Amara Raja Ener. (ARE&M)

FairStock Score: 73/100 — STEADY

Score breakdown: P/E: 1/3 · ROCE: 1/2 · Growth: 0/2 · Dividend: 0/1

Key Financials

Strengths

• Very low leverage with D/E of just 0.04 and a sound Altman Z-score of 3.46
• Decent capital efficiency with ROCE of 16.75% and ROE of 11.04%
• Five-year revenue CAGR of 12.43% shows a credible growth track record, while FCF is positive at ₹219 Cr
• Piotroski F-score of 7/9 suggests healthy financial health and operational stability

Concerns

• Profit growth declined by 20.51%, and the latest quarter's net profit of ₹152 Cr against sales of ₹3,351 Cr reflects compressed margins
• Valuation is stretched at 20.48x P/E and 2.27x P/B, with no margin of safety versus Graham Number of ₹645.52
• The stated DCF intrinsic value of ₹30.44 is dramatically below the current market price, signalling severe overvaluation
• Sales growth decelerated to 6.83% from the 5-year CAGR of 12.43%, indicating slower momentum

AI Analysis

Amara Raja is a steady business, not a spectacular one. It earns a reasonable 11.04% return on equity and a healthier 16.75% return on capital employed, with almost no leverage—the debt-to-equity ratio is just 0.04. A five-year revenue CAGR of 12.43% suggests the franchise enjoyed good tailwinds, but the latest quarter's profit of ₹152 Cr and a 20.51% decline in profit remind me that momentum has stalled. Sales growth of 6.83% is pedestrian. The Piotroski F-score of 7/9 and Altman Z-score of 3.46 indicate the financial position is sound, and free cash flow of ₹219 Cr is positive, though modest against a market cap of ₹15,465 Cr. Valuation is the problem. At ₹913.55, the stock trades at 20.48 times earnings and 2.27 times book. Graham would demand a margin of safety; here the Graham Number is ₹645.52, a 30.89% discount from the market price. The stated DCF value of ₹30.44 is so far below the price that I cannot square it with anything. Dividend yield of 1.24% offers little comfort while waiting. Promoter holding of 32.86% is adequate, but not a controlling pillar of reassurance. In Buffett's language, this is a decent business bought at an ordinary price. A 6.83% grower with declining profits is not worth a 20 P/E. The low debt and positive reinvestment returns are nice, but they do not create a sufficient cushion. I would wait for a lower price, closer to a Graham-style margin of safety, or evidence that profit growth is returning before committing capital.

Data from BSE/NSE filings. AI analysis is for educational purposes only — not investment advice. Scoring methodology · Disclaimer