Share of Amara Raja Batteries cracked 7.5 percent on Monday after the company reported weak operating performance in the December quarter on the back of a decline in margin due to higher expenses.

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The company's EBIDTA margin fell 200 basis points (bps) QoQ and 160 bps YoY to 15.6 percent in Q3. However, it reported a 17.7 percent YoY jump in profit to Rs 193 crore. Its net sales also rose 12.1 percent YoY to Rs 1,960 crore.

The stock fell as much as 7.5 percent to the day's low of Rs 915 per share on the BSE.

The sentiment vis-a-vis the stock was also lower after global brokerage firm Nomura downgraded the stock to neutral with a target at Rs 1,003 per share post the earnings.

As per Nomura, the company faces near-term cost pressures and Li-ion success is required for long-term visibility. It sees margin pressure rising with lead price having increased by 7 percent from Q3.

Over the next two years, the brokerage expects 100 bps savings from its lead recycling and 30 bps from solar power. Price hikes could also be taken in the future, it added.

In a statement after earnings, the management noted, "the company is going forward with strategic investments focused on improving operational efficiencies, cost optimisation and technology upgradation. The planned investments in solar and lead recycling plants will aid reducing costs and provide long term support to key raw material procurement."

Domestic brokerage Motilal Oswal also believes that the raw material cost pressures continue due to lead price inflation. However, sustenance of demand momentum will dilute impact through price pass-through and operating leverage," it added.

The company further announced capex of Rs 500 crore towards setting up a lead-acid recycling plant of 1 lakh tonnes per annum capacity ( Rs 280 crore) and a captive 280 MW solar power plant (Rs 220 crore).

Meanwhile, the board of directors of the company has approved payment of an interim dividend of Rs 5 per equity share (representing 500 percent) on the face value of Re 1 each for the financial year 2020-21. The company has fixed February 26, 2021, as the record date for the purpose of payment of interim dividend.

Amara Raja Batteries is one of the largest manufacturers of lead-acid batteries for both industrial and automotive applications in the Indian storage battery industry.

(Edited by : Ajay Vaishnav)

First Published:Feb 15, 2021 2:47 PM IST