Neutral Amara Raja; target of Rs 740: Motilal Oswal

What happened

Motilal Oswal maintained a Neutral rating on Amara Raja and set a target price of Rs 740. The company’s second-quarter FY27 profit after tax was 13% above the brokerage’s estimate, while a 2% price increase helped keep its operating profit margin steady at 10.1%.

Confirmed

Global impact / market context

The price increase helped offset higher costs for alloys, sulphuric acid and polypropylene, but Motilal Oswal expects those costs and interest on debt-funded new-energy investments to pressure profitability. It cut its FY27 and FY28 earnings estimates by 6% and 9%, respectively.

Confirmed

Motilal Oswal considers the shares fairly valued at about 18.9 times estimated FY27 profit per share and 14.9 times estimated FY28 profit per share. Its Rs 740 target combines a valuation of the main business with an assigned value for the new-energy investment.

Confirmed

What to watch

1. Check whether further price increases can offset alloy, sulphuric acid and polypropylene cost increases without weakening demand or the company’s ability to maintain operating profit margins. Analyst inference
2. Track capital spending on the new-energy business and how much is funded with borrowed money, since additional debt would raise interest costs and weigh on profits. Analyst inference
3. Compare reported FY27 and FY28 earnings with Motilal Oswal’s revised estimates, which are 6% and 9% lower, and note whether its Neutral rating or Rs 740 target changes. Confirmed

Evidence

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