5 EV battery stocks to watch out for potential multibagger returns

Demand for electric vehicles (EVs) has been surging, with sales doubling in the last three years. (Photo: Bloomberg)
Demand for electric vehicles (EVs) has been surging, with sales doubling in the last three years. (Photo: Bloomberg)

Summary

  • These five EV battery stocks are well-poised to grow in the coming years.

India is preparing itself to leap forward in the clean energy race. While developing cleaner energy sources across the country is on the horizon, the electrification of transport is a top priority. 

The proof is in the numbers. The demand for electric vehicles (EVs) has been surging, with sales doubling in the last three years. While there were 69,012 electric vehicles on the road in 2017-18, the number crossed 200,000 units in 2020-21. 

A powerful driver is the government and their relentless and earnest efforts to boost demand in this segment. 

In November 2020, the government announced incentives worth ₹3 tn, encouraging sectors to boost local manufacturing and exports. A part of this ₹3 tn ( ₹180 bn) was earmarked towards advanced cell/battery chemistry. 

Apart from this, the government has announced a slew of initiatives for electric two-wheelers ranging from increased discounts to incentives on purchase. 

With rising fuel prices and soaring pollution levels often making headlines, this is music to the ears.  

Most EVs use lithium-ion batteries. Unlike lead batteries used in conventional fuel-based vehicles, lithium-ion batteries are the heart of an electric vehicle. Moreover, they are the single largest cost head, accounting for about 40-50% of the total cost. 

Top EV manufacturers import a large chunk of lithium-ion batteries from China. China is the top producer of lithium-ion batteries. However, this can quickly change. 

The strong growth prospects offered by this sunrise sector have given rise to several Indian EV battery manufacturers. It has led to them accelerating their plans to build EV battery manufacturing plants in the country.

The players are all hoping to bite a large chunk of the ₹180 bn opportunity. 

In this piece, we highlight the top five EV battery manufacturers well-poised to deliver multi-bagger returns. 

#1 Exide 

First on our list is Exide Industries.  

The company is a 75-year-old market leader in the lead-battery space. It is also the largest lead-battery manufacturer in India, offering a wide range of products to the automotive and industrial sectors. 

It caters to some of the top OEMs (original equipment manufacturer) in the country. From Tata Motors and Maruti in the four-wheeler segment to Bajaj in the two and three-wheelers segments, Exide enjoys a strong presence across the entire automotive value chain. 

Apart from this, the company also has a strong export arm. The company caters to the GCC countries, USA, and Canada. Exports accounted for 9% of the company's total turnover on a standalone basis during the year ending 31 March 2022. 

Exide is well-poised to benefit from the shift to EVs.

The company has tied up with a world-leading provider of high-quality energy storage solutions to build lithium-ion batteries to cater to India's booming EV market. Apart from this, its existing relations with the top automotive players give it a leg-up.  

The company was directly hit by the poor demand in the automobile sector. Besides, its insurance business also skewed its profits. But the company recently sold the same, so that will change from next year onwards. 

The sales and net profits have not grown much, reporting a 4-year CAGR of 0.5% and 0.1%. The bleak growth has affected the return on equity. Over the years, it has fallen from 12.8% in 2018 to 6.6% in the financial year 2022. 

Despite a weak performance, the company has not failed to reward its shareholders. The 4-year average dividend yield stands tall at 1.4%. 

To know more about the company, check out its financial factsheet and latest financial results. 

#2 Amara Raja 

Next on our list is Amara Raja Batteries.  

The company is the second biggest player in the lead-battery space in India.

It enjoys a widespread network, catering to the automotive and industrial segments with its Amaron brand of lead batteries. 

The company is positioning itself to benefit from the growing EV market in the country. Recently, the company has set up a technology hub to develop lithium-ion batteries, at its Tirupati facility in Andhra Pradesh.  

Amara Raja has enjoyed a smooth road to profitability. The company’s sales have grown at a 4-year CAGR of 10.3%, while the net profit has grown at a 4-year CAGR of 2.3%.  

The return on equity has been strong, averaging 14.8% over four years. The company has rewarded its investors well, sporting a four-year average dividend yield of 1.2%.   

To know more about the company, check out its financial factsheet and latest financial results. 

#3 Kabra Extrusiontechnik 

Third, on our list is Kabra Extrusiontechnik.  

The company is a market leader in manufacturing plastics extrusion machinery for over four decades. The company boasts an impressive client roster which includes Astral Polytechnik, Supreme Industries, Finolex Industries etc. 

Apart from this, the company also operates the EV battery business under the brand name, Battrixx. They offer a wide range of advanced lithium-ion battery packs. However, the battery division is relatively new and only recently became profitable.  

The battery division is yet to reach optimum scale and capacity utilisation. But given the rising penetration of EVs and the push towards green energy, the business is likely to perform well. 

The company’s revenue has grown at a 4-year CAGR of 11.5%. The net profits have registered a 4-year CAGR of 10.8%.  

The 4-year average return on equity stands at 7.8%. The balance sheet is strong, with negligible debt on its books. The company distributes dividends generously. Its 4-year average dividend yield stands at 1.3%.  

To know more about the company, check out its financial factsheet and latest financial results. â€¨ 

#4 Maruti 

Next on our list is Maruti Suzuki. 

The leading automotive player in the country is also embarking on manufacturing EV batteries.  

The company's electric vehicle battery manufacturing plant in Gujrat is underway with an investment of over ₹73 bn. 

Maruti's parent company Suzuki Motor corporation, with its subsidiary SMG, signed a memorandum of understanding with the government of Gujarat to invest ₹104 bn in the manufacturing of EVs and EV batteries in Gujarat. 

The auto giant has not been immune to the tepid demand in the auto sector. The company’s sales have grown at a 4-year CAGR of 3.3%, while the net profit has de-grown by 16.7% over the same period. 

This performance has trickled down to the return of equity, the 4-year average is 10.5%. However, none of this has discouraged the company from distributing dividends to its shareholders. The 4-year average dividend yield is at 0.9%.  

To know more about the company, check out its financial factsheet and latest financial results. â€¨ 

#5 Bharat Electronics 

Last on our list is Bharat Electronics. 

The company is a government-owned entity and operates directly under the supervision of the ministry of defence. It primarily manufactures aerospace and defence electronics.

However, recently the company announced its foray into EV battery manufacturing.  

In October 2022, Bharat Electronics received a letter of intent from the US-based Triton Electric Vehicle India to supply EV batteries at an estimated value of ₹80 bn. The company will manufacture them at its facility in Pune. 

This order alone can boost the company's earnings by over 30-40% over the next 2-3 years. 

In the past few years, the company's earnings have grown at a 4-year CAGR of 10.5%. The profits have grown at 13.7% over the same period. The strong profitability has trickled down to the returns which stand strong at a 4-year average of 18.9%.  

The company has been very generous to its shareholders. The 4-year average dividend yield is 3.2%. The company is debt free and the balance sheet is well poised to fund any expansion. 

To know more about the company, check out its financial factsheet and latest financial results. â€¨ 

In conclusion 

The emergence of lithium-ion batteries as an alternative clean energy source opens up exciting growth opportunities for existing and new battery manufacturers. 

By 2030, India should accelerate the adoption of EVs across vehicle categories. The number should rise from 6% of the on-road vehicle population, at present, to 33% in 2040. All of which will directly expand the demand for EV batteries.  

We are still at the beginning of the boom in the EV sector, which presents us with a great opportunity to benefit from this sunrise sector.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.


This article is syndicated from Equitymaster.com

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