Amara Raja Batteries leveraged strong demand conditions from segments such as telecom and uninterrupted power supply (UPS) in the March 2007 quarter, at a time when its key user industry the auto segment has been grappling with sluggish sales.

In addition, the company had to face higher prices of key inputs such as lead in the last quarter, which put pressure on operating margins.

As a result, Amara Raja’s operating profit grew 58.7 per cent y-o-y to Rs 25.15 crore in the last quarter, while net sales improved 76.2 per cent to Rs 193.6 crore. Operating profit margin declined 140 basis points y-o-y to 13 per cent in Q4 FY07.

This pressure on margins was owing to its adjusted raw material costs as a percentage of net sales rising 400 basis points y-o-y to 64.9 per cent in the previous quarter.

Other players like Exide Industries’ operating profit margin also declined 40 basis points y-o-y to 14.35 per cent in the March 2007 quarter.

Going forward, Amara Raja is continuing to expand its focus on segments like telecom and UPS. However, the price of lead will continue to play a key role. At Rs 500, the stock trades at 12 times FY07 earnings.