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Green Brigade in Action! Amara Raja Fuels the Lithium-Ion Era
Imagine your vehicle running on clean and green energy instead of gasoline, where your home is powered by solar and stored in batteries, and where every device you use is a part of a bigger push towards a sustainable future. Sounds like a far call? It’s quickly turning into a reality in India, and at the coronary heart of this modification are Lithium-ion Batteries (LIBs). A story contributing to this change is that of Amara Raja Energy & Mobility Ltd!
These batteries, once simply the powerhouse behind your cell 1phone, at the moment are the important thing to India’s shift toward cleaner energy, electric-powered motors (EVs), and renewable systems. What’s even more compelling is the pace at which this zone is accelerating. India’s lithium-ion battery market, worth 20 gigawatt-hours (GWh) in 2022, is projected to undergo an increase, potentially accomplishing an amazing 220 GWh by 2030! This surge isn't just about scaling up manufacturing; it indicates a paradigm shift in energy storage, grid optimization, and the electrification of mobility answers, revolutionizing how power is generated, stored, and distributed.
So, what are the underlying catalysts behind this rapid expansion?
➢ The EV Revolution
First off, the largest factor driving the call for lithium-ion batteries right now is the surge of electrical automobiles (EVs). These EVs are fast taking up from the old-school Internal Combustion Engine (ICE) motors, which might be powered by way of gas or diesel. And wager what? EVs want lots of lithium-ion batteries to preserve them.
Now, if you’re thinking, what exactly is an ICE vehicle? Well, the ones are your conventional cars that run on fuel. They’ve got an engine that burns fuel or diesel to generate power. Totally exceptional from EVs, which run on power stored in batteries in preference to burning gas. As the sector begins switching to cleaner energy options, we’re seeing increasingly more EVs replacing the ICE motors.
➢ Integration of Renewable Energy
Here’s the catch! Solar and wind energy are sustainable; however, they’re not constantly available when you want them. The sun doesn't radiate all day, and the wind doesn't keep gusting all the time. That’s where lithium-ion batteries come into play. They save up all that clean strength whilst it’s being generated, after which they release it when we want it, like in the course of the night or on a peaceful, windless day, irrespective of the climate!
Grid Stability: With India aiming for net-zero emissions by 2070, making renewable energy work on a larger scale is a huge deal. And this is in which LIBs are essential. They help stabilize the grid by means of storing renewable strength and feeding it again whilst vital. By the use of more LIBs, we are able to reduce our reliance on coal and other non-renewable electricity sources, making our energy gadget purifiers more dependable.
➢ Stationary Applications
UPS Systems: Whether it’s organizations or consumers like us, UPS systems (Uninterruptible Power Supply) are more important than ever. These structures offer backup energy in case of outages, and the call for high-performance lithium-ion batteries is developing as industries and customers alike search for more dependable energy solutions.
Telecom Towers and Data Centers: Think about the telecom businesses and data centers that keep our phones running and our cloud services uninterrupted. They need continuous energy to avoid downtime. Lithium-ion batteries are best for those applications due to the fact that they are able to keep things rolling easily without interruption.
➢ Supply Chain – Overcoming Dependency on Imports
One of the big setbacks India faces in the battery industry is its heavy reliance on imports for raw substances like lithium, nickel, and cobalt. These materials mostly come from countries like Bolivia, Argentina, and Australia, making India susceptible to supply chain disruptions and price changes.
Securing Raw Materials: Companies are stepping up efforts to lock in long-term access to these materials by forming international partnerships and looking for new ways to source and process these materials locally. The government is also pushing to process more of these materials within India, which could help reduce this dependency.
➢ Technological Advancements
Advanced Cell Chemistries: There’s a variety of research taking place to make batteries more efficient and durable. Companies are running with new battery chemistries, another word for the exceptional substances used inside a battery, like nickel, cobalt, manganese, and aluminum. These, when used altogether, lead to longevity and energy density, that is, how much power the battery can store and safety.
Local Manufacturing Capabilities: To meet the skyrocketing call for lithium-ion batteries, India is investing massive time in nearby manufacturing. Companies are putting in massive gigafactories to produce battery cells and packs on a huge scale. This is all part of the attempt to grow to be greater self-sufficient and less reliant on overseas suppliers for substances and production.
