The quarter's results highlight a concerning disconnect between top-line growth and bottom-line performance. Whilst net sales grew 4.21% year-on-year to ₹3,410.15 crores in Q3 FY26, the company's profitability metrics deteriorated sharply. Operating profit margin (excluding other income) contracted to 10.96% from 12.40% in the corresponding quarter last year, whilst PAT margin nearly halved from 9.12% to 4.11%. This marks a continuation of the negative financial trend identified since December 2025, raising questions about the sustainability of the company's competitive position in the auto components sector.
Sequential performance showed marginal improvement, with revenue declining just 1.64% quarter-on-quarter from ₹3,467.02 crores in Q2 FY26. However, net profit fell 49.31% sequentially, indicating that margin pressures intensified during the quarter despite relatively stable revenue. The sharp sequential decline in profitability underscores operational challenges that extend beyond typical seasonal variations in the battery business.
Financial Performance: Revenue Growth Fails to Translate into Profitability
Amara Raja Energy & Mobility's Q3 FY26 financial performance reveals a troubling pattern of margin compression despite reasonable revenue growth. Net sales of ₹3,410.15 crores represented a 4.21% year-on-year increase, but this growth came at a significant cost to profitability. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) stood at ₹373.75 crores, translating to a margin of 10.96%—down from 12.40% in Q3 FY25 and 13.40% in Q2 FY24.
| Quarter | Net Sales (₹ Cr) | QoQ % | YoY % | Net Profit (₹ Cr) | QoQ % | YoY % | PAT Margin |
|---|---|---|---|---|---|---|---|
| Dec'25 | 3,410.15 | -1.64% | +4.21% | 140.15 | -49.31% | -53.03% | 4.11% |
| Sep'25 | 3,467.02 | +1.94% | +6.65% | 276.49 | +67.77% | +17.35% | 7.97% |
| Jun'25 | 3,401.08 | +11.14% | +4.23% | 164.80 | +2.00% | -33.85% | 4.85% |
| Mar'25 | 3,060.07 | -6.49% | — | 161.57 | -45.85% | — | 5.28% |
| Dec'24 | 3,272.47 | +0.67% | — | 298.37 | +26.64% | — | 9.12% |
| Sep'24 | 3,250.73 | -0.38% | — | 235.61 | -5.42% | — | 7.25% |
| Jun'24 | 3,263.05 | — | — | 249.12 | — | — | 7.63% |
The margin erosion appears systemic rather than temporary. Operating margins have declined consistently from 13.40% in Q2 FY24 to 10.96% in Q3 FY26, suggesting structural cost pressures or pricing challenges. Employee costs rose to ₹235.80 crores in Q3 FY26 from ₹211.55 crores in Q3 FY25, representing an 11.48% year-on-year increase that outpaced revenue growth. Depreciation charges also climbed to ₹156.87 crores from ₹131.53 crores, reflecting the company's ongoing capital expenditure programme to expand manufacturing capacity.
Net profit of ₹140.15 crores in Q3 FY26 represented a dramatic 53.03% year-on-year decline from ₹298.37 crores in Q3 FY25. The PAT margin of 4.11% marked the lowest quarterly profitability in recent history, down from 9.12% in the year-ago quarter. This compression reflects not only operational margin pressure but also higher depreciation and tax charges. The effective tax rate stood at 27.10% in Q3 FY26, up from 27.01% in Q3 FY25, providing no relief on the tax front.
On a nine-month basis for FY2026 (April-December 2025), the company reported net sales of ₹10,278.25 crores and net profit of ₹581.44 crores, representing year-on-year growth of 5.01% and a decline of 21.42% respectively. The nine-month operating margin (excluding other income) stood at 10.81%, down from 13.04% in the corresponding period of FY2025, whilst PAT margin contracted to 5.66% from 7.67%. These figures underscore that the margin pressure is not confined to a single quarter but represents a sustained trend across the fiscal year.
