Amara Raja Energy & Mobility Limited: Powering Ahead

I had mentioned this last year and this is a logical step. Exide will see significant hit over time. The replacement market for Amaron will be a big hit since Li Ion will last longer and I don’t think these guys can price it at the rate we could get them at MGA center.

However the article seems incorrect on few data points. None of the lead acid batteries sold today are more than 10k for a MARUTI car. The lithium batteries would be used only for shvs models and will need cooling fans for batteries. These issues will prevent it form being used in Swift as it is a value segment rather than premium c segment.

Here is my post where I have expressed my views.

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So should we start writing obituaries for (lead) battery makers?

Battery manufacturing as a standalone business may not remain viable business in the long term. Since a battery is a core component in an electric vehicle, OEMs may decide to make it themselves (like Maruti) until the technology matures before outsourcing it. That can take years even decades. Lead battery market will shrink as Li-ion picks up.

I was surprised to see that Amara Raja is not investing heavily in Li-Ion. The word Li-ion appears exactly once in the most recent annual report. They keep saying that Li-ion is for small gadgets like phones and laptops.

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Most of high-end EV batteries are already outsourced. One of the largest players in this space is Panasonic. They manufacture mainly for Tesla. Samsung, Sanyo, Johnson controls are all players. There will be others as well. In my opinion, the technology for EV battery will become easily available. What is going to be difficult to replicate on the ground is the distribution that both Exide and ARBL have.

ARBL will get the tech from Jonson Controls and Exide has tied up with Switzerland’s Leclanche SA to form a joint venture for the manufacture of lithium-ion batteries.

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A company like MSIL already has a wide service network which sell MARUTI Genuine accessories (MGA). If the price of battery is cheaper and much more reliable, there is no need to procure the part from outside. If say, my tail lamp housing needs to be replaced, 9 out of 10 times I prefer MGA. Battery could become one such product where the margins are so tied up with volumes that the service center can offer better rate (and quality).

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Also need to check fate of EV Vehicles currently being produced in India. Also if EV is so popular, why there is so much panic in World market on Increasing Oil price. Mkt always knows the best

Full EV may be far away but the lead acid battery will be replaced eventually when hybrids with ISG are used. Today we have only a few models like Ciaz and Ertiga with ISG. If this is extended to other models , lithium is the best option to handle regenerative braking. That is what MARUTI is planning to do and this will be major drop of oem sales for both exide and Amaron. It may be significant by 2021 when most models will have ISG.

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I think all these battery mfgs will have access to technologies. They are debt free,excellent distribution network,good cash reserve. Buying technology is not an issue at all. Also they have tie-ups with best battery mfgs.

It is believed that cost of battery is linked to volumes. So the question is if these guys can capture the remaining 50% of market after MARUTI eats the oem Share. Also remember that mahindra has expressed interest in getting batteries from Suzuki. So the remianing 50% may also be captured partially by Suzuki

ISRO passing on its Li-Ion technology for only Rs. 1 crore.

Intention is for the betterment of industry.

Not sure., how is the practical applicability of this technology., but it has received an overwhelming response from prospective buyers.

Link attached below

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I’ve always believed that the Li-Ion threat is something that incumbents can adapt to rather than get disrupted by. Need to do more reading and build a tangible view though, for the time being this news should drive home the point that Amara Raja and Exide have plans to adapt to the new technology and participate in the story if/as it builds critical mass

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On a general note, I see more and more adoption to electric vehicles in US. Last week, while riding the a battery fueled car, I was curious to know the economics when compared to gas fueled vehicles. Off-course, electric vehicle score high on the operating cost efficiency, air pollution (and space). The only and major downside is the upfront cost of owing an electric vehicle. To which, I think, overtime people(read as operating business in the sector) will figure out way to bring the overall cost down and/or people (read as consumers) get accommodate to the upfront cost.If crud makes significant moves to north, those days are not far away when we will see electric vehicle on Indian roads (and lower air pollution as well).

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What are the expected impacts?
One is they need to tie up with new partners.
Any impact on Tech Assistance fees?
Various possibilities of JC stake handover.
Any views / detailing?

The next few days will tell us how resilient the stock is, if not anything else. The bottom that this makes now from CMP will probably be the lower end of the range for some years to come

What the market might be worrying about is the prospect of the 24% holding of JCI (after the Galla’s buy 2% off their hands) getting sold in the market through a series of deals regularly hitting the market rather than getting sold to 2-3 large investors in a block deal.

The news of JCI exiting their power solutions business was out in the public media in Nov 2018, so the promoters have had 5 months to plan for alternatives and work things out. Looks like they are buying the 2% to ensure that they hold larger stake than any of the existing investors to ensure they retain control. It might well be a new partner/investor who comes on board, they cannot risk an existing investor owning more than them and laying claim to the entity. Will be interesting to see how they manage this and how things play out

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  1. Is JC’ shareholding in Amara Raja (AR) belongs to Power business (Brookfield) or the JC (remaining business)? I believe it should belong to Brookfield.

  2. How Brookfield run their acquisitions? Do they invest in R&D or milk the business till it last?
    Why we saying that they will sale their stake in AR? What is the necessity to sale $400M worth stake in AR?

  3. New shareholder (if sale happens in block deal) may not like Gala family taking 60Cr in remuneration (pos+?). Family may also be pursuing friendly arrangement of share transfer belonging to JC to friendly party, if it is going to happen!

  4. Do AR think next few years will bring significant shift in (technology/) business that they would be better off without Brookfield Power being partner in this business, makes it easy to forge alliance with others?

  5. JC was not charging any royalty fee to AR. But recent agreements for new technology may be different. e.g PowerFrame. Does it involve License fee?

Disclosure: Not invested currently. Held it in between 2009-2017

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Looks like this company has generated a great amount of wealth from 2009 to 2015.
However, the performance of this company has been deteriorating over the past few years, in many terms.

2018 2017 2016 2015 2014
Inventory turnover 5.937811396 7.32161087 8.71230782 11.09025901 11.4538969
Asset turnover 3.636219327 4.198901298 5.130547847 6.094170812 8.406798744
Net Profit Margins 0.07482041798 0.07934328586 0.09256653503 0.08780054151 0.09463566403
ROCE 0.2546098161 0.3106592481 0.3896110198 0.4051828337 0.4499736241
ROE 0.1817613871 0.2276745779 0.287978724 0.3015043663 0.3467036544

This shows that the return on incremental capital they have been deploying over the past few years is appalling.
Somewhat similar trend can be noticed in Exide Industries as well, but not as bad as ARBL.

Disclosure: Not invested. Not a buy / sell recommendation.

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From reading the annual reports and concall transcripts it seems that demand weakness is primarily attributable to the fall in demand from Telecom.

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I have created a semi-automated peer comparison sheet for most of the companies in the industry.

Industrial Goods Industry Data.xlsx (917.1 KB)

You can find comparisons of more industries here: