Introduction
I recently received a very relatable query from a reader. It perfectly captures one of the toughest dilemmas an investor can face. He asked, “what to do when a seemingly good company’s stock just doesn’t perform.”
It’s a frustrating situation. You’ve done your research, you believe in the company, but your portfolio tells a different story.
For years, you see minimal returns while other investments are thriving.
This reader, who has been patiently holding Amara Raja stock for nearly three years, is facing this exact dilemma.
Here is what he wrote to me:
“I’ve been accumulating Amara Raja stocks since May 2021. The average holding time showing for this stocks in my portfolio is 2.78 Years. Other stocks (about 4 nos) with a similar average holding time is now showing an average CAGR of about 20%+. But Amara Raja’s average CAGR, in 2.78 years, is only about 4.5%. I’m not sure if I should continue to hold this stock any longer.”
This is a perfectly valid concern. It’s a question many Amara Raja shareholders are likely asking themselves.
- Is the company’s story intact?
- Has something fundamentally changed?
- Or is this the quiet before a potential storm of growth?
I’ll share my POV on this critical decision.
Hence, to get to the bottom of this, I decided to go straight to the source: the company’s latest Annual Report FY2024-25.
I was specifically interested to understand, what the Chaiman of Amara Raja thinks about his company. Generally, good Chairman’s perspective are not biased. They tend to say what’s real and possible.
In this post, we’ll break down the Chairman’s message and tell you how it answers the query of my reader.
I’ll talk about the company’s broader strategy to understand if the future hope is worth the current wait, and ultimately, help answer that crucial question:
- Should you continue to hold?
Analysis of the Chairman’s Message & Future Prospects
The Chairman’s message talks deeply about strategic transition of the company. Read the Chairman’s message here.
I think, it addresses the past, present, and future, offering a compelling narrative for a patient investor.
Here’s a breakdown of the key themes that offer hope for the long term:
1. The Two-Engine Growth Story
It talks about how core business will fund the future high-growth potential of the company.
The message clearly outlines a “two-engine” strategy, which is crucial for understanding the company’s current state and future potential.
Engine 1: The Legacy Lead-Acid Business (The Cash Cow):
- Performance: The Chairman highlights that this business achieved “strong growth” and remains a market leader with an expanding global footprint (over 60 countries). The annual report shows this segment still accounts for 71% of the company’s revenue.
- Significance for Investors: This is the company’s stable, profitable core. It generates the cash flow needed to fund the second engine (which is more ambitious). This financial strength, as mentioned in the report (Rs.12,846 crores revenue, Rs.945 crores PAT), means the company is not taking on massive debt to fund its future. It is funding the future from internal strength. This significantly de-risk’s the overall strategy.
To talk about the debt position of the company, here are the numbers:
- Debt / EBITDA = 0.083 (very low debt). Read about debt-ebitda ratio here.
- Debt / Equity – 5Yr. Avg. = 0.01 (almost like debt free). Read about debt-equity ratio here.
- Interest Coverage Ratio (post tax) – 5Yr. Avg. = 62.578 (almost like debt free)
| Description | Unit | Amount | |
| PAT | i | Rs.Cr. | 944.67 |
| Tax | ii | Rs.Cr. | 328.5 |
| Excep. Items | iii | Rs.Cr. | 111.07 |
| Interest | iv | Rs.Cr. | 44.3 |
| D&A | v | Rs.Cr. | 525.66 |
| EBITDA – Without Excep Items | vi = i+ii+iii-iv+v | Rs.Cr. | 1732.06 |
| Loang Term Borrowing | vi | Rs.Cr. | 0 |
| Short Term Borrowing | vii | Rs.Cr. | 144.57 |
| Total Debt | viii = vi + vii | Rs.Cr. | 144.57 |
| Debt / EBITDA | viii / vi | – | 0.083 |
| Average Debt / Eequity (last 5-Yr.) | – | 0.01 | |
| Average ICR (Post Tax) – last 5Yr. | – | 62.578 |
Please note that the company has invested the following amounts in CAPEX in the last two years alone:
- CAPEX (FY2024-25): Rs.1,200.13 Crore
- CAPEX (FY2023-24): Rs.871.45 Crore
- Total CAPEX in 2 years = About Rs.2,000 crores
They have invested about Rs.2,000 crore in Capex with remaining almost debt free. In this Business Standard news piece of Jan’2024, the Chairman says that the company will spend about Rs.9,500 crores for the ambitious Amara Raja Giga Corridor. I think the above Rs.2,000 CAPEX is a part of it.
Engine 2: The New Energy Business (The Growth Rocket):
The company vision is to position itself “at the forefront of the energy revolution.”
They are focusing on the “advanced lithium-ion technologies.”
This is a direct play on the massive electric vehicle (EV) and Energy Storage Systems (ESS) opportunity in India and globally.
The point is, the above is not just a talk. The Chairman points to concrete, high-capital projects:
- The Gigafactory (Giga-1): Construction has commenced. This is the single most important long-term value driver. It signifies a move from being an assembler to a core manufacturer of advanced cells.
- E-positive (e+) Energy Labs & Customer Qualification Plant: These facilities will enhance R&D and product development, making them self-reliant in technology – a key theme (“Atmanirbhar Bharat”).
- Significance for Investors: This is where the future exponential growth lies. The stock’s underperformance is largely because this engine is still in the investment and construction phase. The market is waiting for these massive investments to translate into revenue and profits, which will still take a few years.
The first phase of the Gigafactory is expected to be operational in 2027.
2. The Investment Lag – Why The CAGR is Low
My readers experience of a 4.5% CAGR over 2.78 years is a direct reflection of this transition.
Here’s the story the numbers tell:
- Capex Spend: The company is spending heavily on capital expenditure for the future (the Gigafactory, R&D labs).
- Old Industry Has Matured: The traditional lead-acid business, while profitable, is a mature industry with only moderate growth rates.
- Future Profit is Yet To Come: The market sees the high investment. But hasn’t yet seen the high returns from the Li-ion business. This period of high investment and delayed returns often leads to stock price stagnation or underperformance. This is phase where return line 4.5% CAGR is seen.
I think, even the Chairman’s message is worded in a way that it is asking the long term investors to be patient.
He is laying out a roadmap that culminates a few years from now.
He is trying to say (my words), “you have been holding during the difficult “investment phase”; the “growth phase” is what the company is building towards.”
3. Sustainability and ESG as a Core Differentiator
The Chairman dedicates significant space to sustainability.
He has highlighted a 19% reduction in absolute emissions and a jump in their S&P CSA score from 28 to 74.
This is not just good for the planet; it’s a critical business driver.
- Institutional Appeal: Global investment funds are increasingly focused on ESG metrics. A high ESG rating makes Amara Raja more attractive to large institutional investors, which can support the stock price in the long run. Read a related topic of FII investing here.
- Circular Economy: The mention of a “state-of-the-art lead-acid battery recycling plant” is crucial. It creates a closed loop, reduces reliance on volatile raw material prices, and improves margins—a sustainable competitive advantage.
4. Looking Ahead: Positioned for the Megatrend
The “Looking Ahead” section, in the Chaiman’s message, is the most direct message to the shareholders and new investors:
- Alignment with National Goals: The company is perfectly positioned to benefit from India’s push towards EV adoption and its net-zero emissions goal by 2070. This is a powerful, multi-decade tailwind.
- Unique Positioning: The combination of a legacy business (lead-acid) with aggressive investments in new technology (lithium-ion) makes them a unique player. I think, they are less risky than a pure-play startup but with more growth potential than a traditional battery maker.
Should Hold or Sell?
Based on the Chairman’s message and the annual report, Amara Raja is not a stagnant company.
It is a company that is fundamentally transforming itself to become a leader in the next generation of energy solutions.
The underperformance my reader has experienced is the price of this transformation.
Here is a framework to help one decide about the long-term prospects of the company:
You should consider continuing to HOLD the stock if:
- Your investment horizon is genuinely long-term (5+ years). The real value from the Gigafactory and the New Energy business will likely start becoming apparent from 2027 onwards. You need to be patient enough to see this thesis play out.
- You believe in the India growth story. If you are particularly optimistic about the EV and Renewable Energy sectors. Amara Raja is a direct proxy for this theme.
- You are comfortable with the “delayed gratification” model. The company is using today’s profits to build tomorrow’s growth engine. You have weathered the investment phase (hard phase). Selling now might mean missing the growth phase.
- You see the current price as an opportunity. The stock’s low CAGR might indicate that the future potential of the Li-ion business is not yet fully priced in by the market.
You should consider SELLING the stock if:
- You have a shorter investment horizon and the opportunity cost is too high. The 4.5% CAGR is significantly below potential return from even a broader index like Nifty 50. Means, even an low risk index fund will give you higher return in next 2-3 years. If you have other, more immediate opportunities that can deliver better returns and you cannot wait another 3-4 years, then reallocating capital is a valid strategy.
- You are concerned about execution risk. Building a Gigafactory is a massive undertaking (Rs.9,500 crore capex) with potential for delays and cost overruns. Competition from giants like Reliance and Tata is also a significant factor.
- Concentrated Portfolio: If your portfolio is already heavily skewed towards this stock, you can consider an exit (may be partly). This will be your way to de-risk your portfolio. It might make sense to trim your position to a comfortable level and re-invest the proceeds elsewhere to diversify.
Conclusion
I think the Chairman’s message provides a credible vision.
It acknowledges the challenges but lays out a clear, well-funded plan for future growth. The company is at a crucial inflection point.
Given that one has already held the stock for nearly three years through its toughest period of transition, selling now would be akin to leaving the 2011 World cup match before Dhoni’s super Sixer.
The Chairman’s message offers substantial hope that the company is on the right track.
There is a theory in stock investing (which work both ways) which says, “the poor performance of the past is not necessarily indicative of the future.” I think, Amara Raja can exemplify this theory in times to come.
In this palce, I would have strongly considered holding the position, perhaps without adding more. Until I see concrete progress on the Gigafactory milestones, I’ll surely not add, but I’ll also not exit.
The next 2-3 years will be critical in proving their execution capability.
If the management delivers on the promises laid out in this annual report, the current underperformance could well be conpensated well with a significant future returns.
Have a happy investing.
