Hyderabad: India’s second largest maker of batteries, Amara Raja Batteries Ltd, aims to more than treble its revenue by 2015 with new products and expansion into new markets, riding the growth in automobile sales.
Amara Raja expects to be a Rs5,000 crore company by revenue in five years, growing at 25-30% a year, managing director Jayadev Galla said in a recent interview. That’s at a slower pace than its 50% compounded annual growth rate in last five years.
In 2008-09, Amara Raja’s gross sales increased 17.33% to Rs1,584 crore, but net profit declined 17.26% to Rs80.5 crore, dragged by the slowdown in the auto sector, volatility in prices of lead, its key raw material, and foreign exchange losses.
Ambitious plans: Amara Raja managing director Jayadev Galla. Bharath Sai / Mint
The company is now counting on the early signs of recovery in both the global economy and in its two main businesses—industrial and automotive batteries—to offer it new opportunities.
India’s automobile industry has been a star performer in the manufacturing sector even during the economic slowdown. Car sales rose almost 15% in April-September.
Amara Raja has a market share of 30% for its industrial batteries and 26% for auto batteries supplied as part of the original equipment in vehicles. In the organized auto battery replacement market, it has a 32% share. The Indian storage batteries market is estimated at Rs9,000 crore, of which industrial batteries account for Rs3,700 crore and automotive batteries, Rs5,300 crore.
As part of its expansion, Amara Raja recently launched two-wheeler batteries using so-called valve-regulated lead acid (VRLA) technology that do not require to be topped up periodically with distilled water.
“The company is now in parleys with (a) few high-volume motorcycle manufacturers in the domestic market for forging OEM (original equipment manufacturers) supply arrangements for its new-technology batteries and expects to firm up at least one deal this fiscal,” said Galla. “(But) we will not enter into OEM deals unless we are sure of getting at least 25% of OEM requirement of each of the automobile manufacturers.”
Amara Raja is expanding capacity for its VRLA batteries to 1.8 million units a year from 1.6 million units now, and its regular two-wheeler battery capacity to 2.4 million units from 1.8 million units, spending around Rs90 crore. It plans to fund the entire investment through internal accruals.
“The two-wheeler batteries command higher margins in the range of 25-30% and will help improve overall operating margins of the company,” said Kunal Dalal, an analyst at equity research firm Nirmal Bang Securities Pvt. Ltd, which has a buy recommendation on the Amara Raja stock.
The total two-wheeler battery market in India is estimated at 11 million units, and at least 60% of the requirement is met through firms supplying batteries as part of the original equipment.
The firm plans to add two assembly lines for two-wheeler batteries at its production facility near Tirupati in Andhra Pradesh, and is in talks with electric bike makers for deals while assessing the needs of hybrid cars, Galla said.
In the industrial batteries market, the company is focusing on high-growth segments such as telecom and UPS (uninterrupted power supply). While 70% of its industrial batteries cater to the telecom sector, 20% are for UPS and the balance for other applications.
India is the world’s fastest growing mobile-phone market, with around 10 million connections being added every month. “As long as that growth continues, we will have to keep on expanding our production capacities,” said Galla.
He added the firm expects to launch so-called front terminal access (FTA) batteries for the telecom infrastructure segment by April.
“With a mobile penetration of just 38% in India, as against 60% in China, we feel there is enough scope of growth for the telecom sector,” said Nirmal Bang analyst Dalal. “With Amara Raja a preferred supplier to almost all telecom operators in the country, the growth opportunities seem tremendous.”
Amara Raja shares have more than tripled this year. On Tuesday, the shares declined 1% to close at Rs154.75 each on the Bombay Stock Exchange, on a day the Sensex declined 103 points, or 0.59%, to close at 17,223.01.