Amara Raja Energy & Mobility: A High Probability Wealth Creation Opportunity

 



The world is trying to get better environmentally by reducing carbon emissions. In order to reduce carbon emissions, the world is trying to adopt Electric Vehicles (EVs) instead of Internal Combustion Engine Vehicles. When it comes to EVs, the main cost of the car is the battery that it has in the car.

Currently, in the battery space for EVs, there is one major player “Amara Raja Energy and Mobility”. It is the technology leader and is one of the largest manufacturers of lead-acid batteries for both industrial and automotive applications in the Indian storage battery industry. Under the automotive application, they are present in both markets that is OEMs and the After Market. In both segments, they have market share of around 30%-40%. Under the industrial application, they are present in two sectors that is Telecom & UPS. Under Telecom sector, they are the leaders with 80%+ market share. Under the UPS segment (Data centre Application), their market share is 40%.

In order to make a battery, the main raw material required is Lead which is 60% of the value of the battery. 85% of the lead comes from the recycled process as it is the easiest to recycle and have a very high efficiency in recycling. They currently procure lead locally for now. In order to carry out the recycling process internally, their board has approved setting up a Greenfield lead acid recycling plant with an estimated capacity of 1 lakh tonnes p.a at a total outlay of Rs. 280 crores to be spent over the next 18 months. This will help the company comply with recycling standards whilst adopting advance technology in the most environmentally friendly manner lead recycling plant in Cheyyar, Tamil Nadu. The first phase of the plant is expected to commission by Q1FY25 which would increase the in-house recycled lead procurement. Overall, the whole plant will cater to 30% of their lead requirements.

The company seems to shift its complete focus towards raw material procurement for lead as 80% of its lead requirements have been fulfilled by recycled batteries which has become evident with its recent investment in lead recycling plant which will benefit the company in the longer run. Revenue Growth to be expected from Lead Acid Battery Business at $3BN from current $1.2BN in the next 5-7 years.

The company is also focusing to increase its revenue contribution from the New Energy Business which is catering to electric mobility and energy storage applications for which the energy requirement is mostly from li – ion battery material based on batteries recycling. For this company has been investing heavily in its R&D centres. They are trying to innovate new technologies in Li-ion battery segment which will cater to the future generation of transportation. They have signed a Memorandum of Understanding (MoU) with the Government of Telangana to establish research and manufacturing facilities for lithium-ion cells and battery packs. The ‘Amara Raja Giga Corridor’ project, with an investment of approximately INR 9,500 crore in capital expenditure and new technology, aims to produce Lithium Cells and Battery Packs with capacities of up to 16GWh and 5GWh, respectively

They also want to be present globally. So they have implemented a globalization strategy that is they want to increase market share in the existing geographies. They also want to tap western geographies. Europe and North America (especially for UPS Batteries).

This makes the case of Amara Raja very strong in the coming years based on the above facts. I am highly bullish on the company which is highly possible to do very well in terms of revenue and profitability.

 

Happy Investing!!!!! 




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