Amara Raja jumps 37% so far in April, nears record high on healthy outlook

Shares of Amara Raja Energy (ARE&M) hit a multi-year high of Rs 1,111 apiece, as they rallied 7 per cent on the Bombay Stock Exchange (BSE) amid heavy volumes on a healthy outlook. The stock is trading close to its record high level of Rs 1,128 touched on August 25, 2015.

Thus far in the month of April, the market price of a comprehensive solutions provider in the Energy & Mobility space has zoomed 37 per cent, as compared to 0.27 per cent rise in the S&P BSE Sensex.

A sharp upward movement saw after South Korean automotive majors Hyundai Motor Company and Kia Corporation announced a partnership with Exide Energy Solutions (EESL), a subsidiary of battery manufacturer Exide Industries, to localise electric vehicle (EV) battery production in India.

ARE&M encompasses a diverse range of solutions and products, which include energy storage solutions, Lithium-ion cell manufacturing, wide range of EV chargers, Lithium Ion battery pack assembly, automotive and industrial lubricants, and exploration of new chemistries, among others. The company is also one of the largest manufacturers of energy storage products for both industrial and automotive applications in India.

Amara Raja is the preferred supplier to major telecom service providers, telecom equipment manufacturers, the UPS sector (OEM & Replacement), Indian Railways, and the power, oil & gas industry segments. The company also manufactures India’s leading automotive battery brands Amaron and Powerzone.

In the October-December quarter (Q3FY24), the automotive battery business – both domestic and exports – saw considerable volumes from the OEM and aftermarket segments when compared to the last quarter. The boom in the telecom sector acted as the major driver for the industrial battery volumes which witnessed strong growth. Under the New Energy business, the company said it initiated the supply of battery packs to the telecom sector.

Given the present population of vehicles and healthy original equipment manufacturer (OEM) sales volumes over FY22-24 coupled with its efforts to augment exports, analysts at ICICI Securities believe this segment is well positioned to grow at a higher single digit going forward.

The company, in the recent past, entered into a memorandum of understanding (MoU) with the Telangana government for setting up of Li-Ion Battery Gigafactory. The said facility is expected to have cell manufacturing capacity of up to 16GwH & assembly capacity of up to 5 GWh with overall investment pegged at approximately Rs 9,500 crore over next 10 years.

In the first phase, it is setting up a Li-On cell plant of 2GwH capacity at capex outlay of approximately Rs 1,200 crore with likely commissioning by FY26E. 

With capex under execution and plans for sizeable foray in the new energy space, long term prospects at Amara Raja are promising, the brokerage firm ICICI Securities said in a stock update, with a target price of Rs 1,200 per share.