Amara Raja's Q1 FY26 PAT at Rs 1.9 billion was below our estimate of Rs 2.1 billion due to lower-than-expected other income. Margins remained under pressure at 11.5% due to higher non-lead alloy costs and higher power costs.
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Motilal Oswal Report
Amara Raja Batteries Ltd.'s venture into the lithium-ion business is strategically sound given the opportunities in the segment and risks facing its core business. However, there are notable challenges:
market opportunities are limited by existing OEM partnerships;
low-margin nature of lithium-ion business is likely to dilute returns; and
long-term viability of technology remains uncertain despite the large capital investment.
While the market is optimistic about Amara Raja's li-ion initiative, we are cautious about its potential returns. We believe the stock, trading at around 21.1x FY26E /17.2x FY27E EPS, appears fairly valued.
Therefore, we maintain a Neutral rating with a target price of Rs 1,030, based on 18x Jun'27E earnings per share.
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