Operational Challenges: Return Ratios Signal Profitability Concerns
Beyond the quarterly numbers, Amara Raja Energy & Mobility's return metrics paint a concerning picture of operational efficiency and capital productivity. The company's return on equity (ROE) has declined to 9.41% in the latest period from an average of 12.83% over recent years, whilst return on capital employed (ROCE) has fallen to 11.88% from an average of 16.81%. These deteriorating return ratios indicate that the company is generating less profit per rupee of shareholder equity and capital employed, a red flag for investors focused on capital efficiency.
⚠️ Capital Efficiency Deterioration
ROE Impact: Return on equity has declined to 9.41%, well below the historical average of 12.83%. Lower ROE indicates reduced profitability relative to shareholder capital, suggesting that the company's ability to generate returns for investors has weakened significantly. This decline is particularly concerning given that ROE is a key indicator of management effectiveness in deploying shareholder funds.
ROCE Concerns: Return on capital employed has dropped to 11.88% from an average of 16.81%, signalling that the company is generating lower returns on the total capital invested in the business. The half-yearly ROCE of 12.72% represents the lowest level in recent periods, indicating persistent operational challenges.
The balance sheet reveals a company investing heavily in future capacity whilst grappling with working capital pressures. Fixed assets increased to ₹3,598.66 crores as of March 2025 from ₹3,399.08 crores in March 2024, reflecting ongoing capital expenditure. Current assets stood at ₹4,246.65 crores, up from ₹3,869.42 crores, whilst current liabilities rose to ₹2,313.33 crores from ₹1,725.06 crores. Trade payables increased significantly to ₹1,086.63 crores from ₹856.45 crores, suggesting extended payment terms to suppliers—a potential indicator of cash flow management challenges.
On a positive note, the company maintains a strong balance sheet with negligible debt. Long-term debt stood at zero as of March 2025, down from ₹25.99 crores in March 2024, whilst shareholder funds increased to ₹7,389.13 crores from ₹6,798.73 crores. The debt-to-EBITDA ratio averaged just 0.13 over recent years, and the net debt-to-equity ratio remained at zero, indicating excellent financial flexibility. Interest coverage, measured by EBIT-to-interest ratio, averaged a robust 38.39 times, demonstrating that the company faces no immediate solvency concerns despite profitability pressures.
Cash flow generation has remained positive, with operating cash flow of ₹1,351.00 crores in FY2025, up from ₹1,266.00 crores in FY2024. However, investing cash flow of ₹1,132.00 crores in FY2025 (primarily capital expenditure) consumed most of this operating cash flow, whilst financing cash outflow of ₹159.00 crores (largely dividend payments) resulted in modest net cash generation of ₹59.00 crores. Closing cash stood at ₹157.00 crores as of March 2025, up from ₹98.00 crores in March 2024, providing adequate liquidity cushion.
The Margin Conundrum: Pricing Power or Cost Inflation?
The sustained margin compression at Amara Raja Energy & Mobility raises fundamental questions about the company's competitive positioning and pricing power in the battery market. Operating margins (excluding other income) have declined from 13.40% in Q2 FY24 to 10.96% in Q3 FY26—a deterioration of 244 basis points over six quarters. This trend suggests either intensifying competition that limits pricing flexibility, rising input costs that cannot be fully passed through, or operational inefficiencies that are eroding profitability.
The auto components sector has faced headwinds from volatile raw material prices, particularly lead, which is a key input for battery manufacturing. Additionally, the transition towards electric vehicles and new energy storage solutions has required significant research and development investments, potentially weighing on near-term margins. Employee costs have grown faster than revenue, rising 11.48% year-on-year in Q3 FY26 compared to revenue growth of 4.21%, suggesting wage inflation or expansion of the workforce ahead of revenue realisation.
Gross Margin Volatility Signals Pricing Pressure
Gross profit margin exhibited significant volatility across recent quarters, ranging from 10.24% in Q3 FY26 to 16.51% in Q3 FY25. This 627 basis point year-on-year decline in gross margin indicates substantial pressure at the product level, potentially reflecting aggressive pricing by competitors or unfavourable product mix shifts. The inability to maintain stable gross margins despite modest revenue growth suggests limited pricing power in key product categories.
