Lithium-ion batteries may not hit Exide, Amara Raja demand1 min read . Updated: 29 Sep 2020, 09:18 PM IST
Mobility need is driving demand for PVs and two-wheelers, leading to a pick-up in conventional battery sales
Worries that lithium-ion batteries could slam the brakes on the growth of lead-acid batteries have lately been on the investors’ minds. But that may be overdone, at least in the near future. Lithium-ion batteries are still some way from picking up, say analysts, while demand for mobility continues to drive demand for passenger vehicles and two-wheelers. This is leading to a pick-up in demand for conventional batteries.
Besides, the government’s plans to incentivize lithium-ion battery manufacturing in India could take time to play out. In fact, volume growth of electric vehicles is still in the slow lane. Analysts say the adoption of electric cars could get delayed post covid, and demand for electric car batteries is not big enough to warrant large investments in lithium-ion production.
“Cost is the real deterrent as investment required for lithium-ion-battery plants is huge. In India, companies are looking at assembly units rather than complete manufacturing for now," said Ashutosh Tiwari, head of research at Equirus Securities Ltd. Meanwhile, domestic replacement demand for two- and four-wheelers could shift up a gear. Domestic lead-acid-battery producers, such as Exide Industries Ltd already announced price hikes in October. Analysts say there is a shortage of batteries in the home market due to a growing need for personal mobility and demand pick-up in the used-car market.
“Replacement demand is quite good, and there is a shortage of batteries. Dealers are running on low inventory with just 10-12 days of stock. Even if retail sales soften a bit, dealer stocking will keep replacement demand strong for companies," noted Tiwari
Besides, passenger vehicles and two-wheeler sales have been picking up over the last month. Hero MotoCorp Ltd and Maruti Suzuki Ltd saw vehicle sales volume increase 8% and 17%, respectively, year-on-year. Lead prices have been soft, hovering at about ₹150 a kg, which could add to margins of battery producers.
Shares of Exide, though, have been weaker than those of competitor Amara Raja Batteries Ltd. In 2020 so far, the Exide stock is still down about 12% compared to Amara Raja’s 4% rise. Both stocks are trading in the region of 22-23 times trailing earnings, as per Bloomberg data, however, the valuations appear to be pricing in earnings growth.