Amara Raja Batteries Ltd saw volumes improve across segments in the December quarter. However, rising cost pressure, especially because of raw material prices, is worrying investors. Elevated staff expenses and an ongoing increase in lead prices also weighed on the company’s operating performance.
Operating margin was 15.6% in Q3FY21, slipping 200 bps sequentially and missing the consensus estimate of 16.5%. One bps is one hundredth of a percentage point. Gross margin deteriorated by 80 bps sequentially in Q3. The company has hiked prices in the OEM segment to counter cost inflation. The company is yet to decide on price hike in the after-market segment, it said in a post-earnings conference call.
It is also establishing a greenfield lead recycling unit, with a capacity of 0.1 MT, at a capital expenditure of ₹280 crore. The unit, which will start operations in two years, will cater to 20-25% of its lead requirement, the management said. It is also setting up a 50 MW solar power plant that would cut the cost of power as nearly 30% of its requirement would be met from this plant, the management said. However, these benefits will take time to accrue, so further price hikes are required to curb margin erosion, analysts said.
Input cost inflation put the stock under pressure on Monday. The stock ended the day at ₹928.50, down 6% on the NSE.