Depreciation charges have risen consistently, from ₹122.60 crores in Q2 FY24 to ₹156.87 crores in Q3 FY26, reflecting the company's capital-intensive expansion programme. Whilst these investments may position the company for future growth, they are currently diluting profitability. The company must demonstrate that these capacity additions will generate adequate returns to justify the near-term margin sacrifice. The five-year EBIT growth rate of just 5.10% raises concerns about whether past capacity investments have delivered expected returns.
Industry Leadership: How Amara Raja Energy & Mobility Compares to Peers
Within the auto components and equipments sector, Amara Raja Energy & Mobility occupies a middle position in terms of valuation and profitability metrics. The company's price-to-earnings ratio of 22.92 times sits below the industry average of 28 times, suggesting the market has priced in concerns about growth and profitability. However, compared to direct peers, the company's positioning reveals both strengths and weaknesses.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Amara Raja E&M | 22.92 | 2.16 | 12.83 | 0.00 | 1.16 |
| Asahi India Glass | 79.47 | 6.73 | 15.33 | 0.52 | 0.20 |
| HBL Engineering | 26.20 | 10.79 | 18.43 | -0.11 | 0.13 |
| Sundram Fasteners | 35.12 | 4.89 | 16.28 | 0.17 | 0.84 |
| Craftsman Auto | 54.94 | 6.40 | 13.95 | 1.03 | 0.06 |
| CIE Automotive | 21.28 | 2.47 | 10.77 | -0.04 | 1.55 |
Amara Raja Energy & Mobility's ROE of 12.83% lags behind most peers, with HBL Engineering leading at 18.43% and Sundram Fasteners at 16.28%. This lower return on equity reflects the profitability challenges evident in recent quarterly results. However, the company's zero debt position stands out favourably, providing financial flexibility that heavily leveraged peers lack. The debt-free balance sheet positions the company well to weather industry downturns and invest opportunistically.
The company's price-to-book ratio of 2.16 times appears reasonable compared to peers averaging around 6.30 times, suggesting the market values Amara Raja Energy & Mobility's assets conservatively. This valuation discount may reflect concerns about asset productivity and return generation, or it could represent an opportunity if the company can reverse its margin decline. The dividend yield of 1.16% is competitive within the peer group, supported by a sustainable payout ratio of 20.34%.
From a market capitalisation perspective, Amara Raja Energy & Mobility ranks sixth within its peer group at ₹16,032 crores, reflecting its position as a significant but not dominant player in the auto components sector. The company's one-year stock return of -12.51% significantly underperformed the sector average return of 4.09%, resulting in a 16.60 percentage point underperformance. This relative weakness underscores investor scepticism about the company's near-term prospects.
Valuation Analysis: Attractive Entry Point or Value Trap?
At the current price of ₹875.95, Amara Raja Energy & Mobility trades at 22.92 times trailing twelve-month earnings, below both the industry average of 28 times and its own historical valuation range. The price-to-book ratio of 2.16 times suggests the market values the company at roughly twice its net asset value, a reasonable multiple for a manufacturing business with established market positions. However, the valuation discount exists for valid reasons—deteriorating margins, declining return ratios, and negative financial trends that have persisted for multiple quarters.
The company's enterprise value-to-EBITDA multiple of 11.22 times appears moderate for a capital-intensive manufacturing business with established market positions. However, this metric must be viewed in the context of declining EBITDA margins and uncertain earnings trajectory. The EV-to-sales ratio of 1.26 times suggests the market values the company's revenue stream at a premium to pure-play commodity businesses but below high-quality consumer or technology companies.
The stock currently trades 20.99% below its 52-week high of ₹1,108.70 and 8.81% above its 52-week low of ₹805.05. This positioning suggests the market has repriced the stock significantly from its peak but has not yet reached panic-selling levels. The valuation grade has fluctuated between "Attractive" and "Very Attractive" over recent months, currently standing at "Attractive" as of May 2025. This assessment reflects the tension between reasonable absolute valuation multiples and concerning fundamental trends.
