The AGS brand was created in 1969 following a technical collaboration with Japan Storage Battery Co Ltd. (also known as GS Yuasa Corporation). AGS has over 30 items in its product portfolio, divided into light, medium and heavy categories. The company also manufactures motorcycle batteries and battery tonic.
Expanding auto sector has been a key growth driver for battery manufacturers in Pakistan. Rise in locally produced cars, as well as those imported from Japan, has aided their cause. That being said, the battery industry isn't as reliant on the auto sector as it used to be a few years back. Power shortage in the past half decade or so has picked up the demand for medium and heavy sized batteries for electricity back up.
Bulk of the battery industry in Pakistan comprises of the organised sector - 90% according to Atlas Battery itself, with the company controlling a major market share in the organised sector.
Performance in recent years Riding on the boom in auto sector in recent years, ATBA's operational performance has grown from strength to strength. High, sustained growth in both top-line and bottom-line has impressed investors.
Since 2009, Atlas Battery's sales have grown at a compound annual growth rate of 31 percent. From revenue of Rs 3.1 billion in FY09, the manufacturer has seen its top-line growth five-fold to nearly Rs 16 billion in FY15. In terms of growth, FY11 turned out to be a record year for the company, with a 46 percent expansion in top-line. Heavy floods escalated the demand for batteries as back-up energy source. This, coupled with favourable sales mix yielded a solid rise in sales value.
The battery industry's move away from completely relying on the auto sector has helped the product mix. Vehicles use generally small and medium sized batteries, as compared medium and heavy sized ones used as power backup.
While sales growth has been impressive over the years, margins have failed to do the same. Manufacturing processes seem to have lacked innovation lately as the gross margins stand stagnated at levels half a decade back; from 14.7 percent in FY10, gross profit accounted for 14.9 percent of sales value in FY15.
Net margins, on the other hand, have fared better. Administrative expenses have consistently come down as a percentage of sales over the years, as part of company's plan to curb costs. Net margins have increased from 5.5 percent in FY10 to 6.4 percent in FY15. Also, the latest fiscal year saw Atlas Battery report a billion-rupee profit (after tax) for the first time.
ATBA's growing business is reflected in its balance sheet as well with the company's assets doubling between FY12 and FY14. Growth in current assets has outpaced that of fixed ones mainly on back of stock-in-trade and short term investments. On the liability side, short term borrowings have grown steeply in recent years. However, there was a large payoff in FY15, cutting borrowings down to Rs 710 million as compared to Rs 1.62 billion in FY14.
Liquidity situation has also improved considerably for the battery giant in the past five years. Cash flow from operations was 11.9 percent of sales in FY15, rallying from 4.7 percent in FY10. Similarly current ratio and quick ratio have improved; from 1.4 to 2.0, and from 0.4 to 1.0 in the same period respectively.
FY16 performance In the first quarter of FY16, ended September, ATBA reported net revenue of Rs 3.9 billion - up 15.7 percent year-on-year. While growth in top-line did come down, the company managed to attain better gross margins on back of declining raw material prices (lead mainly). Gross margin was up 340 bps to 15.8 percent in the period.
After-tax profits saw a 60 percent jump in the three-month period due to a big decline in finance costs. Per-share earnings for the period came out to be Rs 14.47 as compared to Rs 9.03 in the same period last year.
Stock Price Atlas Battery's upbeat performance in the prior years has impressed investors. The stock that traded at near Rs 170-levels early in 2012, rallied to over Rs 800 by 2014-end. In early 2015, however, ATBA shares took a fall to below Rs 700-mark. The sharp sell off was mainly because of the company's weak margins in 1HFY15. Currently, ATBA trades at around Rs 750 a share.
Outlook While the product mix for Atlas has diversified (a bit) in recent years to non-auto purposes, car makers remain the biggest buyers for the battery manufacturers. Car financing and leasing schemes and low oil prices have pushed up the demand for vehicle usage. Local vehicle production has consequently been encouraging for the battery industry; in the first quarter of FY15, sales of locally made cars, busses, and trucks was 40,835 compared to 25,440 in the corresponding period last year - up 60 percent. Reliance on the auto sector is expected to increase for the likes of Atlas Battery in the next couple of years as the improving energy situation in the country will decrease the demand for backup power.