Battery companies Exide Industries Ltd and Amara Raja Batteries Ltd are bracing for robust occasions forward, given the drastic fall in auto gross sales. However the magnitude of the impression will likely be decrease for them in comparison with different auto element makers.
Right here’s why:
Whereas orders for batteries from unique gear producers (OEMs) will drop, the saving grace is the alternative market, which brings in 50-60% of auto phase income for these two battery makers. Substitute demand remains to be strong.
In accordance with ICICI Securities Ltd, “Given the lifetime of battery is usually about 4 years, producers realise regular alternative demand progress of round 10%, which is able to assist them traverse the difficult occasions at auto OEMs (muted quantity progress of about 5% over FY19-21E).”
Additional, submit the implementation of GST (items and companies tax), small producers from the unorganized sector have fallen by the wayside, serving to Exide and Amara Raja garner an even bigger share within the alternative market. Collectively, the 2 firms account for about three-fourths of the market. That’s not all. Substitute market gross sales take pleasure in higher realizations than OEMs.
Aside from the tailwinds of strong alternative market gross sales, gentle lead costs are anticipated to assist profitability. Lead contains about 70% of those firms’ uncooked materials prices. In its preview word for the June quarter, Elara Securities India Pvt. Ltd forecasts 2-Three% year-on-year income progress for the 2 companies. Nevertheless, it expects 30% progress in Amara Raja’s Ebitda (earnings earlier than curiosity, tax, depreciation and amortization) on a low base, and seven% progress for Exide.
No marvel, whereas the Nifty Auto index has fallen 11% since 1 April, shares of Exide and Amara Raja are down 7% and eight%, respectively. That mentioned, whether or not they may lose energy within the coming quarters hinges on how auto gross sales will pan out. Additionally, whether or not telecom, industrial and residential inverters can offset the near-term ache from the auto slowdown stays to be seen.
An extended-term concern across the two firms is the enterprise impression of conversion to lithium-ion batteries within the new period of electrical autos. Though it’s evident that each are engaged on these applied sciences, it stays to be seen how they’d fight competitors from some OEMs, who with deep pockets are additionally venturing into this area. Till then, valuations will hinge on lead worth motion and auto gross sales.