Technical indicators paint a bearish picture, with the stock trading below all key moving averages—5-day (₹891.25), 20-day (₹858.77), 50-day (₹897.81), 100-day (₹942.02), and 200-day (₹967.20). This technical weakness, combined with negative momentum across multiple timeframes, suggests limited near-term upside potential absent a fundamental catalyst. The stock's beta of 1.35 indicates higher volatility than the broader market, amplifying both downside and upside movements.
Shareholding Dynamics: Institutional Confidence Waning
The shareholding pattern reveals a gradual erosion of institutional confidence in Amara Raja Energy & Mobility over recent quarters. Foreign institutional investor (FII) holdings have declined consistently from 21.82% in December 2024 to 17.37% in December 2025, representing a 444 basis point reduction. This sustained selling by sophisticated foreign investors signals concerns about the company's growth trajectory and profitability outlook.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 |
|---|---|---|---|---|---|
| Promoter | 32.86% | 32.86% | 32.86% | 32.86% | 32.86% |
| FII | 17.37% | 17.97% | 19.39% | 20.70% | 21.82% |
| Mutual Funds | 7.05% | 7.09% | 5.67% | 5.74% | 5.93% |
| Insurance | 9.82% | 8.88% | 7.84% | 8.10% | 7.97% |
| Other DII | 0.25% | 0.26% | 0.49% | 0.74% | 0.91% |
| Non-Institutional | 32.64% | 32.93% | 33.75% | 31.85% | 30.51% |
Mutual fund holdings have remained relatively stable around 7% over the past year, with a minor sequential decline of 4 basis points in the latest quarter. Insurance company holdings have shown some improvement, rising from 7.97% in December 2024 to 9.82% in December 2025, suggesting domestic institutional investors see long-term value despite near-term challenges. However, other domestic institutional investor (DII) holdings have declined from 0.91% to 0.25%, indicating reduced interest from smaller institutional players.
Promoter holding has remained rock-solid at 32.86% across all quarters, with Amara Raja Enterprises Private Limited (formerly Rngalla Family Private Limited) maintaining its entire stake without any pledging. This stable promoter base provides governance stability and aligns promoter interests with minority shareholders. The absence of pledged shares eliminates concerns about forced selling during market downturns, a positive factor for risk-averse investors.
Non-institutional holdings have increased from 30.51% in December 2024 to 32.64% in December 2025, largely absorbing shares sold by FIIs and other DIIs. This shift from institutional to retail ownership could increase stock volatility and reduce research coverage, potentially creating information asymmetries. The presence of 143 FIIs and 26 mutual funds indicates continued institutional interest despite recent selling, suggesting the stock remains on institutional radars for potential re-entry if fundamentals improve.
Stock Performance: Sustained Underperformance Across Timeframes
Amara Raja Energy & Mobility's stock performance has been disappointing across virtually all relevant timeframes, with the company significantly underperforming both the Sensex and its sectoral peers. Over the past year, the stock has declined 12.51% whilst the Sensex gained 10.25%, resulting in a negative alpha of 22.76 percentage points. This underperformance reflects the market's concerns about deteriorating fundamentals and uncertain earnings visibility.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -0.05% | +0.79% | -0.84% |
| 1 Month | -1.44% | +0.12% | -1.56% |
| 3 Months | -9.11% | -0.58% | -8.53% |
| 6 Months | -8.37% | +4.66% | -13.03% |
| Year-to-Date | -3.70% | -1.46% | -2.24% |
| 1 Year | -12.51% | +10.25% | -22.76% |
| 2 Years | +3.55% | +18.16% | -14.61% |
| 3 Years | +44.49% | +38.39% | +6.10% |
The underperformance has been particularly acute over the past six months, with the stock declining 8.37% whilst the Sensex gained 4.66%, resulting in a 13.03 percentage point negative alpha. This period coincides with the deterioration in quarterly financial performance and margin compression that has concerned investors. The three-month return of -9.11% versus the Sensex decline of 0.58% underscores accelerating relative weakness.
