There was an important takeaway from Amara Raja Energy and Mobility Ltd’s management commentary in the March quarter (Q4FY25) earnings call.
The company is unlikely to see respite from input cost pressures in the near term.
Higher power and material costs, specifically antimony alloys, dented Amara Raja’s Q4 operating margin by 310 basis points year-on-year to 11.5% – a multi-quarter low. Revenue rose 6% year-on-year to ₹2,973.9 crore, aided by growth in the two-wheeler and four-wheeler aftermarket, two-wheeler OEM and home uninterruptible power supply (UPS) segments.
To mend margin, the lead acid battery maker raised prices by around 2% in April, and more hikes are likely depending on the competitive intensity and input cost movements. The commencement of the tubular plant and the lead recycling plant is also expected to mitigate cost concerns.
Amara Raja expects the operating margin to rebound to 14%. But for now, earnings estimates have been trimmed. IIFL Securities has cut its FY26/FY27 earnings per share estimates by 8-9% due to lower revenue and margin assumptions (the broking firm was building over 14% margins in FY26/FY27).
Also Read: A charged-up Amara Raja juggles margin pressure and lithium-ion ambitions
Focus on Li-ion
In line with the industry’s gradual shift from lead-acid batteries towards lithium-ion (Li-ion) batteries, Amara Raja has been investing in building Li-ion capacities to meet demand, mainly from electric vehicles.
Its consolidated capital expenditure (capex) for FY25 was ₹1,200 crore, mainly for tubular battery plant, lead-acid battery capacity, and Li-ion. The management expects a similar capex quantum for FY26, with higher allocation to Li-ion. The commencement of phase 1 of the gigafactory has been delayed to Q3FY27 from the earlier target of FY26.
Since Amara Raja is heavily investing in Li-ion, earnings outlook and stock re-rating hinge on how the venture scales up and visibility on return on equity. Amara’s venture into the Li-ion business is strategically sound; however, there are notable challenges, said Motilal Oswal Financial Services. The low-margin nature of the lithium-ion business is likely to dilute returns, and the long-term viability of the technology remains uncertain despite the large capital investment, it added.
Also Read: Charge up your watch list with these five battery storage stocks
So far in 2025, the stock has declined 15%, more than peer Exide Industries Ltd, which did relatively better on margins in Q4FY25.
Amara Raja’s shares trade at about 20.5x FY26 earnings, based on Motilal Oswal’s estimates. This may be reasonable, but given the potential downside risks, it is hardly compelling.
“We are negative on li-ion cell manufacturing as Ebitda break-even is several years out, and we expect the project to be negative-free cash flow through this decade,” said IIFL’s analysts in a 2 June report.
Also Read: Batteries included: Amara Raja’s game plan
