Midcap Auto Ancillary Stock Recommends 320% Final Dividend, Fixes Record Date, Buy, Says Sharekhan

Sharekhan has placed a Buy rating on Amara Raja Batteries Ltd. (ARBL) for a target price of Rs Rs. 696/share. The brokerage claims decent gains of up to 16% considering the given target price and the current market price of the stock. ARBL is an Auto Ancillary sector midcap stock having a market price of Rs. 10,276.08 crore.

Recommended Dividend

"Pursuant to Regulation 30, 42 and 43 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, recommended a final dividend of Rs. 3.20/- per equity share (representing 320%) of Rs.1/- each fully paid up for the financial year 2022-23, subject to approval of the shareholders at the 38th Annual General Meeting of the Company. The dividend will be paid within 30 days from the date of declaration of final dividend by the shareholders at the 38th Annual General Meeting," the company said in an exchange filing on May 23, 2023.

It added, "The above final dividend is in addition to the Interim Dividend of Rs.2.90/- per Equity Share (representing 290%) declared by the Board on November 3, 2022."

Record Date

The Board of Directors in an exchange filing on May 23, 2023, fixes the record date for the dividend. In the Regulatory filing, the company said, "Record date for the purpose of final dividend of Rs. 3.20/- per equity share (representing 320%) of Rs.1/- each fully paid up for the financial year 2022-23 is Friday, July 28, 2023."

Maintain Buy with an unchanged PT of Rs. 696

According to Sharekhan, While ARBL has reported a weak performance in Q4FY2023 due to fire incident at its one of its plants and RM cost pressure, but management has guided for improved profitability in the coming years on account of revival in volumes and stable RM cost trend. The company has laid down its long-term strategic plans for the energy and mobility sectors by maximising its brand recall in the lead acid battery space and investing in new energy product developments.

Management has maintained its EBITDA margin guidance of 14-16% in the coming year. Unlike street's concern about the demand for lead acid batteries, the company shared its positive view for the lead acid battery segment and indicates that despite the increase in Li-ion technology, lead acid batteries would continue to remain in demand for an adequate visible period of time. While ARBL is investing Rs. 1,300 crore over the next 2-2.5 years in the Li-ion project, it is also planning to invest Rs. 300-400 crore each in FY2024 and FY2025 in the lead acid battery business.

"We maintain our Buy rating on the stock with an unchanged TP of Rs. 696 on account of the expectation of revival in replacement demand, a 12.8% earnings CAGR along with 50 bps expansion in EBITDA margin over the next two years and the opportunity to play in the Li-ion cell business," the brokerage has said.

Stock Outlook

On Friday, the stock of ARBL closed at Rs. 601.60 apiece. Its 52 week high is Rs. 668.15/share and 52 week low is Rs. 438.05/share, respectively. The stock declined 5.79% in 1 week. It gave 22.24% positive return in 1 year. However, it gave 0.61% negative return in 3 years and 23.71% in 5 years, respectively.

Disclaimer - The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.