On a longer timeframe, the stock has generated positive absolute returns over three years (44.49%) and marginally outperformed the Sensex with a positive alpha of 6.10 percentage points. However, this longer-term outperformance has been entirely eroded over the past year, suggesting a fundamental shift in the company's competitive positioning or market perception. The five-year return of -11.52% versus the Sensex gain of 62.92% highlights the stock's extended period of underperformance.
The stock's volatility of 24.91% over the past year significantly exceeds the Sensex volatility of 11.44%, resulting in a risk-adjusted return of -0.50 compared to the Sensex's 0.90. This classification as "Medium Risk Low Return" reflects the worst possible combination for investors—elevated volatility without commensurate returns. The adjusted beta of 1.35 indicates the stock amplifies market movements, making it unsuitable for conservative investors seeking stability.
Compared to the auto components and equipments sector, which returned 4.09% over the past year, Amara Raja Energy & Mobility underperformed by 16.60 percentage points. This sector-relative weakness suggests company-specific challenges beyond broader industry headwinds. The technical setup remains bearish, with the stock trading below all major moving averages and exhibiting negative momentum across multiple timeframes.
Investment Thesis: Quality Business Facing Cyclical Headwinds
Amara Raja Energy & Mobility presents a complex investment case—a fundamentally good quality business with strong market positions and a pristine balance sheet, but facing significant near-term operational and profitability challenges. The company's quality grade of "Good" reflects its long-term track record, debt-free balance sheet, and market leadership in the battery segment. However, the current "Negative" financial trend and "Mildly Bearish" technical outlook create headwinds that overshadow these structural strengths.
The company's five-year sales growth of 15.52% demonstrates its ability to capture market share and grow revenues consistently. However, the five-year EBIT growth of just 5.10% reveals that this revenue growth has not translated into proportionate profit growth, indicating margin compression or rising costs. The average ROCE of 16.81% and ROE of 12.83% over recent years are respectable but have deteriorated to 11.88% and 9.41% respectively in the latest period, signalling declining capital efficiency.
The company's debt-free status and strong interest coverage (38.39 times EBIT-to-interest) provide financial flexibility to navigate the current challenges and invest in growth opportunities. The negligible debt-to-EBITDA ratio of 0.13 and zero net debt-to-equity position the company well to weather industry downturns without financial distress. Institutional holdings of 34.50% indicate continued professional investor interest, whilst zero promoter pledging eliminates governance concerns.
The proprietary Mojo score of 38 out of 100 and "SELL" advisory rating reflect the confluence of negative factors—deteriorating financial trends, bearish technical indicators, and poor long-term EBIT growth. Whilst the company maintains good quality fundamentals and attractive valuation, these positives are currently overshadowed by operational execution concerns and uncertain earnings visibility. The score has fluctuated between "SELL" and "HOLD" categories over recent quarters, indicating the market's uncertainty about the company's trajectory.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Debt-Free Balance Sheet: Zero long-term debt provides financial flexibility and eliminates refinancing risks during challenging periods
- Market Leadership: Established position in automotive and industrial battery segments with strong brand recognition
- Strong Interest Coverage: EBIT-to-interest ratio of 38.39 times demonstrates robust debt servicing capability
- Consistent Revenue Growth: Five-year sales CAGR of 15.52% demonstrates ability to capture market share
- Stable Promoter Base: 32.86% promoter holding with zero pledging ensures governance stability and aligned interests
- Positive Operating Cash Flow: Generated ₹1,351 crores in FY2025, supporting capital expenditure and dividends
- Diversified Product Portfolio: Exposure to automotive, industrial, and emerging energy storage segments reduces concentration risk
⚠ KEY CONCERNS
- Severe Margin Compression: Operating margin declined from 13.40% to 10.96%, PAT margin halved from 9.12% to 4.11% year-on-year
- Deteriorating Return Ratios: ROE declined to 9.41% from 12.83% average; ROCE dropped to 11.88% from 16.81% average