So, we’ve seen how the lithium-ion battery market in India is bracing for growth driven by rising demand for electric vehicles, renewable energy integration, and innovative energy storage solutions. But where does Amara Raja Energy & Mobility (ARE&M) stand in all of this? Let’s break it down!
➢ Lead-Acid Batteries: The Foundation of Reliability
ARE&M has been a trailblazer in the battery market, and its lead-acid battery range forms the cornerstone of its legacy. These batteries are the backbone for countless vehicles and industrial systems, built for durability and performance.
➢ Automotive Batteries
ARE&M's Amaron brand is a name every car owner in India recognizes. But what makes these batteries special? They’re built to last and ultimately require zero maintenance for most passenger and two-wheeler vehicles and cater to a broad spectrum of vehicles. Built with a start-stop technology, these allow the engine to mechanically turn off while the car is idling and begin once more when the pedal is pressed to handle the issue of constant starting and stopping, making sure the car runs smoothly even with the frequent engine restarts.
And here’s a fun fact: Amaraja isn’t just focused on traditional batteries; they’re also leading the way with auxiliary batteries for electric vehicles and their specific start-stop systems.
➢ Industrial Batteries
Ever wondered how your workplace always has backup energy while the lights go out? You may have unknowingly benefited from the valve-regulated lead-acid batteries. These batteries are known to be used where power stability is a must. Whether it’s the uninterruptible power supply systems keeping your devices running or the telecom towers that ensure you're always connected!
Did you know that these batteries actually power the air-conditioning and lighting systems on Indian Railways? That’s right! They help keep the trains comfortable and running smoothly.
➢ Battery Packs for EVs
But ARE&M isn’t just focused on individual battery cells; they have moved on towards assembling custom battery packs for electric vehicles (EVs), especially electric two-wheelers and light electric vehicles (LEVs). At their Divitipalli facility, they’ve got a speedy assembly line that can produce one battery pack every two minutes! These batteries are designed to handle India’s tough road conditions, ensuring they’re reliable for both daily commuters and commercial vehicles.
➢ EV Chargers for Every Need
Whether it’s a fast-charging station for cars or a portable charger for two-wheelers, ARE&M has you covered. In fact, their 100% Indian-built portable EV chargers are designed with an IP67 certification, or, put simply, it ensures they are water-resistant. Through their acquisition of Amara Raja Power Systems Limited (ARPSL), they’ve expanded their reach into industrial and integrated power systems, strengthening their market position.
➢ Policy as a Catalyst: A Perfect Storm for Growth
The government is playing a huge role! Take the ‘Make in India’ movement, for example. It’s a great opportunity where the country’s goals match perfectly with what companies like ARE&M need. By encouraging domestic manufacturing, offering financial incentives, and making rules easier to follow, this initiative helps companies like ARE&M in scaling their production without relying too much on imports.
Speaking of EVs, the FAME scheme (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) is much more than just subsidies, rewarding based on the battery capacity, so the focus on high-density lithium-ion cells and strong EV chargers helps it play a big role in making EVs more common in India.
Then there’s the battery swapping policy draft, as swappable batteries are those that can be easily exchanged for a fully charged one, instead of having to wait for your battery to charge. Fixed batteries, on the other hand, are built into the vehicle and need to be charged directly.
The Production Linked Incentive (PLI) scheme for Advanced Chemistry Cells is supplying monetary incentives to companies setting up domestic manufacturing facilities. The ultimate objective? Reduce dependency on imports and inspire the boom of a self-reliant industry!
➢ Impact of Declining Lithium-Ion Battery Prices
The continuous drop in prices of lithium-ion batteries has enabled businesses and consumers to invest in clean energy and sustainable technologies, creating new opportunities in renewable energy integration and grid storage for ARE&M, which may amplify its market share by means of imparting aggressive and modern solutions for residential and commercial applications.
➢ Geopolitical and Supply Chain Vulnerabilities:
Geopolitical Risk Amplification: The ongoing global geopolitical instability creates a significant source of uncertainty for ARE&M, leading to supply chain disruptions and increased material costs and affecting overall planning and business continuity.
