Amara Raja – 2nd Largest in storage battery market

Amara Raja Batteries – Flagship company of the Amara Raja Group.

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Amara Raja Batteries - Logo

(A) About Amara Raja Batteries Ltd

Amara Raja Batteries Ltd (ARBL) is the technology leader and one of the largest manufacturers of lead-acid batteries for both industrial and automotive applications in the Indian storage battery industry.

It is a leading manufacturer of automotive batteries and home UPS/Inverter batteries under the brands Amaron and PowerZone, distributed through pan-India sales & service retail network. 

Company caters its clients mainly through (i) Automotive battery Division and (ii) Industrial Battery Division.

It supplies automotive batteries under OE relationships to Ford India, Honda, Hyundai, Mahindra & Mahindra, Maruti Suzuki, Tata Motors and many others. for Industrial Batteries, it caters to major telecom service providers, Telecom equipment manufacturers, UPS sector (OEM & Replacement), Indian Railways and to Power, Oil & Gas among many others.

Although, Amara Raja is the leading private label supplier for prominent brands.

Also, it is the first company that manufactured Valve Regulated Lead-Acid (VRLA) batteries in India.

(B) About Amara Raja Group

The Amara Raja Group is one of the fastest growing conglomerates in India with a revenue exceeding USD 1.2 Billion through highly engaged customers across the Globe. 

Dr Ramachandra N Galla found the Group. Amara Raja Group has a very Strong network of workforce comprising 14,000+ employees working for 6 companies encompassing 14 businesses.

In Addition, Amara Raja Group has also presence in different verticals such as power conversion products, sheet metal products, precision components, electronic products, infrastructure development, industrial services to food processing.

Amara Raja Group Companies

  • Amara Raja Batteries Ltd (ARBL)
  • Another, company is Amara Raja Power Systems Ltd (ARPSL)
  • Mangal Industries Ltd (MIL)
  • Amara Raja Electronics Limited (AREL)
  • Amara Raja Infrastructure Pvt. Ltd (ARIPL)
  • Amara Raja Industrial Services Pvt. Limited (ARISPL)

(C) Journey since inception

(D) Executive Board Members

(i) Dr Ramachandra N Galla – Founder & Chairman

Dr Ramachandra N Galla is the Founder & Chairman of Amara Raja Group of Companies. In addition, Dr Ramachandra has built Amara Raja group from grassroots levels over the last 30 years.

He is an electrical engineer by profession and has acquired Masters degree in System Sciences at Michigan State University USA in 1968.

Furrher, he worked briefly for US Steel Corporation, Pittsburg, Pennsylvania, USA and later joined Sargent & Lundy in 1971. 

Dr Ramachandra also promoted many other business ventures spanning across automotive components, industrial batteries, power electronics, engineering precision products, food and infrastructure.

further, He retired at the conclusion of this 36th Annual General Meeting. He expressed his desire not to offer himself for re-appointment and to take up full time philanthropic activities.

Mr. Ramachandra N Galla Received Rs 28.45 Cr as Commission for FY21.

(ii) Mr Jayadev Galla – Managing Director and CEO

Mr Jayadev Galla is the Managing Director of ARBL since August 2003.

He took the charge as the Vice Chairman of the Amara Raja group of Companies from August 1, 2013. Moreover, Mr Jaydev has been very active and providing valuable suggestions to the Company’s strategy and growth plans.

Additionally, He holds a Bachelor’s degree in Political Science and Economics from University of Illinois at Urbana Champaign, USA. Prior joining the Company he served as International Sales Executive, GNB Battery Technologies, Inc., USA (now part of Exide Technologies, Inc., USA)

He Received Rs 47.35 Cr as remuneration for FY21 i.e, 0.66% of Net Sales and 7.32% of Net Profit.

(iii) Mr Harshavardhana Gourineni – Executive Director

Mr Harshavardhana Gourineni appointed as Executive Directors of the Company w.e.f. June 12,
2021. He is 32 Years old.

Earlier, He was at the position of MD and CEO of Mangal Industries ltd (MIL), part of the Amara Raja group of companies and India’s leading manufacturer of auto components and storage solutions.

He also earned a Bachelor of Science degree in Industrial and Organization Psychology from the Purdue University, USA.

Furthermore, Mr Harsha started his career as an Operations Supervisor and later handled the Demand planning function at the Milwaukee, Wisconsin based Johnson Controls, the largest battery manufacturer in the world

Before joining the company, he worked in different positions at RN Galla Family Pvt ltd, Amara Raja Infra Pvt ltd, and the group’s media arm.

Mr Harshavardhana Gourineni will receive a fixed compensation of 12 Lacs Per Month and not exceeding to 2.5% of Net profit in a Year (For Period FY21-26)

(iv) Mr Vikramadithya Gourineni – Executive Director

Mr Vikramadithya Gourineni appointed as Executive Directors of the Company w.e.f June 12,
2021. He is 31 Years old.

Furthermore, He has been graduated from University of Wisconsin – Madison with a degree in Biochemistry.

Mr. Vikramadithya developed a strategy focused on industry collaboration, leadership development, and organizational transformation to spearhead the next phase of growth in an industry characterized by rapid change.

He held the position of MD and Chief Executive Officer of Amara Raja Power Systems (ARPSL) as well as the Managing Director of Amara Raja Electronics (AREL). 

Additionally, He holds board position in RN Galla Family Pvt ltd, Amara Raja Power Systems Ltd, Amara Raja Electronics Ltd, Amara Raja Infra Pvt Ltd, Amara Raja Blaze Technologies Ltd, and Amara Raja Media and Entertainment Pvt Ltd.

Mr Vikramadithya Gourineni will receive fixed a compensation of 12 Lacs Per Month and not exceeding to 2.5% of Net profit in a Year (For Period FY21-26)

(E) Shareholding Pattern of Amara Raja Batteries Ltd

Amara Raja Batteries Ltd - Shareholding Pattern
Amara Raja Batteries Ltd - Shareholding Pattern of  promoters and public

(i) Change of Mutual Fund Holdings (QoQ)

Amara Raja Batteries Ltd - Mutual Fund holdings

Over the some past quarters Mutual funds are continuously reducing their stake.

(F) Portfolio of the Company

Company caters 2 types of Batteries (i) Automotive and (ii) industrial to OEMs and Aftermarkets.

Amara Raja Batteries Ltd - Product portfolio

(I) Automotive Batteries Division

Amara Raja Automotive Batteries offers a wide range of battery solutions in Passenger Vehicles, Three Wheelers, Two Wheelers, Commercial Vehicles, Farm Vehicles, as well as Home UPS/Inverters. Furthermore, Amara Raja Batteries Limited (ARBL) is the first company to manufacture Valve Regulated Lead-Acid (VRLA) batteries in India.

Companies supplies its Batteries to Different markets including

  • Aftermarket – Amaron and PowerZone
  • Original Equipment Manufacturer
  • International Operations
  • Private Labeling
  • Through after Market, ARBL caters its Prominent brands “Amaron And Power Zone” to all 2 wheelers, 3 wheelers, 4 wheelers, Trucks, Tractors and Home UPS/Inverters.
  • Secondly, In OEMs, ARBL supplies automotive batteries to almost all auto manufacturers in the country including Maruti Suzuki India Limited, Hyundai Motors India Limited, Ford India Limited, Tata Motors Limited, Mahindra and Mahindra Limited and Many Others.
  • Today its automotive batteries reach consumers in more than 32 countries in the Indian Ocean Rim.

(II) Industrial Batteries Division

ARBL offers a broad range of batteries solutions in segments like UPS, Telecom, Railways, Defence and Motive Power.

Batteries catering to various Application:

  • UPS
  • Telecom
  • Solar
  • Railways
  • Motive
  • International Operations
  • Defence

ARBL, Through its Industrial Division building strong cluster of business by offering to almost every industry and sector.

(G) Revenue Segmentation of the Company

(I) Segment Wise Revenue Breakup

Amara Raja Batteries Ltd - Segment wise revenue

Revenue from the Automotive division of the company accounts 70% and industrial Division accounts 30%.

Its Automotive Division comprises Automotive batteries for 3 wheelers, 2 wheelers, Tractors, Inverters and Home UPS/Inverters. On the other hand, its Industrial Division comprises batteries for Power Generation units, Transmission & Distribution, Telecom, Railways and Defense. Company believes Automotive industry will help further in boosting its topline.

Automotive industry in India is poised to grow at 2.7% CAGR between 2019-26 to reach USD 512 Billion by 2026. Further, Passenger Vehicles segment in India is expected to grow up to 25% in 2021-22 even after facing shortage of semiconductor by OEMs.

(II) Product Wise Revenue Break-Up 

Amara Raja Batteries Ltd - product wise revenue

98.70 % of the total revenue of the company comes from the Storage batteries, despite 1.30% from Home UPS.

India has Large & Growing passenger vehicle base which requires batteries and open enough opportunity for the company. During 2014-18, India has added 13Mn Passenger Vehicles which provides immediate aftermarket opportunity.

(IV) Geographical Revenue Segment

Amara Raja Batteries Ltd - geographical revenue

(H) Manufacturing facilities and Capacity Utilization

(i) Manufacturing facilities

The battery plants are located at Karakambadi and Amara Raja Growth Corridor(ARGC) in Chittoor District, Andhra Pradesh, India.

The Karakambadi manufacturing facility consists of three plants (4 Wheeler, 2 Wheeler and LVRLA).

While the ARGC facility consists of four plants (4 Wheeler, 2 Wheeler, Tubular and MVRLA). Together these plants contribute to the growing volumes of Amara Raja Batteries limited

Amara Raja Batteries Ltd - manufacturing Facilities

(ii) Manufacturing Installed Capacity

Amara Raja Batteries Ltd - Installed Capacity

(I) Cost Structure of the Company

Amara Raja Batteries Ltd - Cost Structure as % of Net sales

In FY21, Company’s Major expense that has been incurred on raw material comprising proportion of ~68%. Whereas, Employee Cost comprised 5.97% and Power & Fuel cost reported 2.98%.

Additionally, the company has done an acquisition with Log 9 Material Scientific Pvt Ltd by taking 11.36% of stakes at a cost of 36.99 Cr for management of cost.

Furthermore, “Log 9” is Currently having competences across Materials, Electrode cells, and Peak Level Fabrication of Energy storage technologies.

(i) Raw Material as % of Net Sales

Amara Raja Batteries Ltd - raw material consumed  as % of Net sales

Over the years, ARBL’s consumption of raw material has increased by 5.95% from FY12.

During FY21, The Company has reduced the consumption of lead ranging from 2% to 5% per battery for various products in both industrial and automotive battery division.

(J) Distribution Network

The Company’s pan-India distribution network comprising 40,000+ AMARON and PowerZone Dealer which is helping the Company to sustain its competitive dominance in the aftermarket segment.

Amara Raja Batteries Ltd - Distribution Network

Subsidiaries

The Company has only one subsidiary having 100% ownership i.e Amara Raja Batteries Middle East (FZE) (ARBME). Furthermore, The subsidiary is incorporated for trading of lead acid storage batteries in the Middle East.

(K) Capex

Amara Raja Batteries Ltd - Capex

During FY21 Period, Company approved to set up a 50 MW captive solar plant in the state of Andhra Pradesh at a total capex of Rs. 220 crores.

Moreover, the Company believe the plant would reduce the cost of power and simultaneously reduce the carbon footprint of the Company.

(L) Financial Parameters

Amara Raja Batteries Ltd - Financial Parameters
  • Over the years, Amara Raja Batteries Ltd shown a consistent growth in operating income.
  • In a period of 10 years, operating income and PAT of the company grew up by same 13% CAGR p.a.
  • Whereas, Free Cash Flow is improving from past 3 Years.
  • Additionally, In FY21 PAT Margin reduced slightly by 0.60% but increased 0.79% by FY12.
  • Moreover, ROE and ROCE of the company decreasing continuously.

(M) Management Discussion and Concall Highlights

  • The management expressed that it expects to achieve a topline growth of 15-17% over next five years from FY21. In addition, This will be driven by organic growth in the domestic market and pushing international expansion.
  • During FY22, the company moved its first steps towards of growth by supplying li-ion battery packs to 3Ws; however, it is yet to finalize its full-fledged entry into lithium cell manufacturing.
  • On Expansion side, In Feb-21, Company announced that it plans to setup Lead Acid Recycling plant of 1 lakh Tonnes p.a capacity at estimated cost of Rs 280 Cr and capacitive 280 MW Solar power plant for an estimated capex of Rs 220 crore. In addition, In Feb-21 the Company setup an advanced “Lithium Technology Research Hub” with a Pilot plant Facility for a cell Development. The company has a technology transfer agreement with the Indian Space Research Organisation (ISRO) since early 2019.
  • In Jan-22 Company has applied for the PLI scheme for Advanced chemistry cells (ACC) batteries manufacturing. Apart from that, For the technology, it has investments in two start-ups (Log9, InoBat) and is open for more partnerships, in addition to organically developing technology.
  • In FY21, Company has started Supplying batteries to E-Rickshaw OEMs and chargers to BPCL. Additionally Company is in the process of Developing Board charger for 2 Watt and 3 Watts.

Concall Q3 FY22

  • In Q3FY22, Company has reported increase in Revenue by 4.5% on QoQ basis to INR 2265 Cr.
  • In Q3FY22, Company witnessed growth in EBITDA of 6% on QoQ basis, and PAT shown a Flat performance of Rs 145 cr (Rs 144 in Q2FY22)
  • ARBL Ltd didn’t take any price hike in Q3 FY22 (price hike was ~6% over Q2 FY22) in the Replacement market. However, in Jan’22 It took a 1% of price hike. In Q3FY22, Company has reported declined growth in the OEM volumes of 20%-30% YoY for 4Ws/2Ws. Whereas, Replacement volumes showed reasonable growth (11% for 4Ws and 28% for 2Ws YoY).
  • In Q3FY22, Exports declined due to logistical challenges but Volumes in the Industrial segment grew ~6% YoY. Industrial exports grew 8–9%, and Inverters grew 2–3% YoY

(N) Strength and weakness

(I) Strengths

(a) Strong market presence in the domestic storage batteries segment

Industry structure is a duopoly. Likewise, ARBL is the largest player in this segment after Exide Industries Ltd (Exide). Instance, The company has a large distribution network comprising of 30000+ Amaron and PowerZone retailers across India.

The company has a large distribution network comprising of 30000+ Amaron and PowerZone retailers across India. Moreover, the strong equity of its Amaron brand has strengthened its market position over the years. The steady capacity additions supported the company’s revenue growth and increase in market share in both industrial and automotive markets.

(b) Diverse revenue streams, supported by established relationship with clients

ARBL’s increasing market presence in the domestic battery segment is also a result of its diversified presence across the automotive segments and industrial segments.

Within automotive segment, it has well diversified presence in four wheeler segment, two wheeler segment, HUPS & other battery segment and into exports.

Further dependence on single customer for revenue within these segments is limited. The company’s diversified presence thus renders its business risk profile less vulnerable to downturns in the domestic auto OEM and industrial sectors.

(I) Weakness

(a) Geographical concentration in operations

ARBL currently operates from 2 locations within Andhra Pradesh (Tirupati and Chittoor), while demand is spread across the country, thereby restricting distribution logistics.

Also, this increases the risks relating to geographical concentration of operations, like natural calamities and others. However, ARBL has benefits of economies of scale because of its large size. Further, the plants are completely integrated with all critical components, including plastics battery cases which are sourced in-house.

(b)  Intense competition

The telecom segment has been going through a tough consolidation phase, wherein the telecom operators/ infrastructure players continue to exert pressure on vendors to reduce prices.

Although, the Competition is there in the auto aftermarket battery segment and small-to-mid sized organized players which operate only in the industrial segment and now increasing focus on the auto segment, offering products at competitive prices.

Also, during periods of low end market demand, the increase in lead prices cannot be fully transferred to end customers especially in the after-market segment. Nevertheless, ARBL performed better than its peers, largely because of its diversified revenue streams and product quality.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry’s Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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