- Weak EBIT Growth: Five-year EBIT growth of just 5.10% raises concerns about past capacity investments' returns
- FII Selling Pressure: Foreign institutional holdings declined from 21.82% to 17.37% over past year, signalling reduced confidence
- Significant Stock Underperformance: One-year return of -12.51% versus Sensex gain of 10.25%, underperforming sector by 16.60%
- Negative Financial Trend: Quarterly trend classified as "Negative" with multiple concerning factors including falling ROCE and PAT
- High Volatility: Beta of 1.35 and volatility of 24.91% make stock unsuitable for conservative investors
Outlook: What Lies Ahead
The outlook for Amara Raja Energy & Mobility hinges on management's ability to address the margin compression and demonstrate that recent capacity investments will generate adequate returns. The company operates in structurally attractive segments—automotive batteries remain essential for internal combustion engine vehicles, whilst energy storage solutions for renewable energy and electric vehicles represent significant growth opportunities. However, translating these opportunities into profitable growth requires operational excellence and pricing discipline.
POSITIVE CATALYSTS
- Margin Recovery: Any indication of stabilising or improving operating margins would signal successful cost management
- Capacity Utilisation: Improved utilisation of recent capital investments could drive operating leverage and profitability
- New Product Launches: Success in energy storage or EV battery segments could open new revenue streams
- Raw Material Softening: Decline in lead or other input costs could provide margin relief
- Market Share Gains: Evidence of gaining share in key segments would validate growth strategy
RED FLAGS TO MONITOR
- Further Margin Decline: Operating margins falling below 10% would indicate structural profitability challenges
- Revenue Growth Slowdown: Inability to sustain mid-single-digit revenue growth would raise concerns about market position
- Continued FII Selling: Further reduction in institutional holdings below 15% would signal loss of confidence
- Working Capital Deterioration: Significant increase in payables or inventory days could indicate cash flow stress
- Capacity Addition Delays: Postponement of expansion plans might signal management's lack of confidence in demand outlook
The battery industry faces both opportunities and threats from the electric vehicle transition. Whilst EV adoption reduces demand for traditional automotive batteries, it creates demand for lithium-ion batteries and energy storage solutions. Amara Raja Energy & Mobility's ability to successfully pivot towards these new technologies whilst maintaining profitability in its core business will determine its long-term competitiveness. The company's debt-free balance sheet provides the financial resources to invest in this transition, but execution remains uncertain.
Near-term catalysts that could improve sentiment include evidence of margin stabilisation in upcoming quarters, announcements of significant orders in new energy segments, or strategic partnerships that validate the company's technology capabilities. Conversely, further margin compression, revenue growth deceleration, or disappointing returns from recent capacity additions would likely trigger additional selling pressure and valuation de-rating.
The Verdict: Quality Business Facing Execution Challenges
Score: 38/100
For Fresh Investors: Avoid initiating positions until clear evidence emerges of margin stabilisation and earnings recovery. The combination of deteriorating financial trends, bearish technical indicators, and uncertain earnings visibility creates significant downside risk. Whilst the valuation appears reasonable on absolute metrics, the negative momentum suggests further downside potential before a sustainable bottom is established.
For Existing Holders: Consider reducing exposure on any technical bounce towards the ₹900-920 range. The sustained margin compression and declining return ratios indicate structural challenges that may take multiple quarters to resolve. Existing holders should reassess their position if operating margins fall below 10% or if the company guides for continued pressure in upcoming quarters. Those with long investment horizons and high risk tolerance may hold with strict stop losses around ₹800.
Fair Value Estimate: ₹780-820 (11% downside from current levels), based on normalized earnings of ₹35-37 per share and a target P/E multiple of 21-22 times, reflecting the company's quality fundamentals but accounting for near-term execution risks and margin pressures.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
