Why Amara Raja Batteries Share Price is Falling

The Indian share markets fell sharply last week owing to the recent Covid outbreak in China.

As per a report, about Rs 8 trillion (tn) in wealth was wiped out on Friday as the indices plunged.

Benchmarks BSE Sensex and NSE Nifty witnessed a fall of around 3% between 19-23 December 2022 while the correction was more severe in the broader market.

The BSE Smallcap index fell 8% while the BSE Midcap index plunged 6%.

From the broader markets, Amara Raja Batteries was one of the worst hit stocks.

The stock fell from Rs 648.2 on 19 December to Rs 568 at present. That's a fall of more than 12% in around seven sessions.

So, what factors are responsible for the recent decline in Amara Raja?

Well, the current situation of Indian share markets is that any correction in the overall market is resulting in a similar correction in the sector or broader markets.

Take for instance PSU banks...

PSU banks had a dream run in the past two months as credit growth picked up and their asset quality improved.

PSU banks high on growth went on to deliver multibagger returns in a span of two months.

What's more, the prospects are far better now.

With the government's capital expenditure programs to boost demand, there is a clear thrust towards reviving capital spending in infrastructure. This bodes well for the credit demand in the country over the near-term, putting the sector in a sweet spot.

But still, as the Indian share market witnessed heavy selling last week, PSU banks fell in line with the market and saw a broad-based selling.

Similarly, stocks from many sectors witnessed a broad-based correction and Amara Raja Batteries was no exception.

There weren't any recent negative developments for Amara Raja Batteries, but the stock still witnessed selling due to the overall slump in the market.

Now the question is what's in store for Amara Raja in 2023?

Tide is turning after a long time

The stock of Amara Raja underperformed big time in the last three years due to the pandemic and increasing raw material costs. Its revenue increased at a CAGR of 9% in the last three years while its net profit increased at a CAGR of only 2%.

Look at its chart below.

However, going forward, the company's revenue is expected to grow, driven by a steady offtake by automobile OEMs, pick up in industrial activities and focus on exports.

Profitability is also expected to improve supported by higher volumes, likely proposed price hikes, and expected softening of lead prices.

The effect is already visible in its September 2022 quarterly results where the EV battery maker delivered strong operational performance. Net profit rose to Rs 1.1 billion (bn), compared to Rs 18.2 m in the year ago quarter.

What followed was a sharp rise in the company's share price in November 2022 (see the spike in the chart above).

Recently, the company announced it will invest Rs 95 bn over the next 10 years to set up research and manufacturing facilities for lithium-ion batteries in Telangana.

As part of its journey towards giga scale manufacturing of advanced cell technology products, it will establish a commercial scale pilot plant and the first giga scale cell production facility.

Equitymaster's technical view on Amara Raja Batteries

We reached out to Brijesh Bhatia, editor of Fast Profits Report, to understand what the technical have to say for Amara Raja.

Here's Brijesh:

• Amara Raja Batteries, the energy to our companions like cars and bikes, is struggling to perform via its stock price.
  
  Since its high of Rs 999 in Jan 2021, the stock has corrected over 50% and found the lost plot in the second half of 2022.
  
  The stock was in focus and a confirmation of the medium-term bottom in November 2022 when it rallied 27%.

Amara Raja Technical Chart

 

• Though the bearish spell continued in December, the low of Rs 435 may hold strong on charts.
  
  Technically, the stock has retraced by 50% Fibonacci level from the recent swing of Rs 476 to Rs 668 at Rs 570.
  
  The volumes in the November rally seem exciting for bulls and signal the strength in the rally. The retracement in December is with lower volumes indicating the bulls may grab the opportunity to re-enter the stock.
  
  Additionally, the gap at Rs 530 may add another layer of support for bulls.
  
  The long-term moving average theory of the golden cross and death cross defines the long-term trend on charts.
  
  The golden cross is a sign of a long-term bullish trend. It is confirmed when the 50-day moving average (DMA) crosses above 200DMA from the bottom.
  
  On contrary, the death cross is a sign of a long-term bearish trend. It is confirmed when the 50-day moving average (DMA) crosses below 200DMA from the top.
  
  On the daily chart of Amara Raja Batteries, the death cross was confirmed in May 2021 and the stock was trading in a bearish trend for 18 months.
  
  In November 2022, the golden cross was confirmed after 364 trading days which coincides with the Fibonacci time cycle theory.
  
  The golden cross confirms the trend reversal from bearish to bullish and the 200DMA placed at Rs 567 may act as a support area.
  
  To conclude, the gap area of Rs 520-540 (marked red on the chart) and the 200DMA at Rs567 will be the support zone for bulls.

If you're interested in being part of Brijesh's charting journey as he shares how to create wealth from profitable trade setups, join his telegram channel - Fast Profits Daily.

How Amara Raja share price performed in 2022

In 2022 so far, Amara Raja has fallen 11%.

Today, the stock opened marginally higher at Rs 592 against its previous close of Rs 589. However, as the session progressed, the stock erased gains and fell 3% to Rs 568.

Amara Raja Batteries has a 52-week high of Rs 670 touched on 9 December 2022 and a 52-week low of Rs 438 touched on 20 June 2022.

Here's a table comparing Amara Raja with its peers:

Comparative Analysis

Company	Amara Raja	Exide	Eveready Ind	HBL Power	Indo National
ROE (%)	11.7	7.8	17.9	11.4	5.6
ROCE (%)	16.0	11.3	14.7	14.8	8.7
Latest EPS (Rs)	33.8	53.9	3.0	3.6	-7.8
TTM PE (x)	17.4	3.3	117.6	27.7	0.0
TTM Price to book (x)	2.0	1.4	7.9	3.0	1.3
Dividend yield (%)	0.8	1.1	0.0	0.4	1.2
Industry PE (x)	21.1
Industry PB (x)	1.8

Data Source: Equitymaster, Ace Equity

About Amara Raja Batteries

Amara Raja is the second biggest player in the lead-battery space in India.

It enjoys a widespread network, catering to the automotive and industrial segments with its Amaron brand of lead batteries.

The company is positioning itself to benefit from the growing electric vehicle market in the country. Recently, the company has set up a technology hub to develop lithium-ion batteries, at its Tirupati facility in Andhra Pradesh.

To know more about the company, check out its financial factsheet and latest financial results.

You can also check out the detailed comparison piece between Amara Raja Batteries and Exide Industries. This article explains which EV battery manufacturer will lead the market.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...