>AMARA RAJA BATTERIES: Retail and replacement charge; initiate at Buy

■ Branding, the key. Amara Raja Batteries is India’s second-largest battery manufacturer in the organised sector. It has made its mark through branding, a strong retail network and entry into the twowheeler segment. While it has a lower market share with OEMs, valuations are attractive. We initiate coverage on Amara Raja with a Buy rating and a target price of Rs178.

■ Retail network expansion. Amara Raja has steadily expanded its aftermarket retail network and now has over 169 franchisees and 18,000 active retailers. The expanding retail network would help it further penetrate the replacement market.

■ VLRA batteries for two-wheelers. Amara Raja’s charge into the two-wheeler segment with VLRA battery technology (normally used only in luxury cars) is likely to help it penetrate the segment.

■ Industrials, a growth area. Notwithstanding the current industrial slowdown in some segments such as telecom tower batteries, we expect the segment to continue to grow at a good clip. Fundamental factors would continue to drive growth in the industrials segment.

■ Valuation. We value Amara Raja Batteries at 8.5x FY11e EPS (a 50% discount to the target multiple for market leader Exide Industries). At the current market price, the stock would trades at
7.1x FY10e and 6.2x FY11e earnings.

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