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Amara Raja Batteries Ltd – A Turnaround Story In The Making?

Updated: Jun 9, 2022

Company Name – Amara Raja Batteries Limited (Amara Raja)

Current Share Price – INR 644 (January 18, 2022)

Market Cap – INR 10,996 cr


1. What is interesting about the stock?

"Shutting off the thought process is not rejuvenating; the mind is like a car battery - it recharges by running" --- Bill Watterson

Investing meets Batteries.

In a highly competitive Indian Automobile market where there are over 30 brands in operation, the battery segment is effectively a duopolistic business. Amara Raja and Exide Batteries being the two dominant players ruling the mobility battery business since many decades in India. Every major auto OEM in India relies on Amara raja for its Lead-Acid battery sourcing. Auto battery segment constitutes a big chunk (66%) of Company's business, other segment being Industrials (29%) which includes Telecom, UPS, Railways, Power, Oil & Natural Gas sectors.

However, what makes Amara Raja’s case interesting is its focus on new energy business, which the management expects to be their growth engines. The emergence of Lithium (Li) as an alternative energy storage technology has opened a door of opportunities. The overall lithium demand over the next five years is expected to be about 30 GW demand coming up by 2025, and close to 150 GW in 2030. Company is focusing on Lithium Cells making process & battery pack assemblies, a range of Power Electronics Systems such as Battery Management Systems (BMS) for two & three wheelers, data centers, telecom & Electric Vehicles (EV) Charger portfolio for battery charging & swapping solutions as well as AC charging for residential applications.

Amara Raja has started a pilot scale facility for manufacturing of Li battery packs, to support two & three wheeler customer requirements, this unit can be ramped further. In December 2020, they launched the Advanced Lithium-ion Technology Hub, where they were able to simulate the cell making process. Concisely, company wants to enter throughout the entire value chain in Electric Vehicle batteries segment.

EV development in general and lithium-ion batteries in particular should get a boost with INR 18,000 crore of government subsidies under the INR 1.6 lakh crore local production-linked incentive (PLI) scheme announced in November 2020. The PLI scheme has earmarked INR 18,000 crore towards the advance cell chemistry, which aims at bringing online at least 50 GW of lithium-ion batteries to the market.

Industrial battery business has also seen big uptick in performance in FY2021. The pandemic forced people to stay indoors & shop online, this led to e-commerce companies restocking their warehouses, increasing their capacities & streamlining their supply chains. This translated to increased usage of forklifts for efficient warehousing activities. With the imposition of lockdowns in urban agglomerates, Work from Home (WFH) culture grew & so has the demand for Home UPS & Inverters. This increased sale would translate to healthy replacement demand in the near future. The ‘WFH’ trend required telecom companies to ensure 100% tower uptime for uninterrupted connectivity not only at urban areas but also across the nation. As a result, the demand for storage batteries from most tower companies, increased substantially.

Data Centers is the new sunrise sector that is attracting huge global attention and investment. This is owing to the impact of data protection laws, increased shift from captive to co-location data centers and implementation of new technologies like 5G, edge computing and the internet of things (IoT) which is expected to drive sustained investor demand for this asset class over the next five years. Currently, data centers in all of India need only 400 MW (megawatt) power capacity. That is less than Singapore and just 10% of the capacity of Northern Virginia, the largest data center market in the world. Since 2014, India’s Data Center market has grown by 520% (against global average growth of 100% over the same period), albeit on a smaller base.

Key Strengths

  • Debt free company with net surplus cash of ~INR 420 cr as of September 30, 2021

  • A strong focus on R&D, process improvements, business excellence, quality controls

  • Strong and experienced management team leading the way to a new-gen leadership team (Promoters Ramchandra Galla & Jaydev Galla giving way to young members Harsh Gourineni & Vikram Gourineni)

  • Government of India’s push for faster adoption of EVs through FAME-II policy by providing subsidies to buyers

Key Weaknesses

  • De-growth in auto battery business due to lockdowns in COVID 1st & 2nd waves. In future lockdowns we can expect to see similar trends

  • Supply chain disruptions (shortage of key components) owing to uncertainties could affect auto sales and in turn impacting battery sales

  • Andhra Pradesh high courts interim suspension extension of Andhra Pradesh Pollution Control Board’s (APPCB) plants closure orders. The state pollution board charged the battery maker with polluting air, which resulted in the presence of high levels of lead in the blood of almost all its employees and people of the surrounding villages, discharging untreated waste water into the drains and untreated sewage into the storm water drains, and causing soil pollution

2. Key Historical Financials

Company EBITDA margins came down to 12% in Q2FY22 due to rising input costs.

3. What is my view on company valuation?

Amara Raja’s stock price has provided dismal returns of (~37%) for last 1-year period. Stock has been in oversold position with FIIs & DIIs selling their stakes (Clarios ARBL Holdings LP sold 10% stake).

Amara Raja trades at a P/E (TTM) of 17x vs Exide Industries at a multiple of 19x. Long term average P/E (5 year) of Amara Raja is around 25x & for Exide around 19x. EV/EBITDA (TTM) wise both the companies trade at around 9x.

Company looks fairly valued at current market price, investors having a long-term outlook can buy after getting clarity on APPCB stand on the company’s operations.

4. What are the risks to the investment analysis?

Key risks to investment analysis are:

  • Failure of management’s measures to address Lead contamination leading to severe health issues in employees & factory staff

  • Increased competition to invest from other conglomerates like Mahindra, Reliance, Hyundai Motors in India’s Advanced Cell Chemistry (ACC) Battery scheme

  • India’s dependency on overseas suppliers for automobile semiconductor is likely to pose a challenge for the next 3-5 years


About the Author

I have over 7 years of work experience in Automobile Industry & Technology Sector in India. Currently I am working as a Research & Development Engineer at a Global Automobile major helping them scale their Electric Vehicles ambitions.

I hold Master’s & Bachelor’s degrees in Engineering from Indian Institute of Technology, Madras (IITM).

I am an insignificant public investor & have avid interest in Trekking, Photography, and Cybersecurity.


I have no stock, option or similar derivative position in any of the companies mentioned since last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purpose and not to be construed as an investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.


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