Shares of batteries maker Amara Raja Batteries Ltd fell more than 6% on the NSE to Rs925.70 in Monday’s opening trade. Even though the company saw an improvement in volume growth across segments, investors are worried over the rising cost pressure.
Amara Raja’s operating margin at 15.6%, down 200 basis points (bps) sequentially, missed the consensus estimate of 16.5%. One basis point is one-hundredth of a percentage point. Gross margin deteriorated by 80 bps quarter-on-quarter in the December quarter. The miss was largely due to increased raw material prices and higher staff costs.
To tackle the cost inflation, the company has taken price hikes in the OEM segment. In a post-earnings conference call, the management said that it is yet to decide on price increases in the aftermarket segment. It further added that while lead prices have risen, the strengthening of the dollar-rupee pair has diluted lead cost inflation.
“Near-term, we see margin pressures with lead price having increased by around 7% from Q3 FY21, but price hikes could be taken in future,” analysts at Nomura said in a report on 14 February.
Meanwhile, the company is setting up a greenfield lead recycling unit, with a capacity of 0.1 million tonnes at a capital expenditure of Rs280 crore. The unit will start operations in two years. Around 20- 25% of its lead requirement would be catered by this recycling unit, its management said. The company is setting up a 50MW solar power plant, at a total capex of Rs220 crore. This will further reduce the cost of power as nearly 30% of its power requirement would be met via this plant, it added.
