battery by 50 per cent currently. It supplies industrial batteries to major cellular serviceproviders, multinational telecom and power companies. The co’s two industrial brands are PowerStack (TM) and Quanta TM for UPS purposes.
AUTOMOTIVE BATTERY DIVISION (ABD):
The co has got the support of its JV partner, Johnson Controls Inc., USA, the largest globalautomotive batteries manufacturer. The company introduced maintenance-free automotivebatteries and pioneered the VRLA technology in India's automotive battery segment. It offers arange of automotive batteries to OEMs and the aftermarket with warranties ranging from 12 to60 months. ABD is an OEM supplier to several automobile companies. The co is placed in thereplacement market also. Maruti Suzuki is also a customer of the co. The co is supplying its‘Amaronr’ batteries to South Africa also. The co is expanding its ABD capacity by 30 per centduring this year. Amaron (R) is a well-known brand.
CASH FLOW:
Net cash flow of the co is good, with Rs 224 crore of net cash flow from operating activities during2008-09.
TOTAL CASH HOLDING: 
Cash & cash equivalents, as on March 31, 2009, are at Rs. 100 crore.
 EXPANSION:
The co will be investing another Rs 56 crore during FY 2009-10 for augmenting its capacity. Thefunding will be through internal accruals.
RETAIL NETWORK:
The company has got a network of 190 franchisees and 18,000 retailers and 600-strongPowerZone (TM) retail network for rural and semi-urban areas.
GROWTH DRIVERS:
Spreading network of telecom service providers
Entry of new players and introduction of new services (3G) in the telecom sector
Increasing computerisation, especially among government agencies
Growing IT and ITeS sectors and rural tele-density
Widening BFSI network and ATM expansion
 
 Rama Krishna Vadlamudi, MUMBAI. vrk_100@yahoo.co.in. Sep. 18, 2009
Page 3 of 4
Mounting power deficit, enhancing the need for back-up batteries in critical equipmentand processes
India has emerged as a hub for automobile manufacturers, like, Ford, JLR, Honda,Toyota, Nissan, etc
Household sector’s usage of batteries is also going up due to severe power outtages
Replacement market, which is around 20 per cent, is expected to drive the auto segment
Hybrid vehicles are becoming popular worldwide following a growing concern overprice volatility and depleting fossil-fuel reserves. These cars can be powered withmultiple energy sources (gasoline, diesel, LPG and bio fuels); and
E-Bikes are not popular yet; but, the e-bike segment is expected to grow over the nexttwo years
PLDEGE OF SHARES BY PROMOTERS:
The promoters have not pledged any of their shares.
RISKS ASSOCIATED WITH THE COMPANY:
Raw material procurement 
: The key input and major cost element – around 55 to 65 per cent – inbattery manufacture is lead and lead alloys. Any rise in lead prices will adversely impact thecompany’s profitability. Around 60% of the Company's lead requirement is sourced fromAustralia and Korea. The strength of Australian Dollar against rupee will be a concerndepending on the cross-currency hedges. The company enjoys reliable supply arrangementswith major lead suppliers linked to the LME average monthly price.
Forex losses on account of net forex outgo 
: Net foreign exchange outgo during 2008-09 was Rs362 crore. Rupee depreciation against USD will have adverse impact on the landed input cost oflead and lead alloys. The co suffered forex losses to the tune of Rs 32.2 crore during 2008-09(previous year gain of Rs 3.35 crore) due to rupee depreciation against USD on ECBs andbuyers’ credit foreign currency loans for import of lead and lead alloys. The co did not opt forleeway given by the Government for forex accounting losses under AS-11 with respect to foreigncurrency borrowing. Net foreign exchange exposure, as of March 31, 2009, was around USD30 million.
Margin contraction 
: The co’s profitability margin suffered during FY 2008-09 on account of forexloss, volatility in lead prices, slowdown in automotive business and surge in expenses.
Rising interest rate scenario 
: Interest rates till now have been benign due to the emphasis onGDP growth given by RBI and Government of India. Any hardening of monetary policy stance byRBI will have adverse implications for the automobile industry and the company.
PLANT: 
The co’s manufacturing facility is located in Tirupati, Andhra Pradesh, India.
 COMPETITOR:
Exide Industries is the leading player in batteries market in India. The co with second highestmarket share is Amara Raja Batteries. Exide is a fully integrated player with some backwardintegration into smelters. Exide enjoys better brand power compared to Amara Raja Batteries.

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