For 2 of India#39;s battery makers, what does EV push hold in store?

For 2 of India#39;s battery makers, what does EV push hold in store?
November 28
11:41 2017

Nitin Agrawal

Moneycontrol Research

The duopoly battery industry in India have for long caught the fancy of investors. While the sector otherwise seems to be in fine fettle other than the minor challenges from raw material prices, the noise around electric vehicles (EV) raises myriad questions about the future of these entities. Battery is the most important component of an EV. The EV era would force a paradigm shift and the fortunes can change dramatically depending on how well they adapt to the new reality.

In this article, we analyse the recent quarter performance of the two largest battery manufactures of India and the challenges ahead of them due to EV push.

2QFY18 Quarter snapshot

Amara Raja (ARBL): The net sales grew 7.1 percent (YoY) and declined 4.7 percent (QoQ) on the back of growth coming in from auto, solar and invertor which partly got offset by the decline in the industrial segment. Within the auto segment, 2W (two-wheelers) and 4Ws (four-wheelers) posted double digit growth and within industrial segment, telecom dragged the performance.

On QoQ basis, improvement in the margins was on the back of better product mix with higher sales of invertor batteries and replacement market within automotive segment that countered the increase in raw material prices.


Exide Industries (Exide): The company posted a strong net revenue growth for the quarter (23.2 percent YoY, 12.7 percent QoQ) on the back of growth coming in from 2W and 4W markets, UPS and infrastructure batteries. However, the EBIDTA (earnings before interest depreciation and tax) margin was marred by the significant rise in the raw material prices, and product mix tilted towards relatively low-margin OEMs (original equipment manufacturer) sales in automotive.

The moot question is what are the challenges for the battery manufacturers in India due to EV push?

Raw material challenge – government’s help the need of the hour

The biggest challenge for the battery manufacturers is the sourcing of raw material. Lithium is the key raw material for the batteries to be used in EVs. According to the CEO of ARBL, most of the reserves for lithium are concentrated in South America (70 percent of all).

According to him, private entities like the battery manufacturer along with the government needs to do strategic investments in these mines for sourcing lithium. As the interest in lithium keeps going up, there would be more exploration to find fresh deposits. Lithium could become the “white gold” for the industry in future.

Technological challenges – yet to be overcome

The EV battery should have the following five capabilities: 1. high energy density – the weight of the battery should not weigh over the performance hence lithium scores over others as it has high energy density 2. design of the battery should be such that it gives maximum range per charge 3. How fast the battery charges 4. number of cycles – the longevity and finally, the cost, at which all the above features come in.

Lithium has emerged as the preferred technology over the last few years and there are multiple chemistries available. The choice of a battery design and the chemistry depends on the vehicle type for which the battery is being made for.

The industry as of now is getting itself ready with various technologies to provide the optimum source of power to an EV and reduce the price difference between an EV and an internal combustion engine (ICE) vehicle.

Threat from China – government needs to intervene

Currently, China is ahead on the curve in EV space and there are chances that the Chinese products could be dumped in India. Here again, the government needs to play an important role to put anti-dumping duty to promote indigenous battery manufacturing.

Charging infrastructure provides an opportunity

There are debates going on regarding the optimal format for charging infrastructure. Discussions revolving around swapping of batteries versus charging station is still on. Each of these methods have its own merit.

Swapping of batteries – this is a good option during the initial phase of EV adoption as these would reduce the acquisition cost of vehicles and would be less time-consuming for the customers. However, there are challenges like the standardization of battery across OEMs is required. Moreover, it would entail higher capital expenditure on the back of a large number of batteries.

Charging station – this is a low-cost model, which could attract interest from many corporates. But this might lead to higher turnaround time for customers unless technology improvements reduce the charging time.

A battery manufacturer like Amara Raja feels that they would also foray into providing charging infrastructure and would capitalise on its own distribution network.


In terms of valuations, ARBL is currently trading at 22 and 17.9 times FY19 and FY20 projected earnings and Exide is trading at 17.7 and 14.7 times FY19 and FY20 projected earnings.


While there is a perceived threat of EVs on the battery manufacturers, the companies are doing their homework to work on manufacturing batteries that is suitable for them. But they got to cover a lot of ground.

The perceived threat of EVs along with the volatility in key raw material prices might lead to temporary de-rating of these companies. This could provide an excellent entry opportunity for investors as we got to keep in mind that the widespread adoption of EV is many years away and hence the conventional battery manufacturers will continue to have a meaningful growth in the medium term.

Finally, these entities will also move up the learning curve with EV batteries and would eventually be ready after some hiccups. This sector, therefore merits close attention.

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