One big worry is critical material dependency. This refers to ARE&M’s reliance on materials like lithium, nickel, and cobalt, key components of batteries. Any disruption in the global supply of these materials can mess with production timelines and raise costs, hurting profits.
➢ Market Adoption Barriers:
EV Cost and Range Concerns: The higher initial cost of EVs compared to traditional vehicles, coupled with concerns about range anxiety and inadequate charging infrastructure, ought to constrain the pace of EV adoption. This poses a hurdle for the brand-new energy business and may impede the broader market uptake of EVs.
Charging Infrastructure Gap: The challenges associated with the restrained range and availability of charging infrastructure for EVs present a bottleneck to broader EV adoption, which also affects battery sales for these automobiles.
Amara Raja’s profitability metrics demonstrate its capacity to not only achieve growth but also effectively convert revenue into profit, reflecting operational efficiency and strategic focus.
➢ Profitability
Revenue in FY24 surged to ₹11,260 crores, marking an 8.38% increase over the previous year. The net profit margin for FY24 increased to 7.98%, up from 7.03% in FY23 and 5.9% in FY22. The margin improvement is due to:
Market Expansion and Product Mix: Amara Raja has diversified its product portfolio into high-value-added segments such as the energy and mobility sectors with rampant battery production and advanced energy storage solutions.
Sustained Sectoral Demand: Continued growth in the automotive and industrial sectors, including increased demand for both lead-acid batteries (LABs) and EV components, contributed to higher sales.
➢ Financial Leverage (Gearing)
Amara Raja maintains a conservative approach to financial leverage, keeping debt levels low and relying on equity financing. The debt-equity ratio for FY24 was 0.01x, as a result of debt reduction with total borrowings decreasing to ₹53.33 crores in FY24 from ₹111.06 crores in FY23.
➢ Asset Quality and Capital Allocation.
Asset Turnover Ratio: The asset turnover ratio increased to 1.3x in FY24 from 1.0x in FY23, indicating more efficient use of assets in generating sales. This improvement results from stronger sales performance and effective asset management practices.
Investments
Non-current investments increased from ₹462.24 crores in FY23 to ₹1,214.15 crores in FY24, driven by strategic diversification in the energy and mobility sectors, particularly in advanced cell chemistries and EV-related technologies.
The Indian battery and energy storage market is largely a duopoly, with Exide and Amara Raja Energy leveraging the vast distribution networks, economies of scale, and technological innovation, operating in a capital-intensive industry. While Exide Industries leads the market in terms of size and revenue, ARE&M has carved a position with its focus on innovation and diversification in the battery and mobility sectors.
Price-to-Earnings (P/E): ARE&M is trading at 22.7x, significantly below the industry average of 41.6x and Exide Industries' 44.3x. This relative discount presents a compelling case as the investors are paying less for each rupee of earnings as compared to the rest of the peers in this niche.
EV/EBITDA stands for Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization, which compares a company’s total value (EV) to its core operational earnings (EBITDA). This multiple stands at 12.3x, indicating that investors are paying twelve times the company’s operational earnings for its total value. This stands lower than the industry median of 21.1x and Exide’s 20.2x, which implies the market’s recognition of Amara Raja’s ability to generate constant cash flows in spite of its exposure to the capital-extensive battery and mobility markets. Compared to competitors, Amara Raja is seen as an efficient generator of cash flow, potentially offering a better value while also reflecting a degree of market caution about its growth prospects relative to its competitors like Exide.
With India’s expanded transition toward electric-powered mobility and energy adoption, Amara Raja, supported through its mounted home footprint and increasing international presence, is poised to take advantage of synergies across emerging verticals consisting of electric vehicles, renewable power storage systems, and ancillary growth markets.
Sources: Sharescart, Company Filings, CEEW, IBEF Industry Report, JMK Research & Analytics, Bloomberg, CRISIL and NITI Aayog.
I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Stocx Research Club). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI Registered individual/entity and the above research article is only for educational purpose and is never intended as trading/investment advice.
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