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The Indian EV battery industry is set to take off as penetration levels in electric vehicles (EVs) continue to surge. JPMorgan expects India’s auto segment to see a transformational shift this decade, with fresh investments of at least $8-10bn in Lithium ion cell manufacturing. 

“While we expect lead acid battery demand to grow by a low-mid single-digit CAGR this decade, we see around 30x EV battery demand growth over FY22-26E, which should be an opportunity for lead acid players as well. The Street’s caution on legacy players (sharp de-derating of EXID/AMRJ) appears overdone to us," the global brokerage said in a note.

JPM has initiated coverage on Exide Industries shares with an overweight rating with target price of 210 and Neutral rating on Amara Raja Batteries with price target of 570.

The brokerage believes both Exide and Amara Raja should grow by low-mid-single digits in this decade, while generating free cash. Ploughing this back should help pivot to EV cell manufacturing and take a slice of the ~30x/100x five-/ten-year EV battery pie opportunity. 

It prefers market leader Exide to Amara Raja for its early start in EV cell/battery manufacturing (Nexcharge brand, partnership with SVOLT Energy), stronger balance sheet (post divestment of life insurance business), and better valuations.

"Regulatory support in the form of the Advanced Cell Chemistry PLI scheme and Battery Swapping Policy bode well for the growth of the battery value chain. The path to EV battery transition in India could diverge from other peers as legacy lead acid players are also participating in the EV revolution," analysts at JPMorgan added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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