Taking cue from Peter Lynch’s book – ”The best place to scout for
good businesses is to look around in your daily life”, when I look at
the number of increasing vehicles on road and the rate at which traffic
is shooting up everyday, one of the key investment theme that comes to
mind is “Amara Raja Batteries”. The company is one of
the leading manufacturer and supplier of storage batteries to
automobiles, Telecom sector, UPS, inverters etc. The company is second
to just Exide industries, which is a market leader in this duopolistic
market. These are only two key players capturing close to 90% market
share. The company’s Amaron brand enjoys a strong
position and recall and is gaining strength day by day. Company is
giving a strong competition to Exide across categories. A five years
Sales and profit CAGR above 30% and average 5 year ROE in the range of ~
30%, a debt free Balance sheet , improving operating margins over the
years, strong brand, strong dealer network (which creates a reasonable
barrier to entry), a reasonable valuation and a largely scalable
business model augur well for the future prospects of the company. A
very interesting point about the company would be to read its annual
report – One of the most detailed annual report in my experience so far,
detailing segment wise action plans for the years to come.
Risks: 1) Exide may become aggressive in the market place and may take benefit of its market leadership position thereby creating margin pressures 2) The company’s key input material is lead. An increase in the prices of lead can cause a strain on profitability 3) Some people say that the company’s promoters have got political aspirations and have contested for elections in the past; however I don’t perceive it as a real risk as long as the company’s fundamentals are intact
The financials of the company can be accessed from http://www.screener.in/company/?q=500008
VIJAY
Risks: 1) Exide may become aggressive in the market place and may take benefit of its market leadership position thereby creating margin pressures 2) The company’s key input material is lead. An increase in the prices of lead can cause a strain on profitability 3) Some people say that the company’s promoters have got political aspirations and have contested for elections in the past; however I don’t perceive it as a real risk as long as the company’s fundamentals are intact
The financials of the company can be accessed from http://www.screener.in/company/?q=500008
VIJAY
