Monday, September 22, 2014

Amara Raja Batteries- Doing unto investors, what promoters normally do

Amara Raja Batteries Ltd is a listed company, making and selling automotive batteries. It is an Andhra  Pradesh based company (home to Satyam) and the Indian promoters, over time have diluted their holdings to around 20 % and there is a ‘foreign’ promoter who holds 30 %. And the FIIs hold around 17%. The general public seem to hold under 12%. So who holds the balance is anyone’s guess. In the foreign shareholding, there is “Johnson Controls” and American battery manufacturer and who is perhaps a strategic investor. 
Now, the Indian promoter is doing what every other promoter does.

As per this press report ( ) the promoter seems to first have bought some land adjacent to the factory at some point in time in the past ( visionary ) and is now palming it off to the company for a chunk of cash, with a one sided agreement. No one seems to care a damn. The share price has barely reacted and life goes on.
This stock has been in more than one scandal in the past. I recall something during Ketan Parekh scam days also   ( ).
A company with so much of issues still finds investors. It certainly speaks volumes for the importance an institutional investor gives to governance. They talk about it. Beyond that, they actually seem to love companies that live dangerously. And no one of course gives a damn.
This company, even after being named in a scandal as early as 2001, is finding favour with analysts, investors and the media!. Tells you on your face what they think about corporate governance or integrity.
Amara Raja Batteries Ltd is one of the examples.  Some fund managers I talked to said that if we use such ‘strict’ yardsticks, there will be no stock left to invest in India! So this forms the excuse to put the criteria of ‘corporate governance’ in to the dust bin.
In my career, I have seen more talks and writings on corporate governance than instances of a fund manager rejecting an investment on this ground.
It is really surprising that the stock of this company has barely moved after publication of this news!
 (p.s. I have no long or short or any other interest in this stock. This stock is amongst my ‘not to invest’ bucket list based on its geography)


ayazmo said...


good post thanks for this. It takes courage and gumption along with a potential career risk to sit out of money making trades like Amara. In the institutional investment world only a few managers can do that.



Meenakshi Pai said...

Thanks for such wonderful alert ( special mention of geography).Many a times listening to reputed analyst, small retailer tend to put money.
I like the way facts been written. Nice.

Frustrations Amalgamated said...

Thanks to AyazMo and Meenakshi Pai for their appreciation. Alas, in the real world, managers perhaps chase bad governance more than good. Hoping that promoter also wants higher stock prices

NRK said...

After reading your post I have sold all my Amararaja stocks :-)

Atif Rahman said...

As soon the promoters start reducing thier holdings from a successful company,warning bell should start ringing in peoples ear. I think that they have milked this company and funds are being moved for some other enterprise. I have a life long suspicion of mass financial frauds arising from Telgu lands(not being casteist) at regular intervals..How did Analysts at moneylife missed this ....will they readvise us. I will have a hawks eyes view on this matter from now on..

NRK said...

Earnings growth does not happen under a crooked management. Management integrity staying focused ONLY on earning high returns on capital. That is the Dharma of management. It is also the toughest thing to do. Lets see how Amara Raja does on this score:

Amara Raja made 34% return on total capital invested in last quarter and paid 32% profit as tax. Exide, it competitor does not make even 11%. Infosys, a highly ethical company (perhaps) made 26% of return on capital.

This is the reason the stock not did not move on the news. That said, IF returns start faltering, the stock will go down and we will exit.