Amara Raja Batteries - Batteries contd

Amara raja batteries, though of smaller size when compare the Exide, has been more aggressive in cornering the market share. The company is keenly targeting the unorganized and the retail market to boost its market presence. Like Exide, Amara raja has also been increasing the manufacturing facilities and they have entered tower markets. However, they differ from Exide when they look at penetrating the retail market, battery powered two wheeler and four wheeler market. The support from Johnson controls is a big plus for ARB. They are keenly working on improving the market presence and once they gain this, they will give tough competition to Exide.

Batteries for hybrids - ARB has been betting big on the opportunities for the hybrid cars in India. Partner Johnson Controls, through a joint venture with the French battery producer, Saft, has the technology for lithium ion batteries. Given its 26% stake in the company, ARB is expecting to have access to this technology based on which it will develop products for the Indian OEMs.

Telecom and UPS demand buoyant - ARB has about 26 per cent market share in the industrial batteries business. Bulk of the growth in this division is expected from the telecom and UPS battery segments. Network expansions by telecom service providers and the move to share infrastructure could result in increased demand for batteries, which support telecom tower and exchange infrastructure.

UPS battery sales are likely to be propelled by growth in the Services industry, which requires back-up power, as well as demand from households and offices due to the continued power shortage situation.

Two-wheeler batteries - The company had launched the ‘Amaron Pro Bike Rider’ battery for two-wheelers, with technology from its US- based collaborator, Johnson Controls. With this launch, ARB expects to cash in on the shift in demand to higher-end, premium bikes and other two-wheelers based on ‘self-start’ mechanism for which battery technology would be crucial. While the company has a combined capacity of one million units for manufacturing two-wheeler and small VRLA batteries for UPS, it expects to scale it up to 3.2 million units by 2010.

This plant is also designed to produce batteries that power electric motor cycles for which considerable demand is expected in the coming years.

Lead price fluctuation - Lead accounts for 70 per cent of the raw material used by ARB. Rising lead prices did take toll on the margins of ARB. Though lead prices have moderated, the company has not come up with any shield to protect itself from further lead price fluctuations.

Unlike Exide, ARB has not been able to moderate the impact of lead price fluctuations since Exide has gone the backward integration way and had acquired 2 lead smelting plants. However, ARB has been successful to an extent in passing on the costs to the end customers due to the lead price fluctuation.

To contact the equity analyst on this story: Arun Gopalan in Chennai at Arun@hbjcapital.com