Amara Raja Energy & Mobility Ltd: Valuation Shifts Signal Changing Price Attractiveness

Valuation Metrics Reflect Changing Market Perception

At the current market price of ₹885.40, Amara Raja Energy & Mobility Ltd's price-to-earnings (P/E) ratio stands at 22.26, a figure that has contributed to the company's valuation grade being revised to 'fair' from previously more favourable levels. This P/E ratio, while moderate, is significantly lower than some of its peers such as HBL Engineering, which trades at a 'very expensive' P/E of 33.5, but higher than Eveready Industries, which remains in the 'attractive' valuation category with a P/E of 27.03.

The price-to-book value (P/BV) ratio of 2.09 further underscores the tempered enthusiasm among investors, indicating that the stock is no longer trading at a discount relative to its book value. This contrasts with the company's historical valuation comfort zone, where lower P/BV ratios had made it a more compelling investment proposition.

Enterprise value to EBITDA (EV/EBITDA) ratio is another critical metric that has shifted investor sentiment. Amara Raja's EV/EBITDA currently stands at 10.90, which is considerably lower than HBL Engineering's 24.12 but also below Eveready Industries' 17.55. This suggests that while the company is not overvalued relative to earnings before interest, taxes, depreciation and amortisation, the margin of safety has narrowed compared to historical averages.

Financial Performance and Returns: A Mixed Picture

Return on capital employed (ROCE) and return on equity (ROE) are key indicators of operational efficiency and profitability. Amara Raja's latest ROCE is 11.88%, and ROE is 9.41%, figures that reflect moderate returns but lag behind the sector's top performers. These returns, combined with a dividend yield of 1.20%, suggest that while the company generates reasonable cash flows, it may not be delivering superior shareholder value relative to peers.

Examining the stock's price performance relative to the benchmark Sensex reveals a nuanced trend. Over the past week, Amara Raja outperformed the Sensex with a 5.22% gain compared to the index's 1.79%. However, longer-term returns paint a less favourable picture: a 17.19% decline over the past year against a 6.66% gain for the Sensex, and a negative 7.75% return over five years compared to the Sensex's robust 65.60% appreciation. This underperformance over extended periods raises questions about the stock's ability to sustain growth momentum.

Mojo Score and Grade Downgrade: Implications for Investors

MarketsMOJO's latest assessment downgraded Amara Raja Energy & Mobility Ltd's Mojo Grade from Hold to Sell on 21 Nov 2025, reflecting a deteriorating outlook based on valuation and quality metrics. The company's Mojo Score currently stands at 33.0, signalling weak fundamentals relative to market expectations. The Market Cap Grade remains low at 3, indicating limited market capitalisation strength.

This downgrade is significant as it encapsulates a comprehensive evaluation of the company's financial health, valuation, and growth prospects. Investors should note that the downgrade aligns with the shift in valuation parameters and the stock's recent underperformance relative to the broader market.

Comparative Analysis with Industry Peers

Within the Auto Components & Equipments sector, Amara Raja's valuation metrics place it in a middling position. HBL Engineering, with a P/E of 33.5 and EV/EBITDA of 24.12, is categorised as 'very expensive' and carries a PEG ratio of 0.37, suggesting some premium for growth expectations. Conversely, Eveready Industries, with a P/E of 27.03 and EV/EBITDA of 17.55, remains in the 'attractive' valuation bracket but with a higher PEG ratio of 1.45, indicating expectations of faster earnings growth.

Amara Raja's PEG ratio is currently 0.00, which may reflect either a lack of meaningful earnings growth projections or data limitations. This contrasts with peers and suggests that the market may be pricing in subdued growth prospects for the company.

Price Volatility and Trading Range

On 5 Feb 2026, Amara Raja's stock traded within a range of ₹831.70 to ₹888.40, closing at ₹885.40, marking a 5.69% increase from the previous close of ₹837.75. The stock remains below its 52-week high of ₹1,108.70 but comfortably above its 52-week low of ₹805.05. This price action indicates some short-term bullish momentum, possibly driven by sectoral tailwinds or market speculation, but the stock has yet to reclaim its previous highs.

Long-Term Outlook and Investor Considerations

While Amara Raja Energy & Mobility Ltd has demonstrated resilience in certain short-term periods, its long-term returns have lagged behind the Sensex benchmark, with a 10-year return of just 3.75% compared to the Sensex's 244.38%. This disparity highlights challenges in sustaining growth and profitability in a competitive and capital-intensive sector.

Investors should weigh the company's moderate returns on capital and equity against its valuation, which has shifted to a fair level, signalling less margin for error. The downgrade in Mojo Grade to Sell further emphasises the need for caution, especially for those seeking growth or value plays within the auto components space.

Given the evolving market conditions and sectoral headwinds, a thorough reassessment of portfolio allocations involving Amara Raja is advisable. Investors may consider diversifying into peers with more attractive valuations or stronger growth prospects, as indicated by comparative metrics and market assessments.

Conclusion

Amara Raja Energy & Mobility Ltd's recent valuation changes and downgrade in investment grade reflect a shift in market sentiment and underlying fundamentals. While the stock shows some short-term price strength, its longer-term performance and relative valuation suggest a cautious stance. Investors should carefully analyse these factors alongside sector trends and peer comparisons before making investment decisions.

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