Amara Raja Batteries: Will Be "Raja (King)" Only Sustaining Over 905-915 Zone

Sustaining below 905, ARBL may fall up to 800-775 in the near term

Actual TTM EPS at 28.29 and projected Q4FY16 EPS at around 30.15;

Valuation looking bit stretched 

(Avg PE around 30, whereas 25 may be more reasonable)

Trading Idea:

CMP: 882

Either sell below 890 or on rise around 905-915;

TGTS: 857*-800-775-745 (1-3M)

TSL> 930

Note: Consecutive (3 days) closing above 930 for any reason, ARBL can further rally towards 950*-990 and 1025-1065 & 1130-1375 in the short to long term (alternative bullish case scenario form the present trading level).

Q4FY16 PAT of ARBL was above street estimates on the back of superior performance led by automotive ( both OEM & replacement) and industrial (mainly from telecom sector & data growth) battery segment.

But going forward, incremental benefit of lower raw material prices (e.g. lead ) may be limited and OM may be affected.

If there is no meaningful industrial/economic recovery in India in the quarters ahead, demand of industrial & automotive batteries may be subdued and future earning growth may be limited. 

Together with Exide, ARBL enjoy a virtual monopoly (~90%) in the organized battery market and ARBL seems to be performing better than Exide with its superior business plan & pricing power.

But, with lower capacity utilization and no visible economic recovery in India, electricity may soon be in excess of demand and house hold/industrial use of battery may be limited except some pockets.

As par BG metrics and current market scenario:

(based on actual TTM & projected FWD EPS)

Current fair valuation of ARBL may be around: 785 (FY:15/TTM)

Projected fair valuations might be around: 810-880-955 (FY:16-18/FWD)

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	Low	High	Median	200-DEMA	10-DEMA
AMARAJABAT	28.29	99.5	25	783.56	784.68	784.12	868.11	870.58

AMARAJABAT

30.15

123.9

25

808.91

810.06

809.49

868.11

870.58

AMARAJABAT

35.5

154.25

25

877.75

879.00

878.38

868.11

870.58

AMARAJABAT

41.95

192.05

25

954.16

955.52

954.84

868.11

870.58

Analytical Charts: