Amara Raja plans Rs 1,500 crore capex for expansion of new energy business 

Amara Raja Energy and Mobility, an industrial and automotive battery major formerly known as Amara Raja Batteries, will look to invest about Rs 1,500 crore as capital investment (capex) over a two- to three-year period as it seeks to expand its new energy business in the form of lithium-ion cells and battery packs, EV charging products, and energy storage solutions. 

According to Y Delli Babu, CFO of Amara Raja, the company witnessed a growth of about 9.5 percent in its consolidated revenue at Rs 2,959 crore on a year on year basis during the July–September quarter, backed by the new energy volumes that have grown, apart from the growth in the four-wheeler and two-wheeler segments. 

For the new energy division, the company is working on three major projects. First, it is establishing a research hub near the Hyderabad International Airport. The second is the setting up of a customer qualification plant. “This is to make all the form factors and chemistries at a mega scale that can eventually be extrapolated to a giga scale in the gigafactory," Babu said during a conference call last month. 

The company is putting up its first 2 GW per hour NMC line, the commercial production of which will start sometime in FY26. “Towards these three projects, the initial outlay to be spent over the next two to three years will be about Rs 1,500 crore. Land acquisition has been successfully concluded, and construction has recently commenced. The company plans to incur a capex of Rs 500–600 crore in the next year for equipment purchases and various other activities. A similar expenditure is also expected in FY26,” Babu added. 

He further added that the new energy business during the current quarter has more than doubled its revenue compared to the previous year. In the first half of FY24, this division clocked a revenue of Rs 240 crore and witnessed healthy volume growth in both chargers and battery packs, being supplied to three-wheelers and for other storage requirements.

Currently, the company management sees margins in the range of 7-8 percent and expects to sustain the margin in pack business as the volume increases going forward.

As per analysts, its entry into the new energy business is a step in the right direction, but its success will depend on the technology partner, cost competitiveness, targeted segments, etc.

Legacy domain

The company continues to have a regular capex of Rs 150 crore for its core lead-acid battery and another Rs 200–300 crore for line expansions in the existing facilities. While the lead-acid battery business will go global, the new energy business will focus on opportunities in India. According to the company, growth in the lead-acid battery business will recover strongly, and the delivery of a 13–15 percent CAGR over the next five years depends on the successful execution of its export strategy.

Besides, it is also putting up a lead-acid battery recycling plant, a subsidiary of Amar Raja Circular Solutions Private Limited, which will have an overall capacity of 1,50,000 metric tons in two phases. In the first phase, the facility will start with an initial capacity of 100,000 metric tons and is expected to commence in the first quarter of FY25.

This production output will be utilised for captive purposes within the company. The plant is projected to fulfill 25–30 percent of the total requirement, leading to significant cost savings ranging between 1-2 percent, as per company management. 

Financial Performance

During the second quarter ended September 30, the Amaron battery maker's consolidated net profit after tax came in at Rs 226 crore, up nearly 13 percent from a year ago on the back of above-normal rainfall in September that led to a recovery in rural demand.

Meanwhile, the company reported a total income of Rs 2,959.34 crore during the quarter under review as compared to Rs 2,700 crore during the period ended September 30, 2022. According to the company, the revenue growth was aided by volume growth registered in the automotive after-market as well as from the telecom and UPS segments. 

“The last quarter marked a significant milestone in the Amara Raja growth story as we announced our official name change from Amara Raja Batteries to Amara Raja Energy & Mobility. This strategic change underscores our commitment to the evolving nature of the industry by moving away from being just a battery maker to becoming a comprehensive solutions provider in the Energy and Mobility sector,” Jayadev Galla, Chairman & Managing Director of ARE&M said.

In Q2 of the current fiscal year, the company's EBITDA grew 7 percent year over year to Rs 390 crore despite a weak product mix and certain one-time expenses during the quarter, and this growth was largely driven by lower raw material costs and better realisations.

The Amara Raja board further approved an investment of Rs 500 crore in the wholly owned subsidiary, Amara Raja Advanced Cell Technologies, for Li-ion battery manufacturing. 

On the outlook, the company expects 6-7 percent year on year growth in the four-wheeler aftermarket segments and 12–13 percent growth in two-wheeler aftermarket segments in FY24. Additionally, it is foreseeing a steady growth trend of 7-8 percent Y-o-Y in the industrial sector. Furthermore, there has been a noticeable uptick in demand within the telecom segment due to ongoing expansion efforts, the company noted.