Amara Raja Batteries Ltd is in advanced stage of negotiations with a few 2-wheeler manufacturers for supplies of batteries.
When this happens it will be a first for the company, says a report of Standard Chartered Bank’s equity research team.
Sources in Amara Raja Batteries have confirmed this to
The company is confident of starting supplies to 2-wheeler manufacturers by July-August.
Last year, Amara Raja spent Rs 80 crore on an expansion programme that saw its 2-wheeler battery production capacity go up to 4.8 million units from 3.6 million units. (Four-wheeler battery capacity went up to 5.6 million units from 4.2 million units, and UPS battery to 2 million units from 1.8 million units).
The automotive battery industry in India is dominated by two players, Exide and Amara Raja. Between them, they added 6.8 million of 2-wheeler battery capacity and 2.7 million 4-wheeler battery capacity in 2011-12 — 35 per cent and 19 per cent, respectively.
Expansion ill-timed?
The Standard Chartered report terms the expansion as “ill-timed” citing the slowdown in the automobile industry as the reason.
“In hindsight, this capacity expansion looks inopportune, especially with the current slowdown in the auto OEM industry,” it says. It adds that unless the demand from the ‘replacement segment’ grows strongly, there will be sub-optimal capacity utilisation, affecting margins.
Last year, Amara Raja gained 2.5 per cent market share because Exide had capacity constraints. Also, there was a slowdown in import of UPS batteries because China had curbed production of such batteries.
But now, Exide, having addressed its capacity issues, is fully focussed on regaining its market share, which will increase competitive pressures in the market, the report says.
Due to this, and the depreciation of the rupee (which will affect lead prices), the current financial year may not be as good as the last for Amara Raja, it says.
Commenting on the report, Mr K Suresh, Chief Financial Officer, Amara Raja, said that the rupee depreciation will have no impact on the company, because the prices of lead—the key raw material—are also softening. On the other hand, the rupee depreciation has made imports of UPS batteries into India unviable.
“My story is in-tact,” Mr Suresh said, adding that the company is looking to expanding UPS batteries capacity in a greenfield location, which could be in the South. The expansion would be complete in 13-14 months and will take the UPS battery capacity to 3 million units.
Amara Raja Batteries closed 2011-12 with a record turnover of Rs 2,371 crore, on which it made a profit of Rs 225 crore. The Amara Raja share is currently traded on the BSE at around Rs 300.