Amara Raja Batteries stock offers a low risk, high return opportunity. Learn why

In a few ideas for profit from Moneycontrol Pro, Nitin Agrawal of Moneycontrol.com spoke about a stock he is tracking closely--Amara Raja Batteries.

Amara Raja Batteries is an auto ancillary company. The stock price of the company corrected by around 45 percent from its high achieved in January 2021, and according to Agrawal, this has made the valuations very attractive.

He said one of the biggest concerns for the company is the rise in raw material prices, which has impacted its EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins. The firm's EBITDA margin contracted by as much as 362 basis points in Q3 FY22 on a year-on-year basis.

The company has been taking steps to arrest the impact of the raw material prices by taking price hikes and going for backward integration.

Post-COVID a significant recovery has been seen across all the segments. According to Agarwal, the demand from the automotive segment is strong and it is evident from its Q3 numbers. The company posted a growth of 20.7 percent. With the economy returning to normalcy, the industrial segment is also getting traction.

The company is all geared up for the electric vehicle space as well. It is coming up with a 100 megawatt-hour lithium-ion battery plant, has already launched an e-rickshaw battery, and has started supplying to original equipment manufacturers.

Agarwal believes the price correction has already captured the challenges that the company has been facing. With the current valuation of around 10.8 times FY24 projected earnings, he believes the stock offers a very low risk, high return opportunity to the investors.

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