Amar Raja Batteries had fallen down more than 20% in the last month and after looking at subdue first half results of 2016 a lot of pessimistic views have emerged in the market which is not helping the price in the market.

If we look at the results of first half of 2016 than revenues have jumped up by 10%, EBITDA margin is 17% same as first half last year and net profits have jumped up by 19% compare to first half last year.

As per all the other analysts, the expectation of revenue growth was 15% and that should have translated a growth of 30% in their earnings. But let me remind you here that the sale of Amar Raja’s product depends on how the automobile and telco sector are doing. Auto sector had witnessed a sharp fall in their overall revenues and its earnings for this year and are yet expected to change the trend next year. The expectations are on the basis that RBI might drop the interest rates and auto loans might get cheaper and that will boost the sales revenue.

Businesses are not static in nature and competition puts pressure on the profit margins and sales. With every one percent increase in sales, its profits are growing by 1.9% which do tell us that the competitive edge had not faded away from this business.

We proudly own this business from last 5 years and we do still believe that future of this business do hold bright prospects and this business can keep momentum like this for next 3 -4 years. On valuations we do think it is trading at premium price to its expected 2016, 2017 and 2018 intrinsic values.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds.