Amara Raja Energy & Mobility Ltd is seen as a potential beneficiary of the Goods and Services Tax (GST) cuts, which will reduce prices of lead-acid batteries, Amara’s core business. GST cuts on vehicles ahead of the festive season could also boost demand for automotive batteries.
The industry has passed on the GST rate cut to consumers and demand for batteries from original equipment manufacturers (OEMs) has increased, Amara Raja management recently told analysts at Motilal Oswal Financial Services.
However, the replacement segment is yet to experience this momentum. According to management, demand has remained flat on a sequential basis. Even though lead costs have been stable quarter-on-quarter, the company expects rupee depreciation toward the latter half of the quarter to have an adverse impact.
Amara’s June-quarter (Q1FY26) results were unexciting. Ebitda margin fell to 11.5% from 14% in Q1FY25 owing to higher power costs, expensive raw materials, and a sharp decline in telecom battery sales. Exports also slowed. Management said it expected these cost pressures to ease. It also said the new tubular battery plant launched in July, and a new recycling facility were expected to improve margins. It said margins could rise to 13% by Q4FY26, and to 14% by FY27. Remember, management has guided for four-wheeler growth of 6-7% and two-wheeler growth of 10-11% in the auto replacement business.
Lithium-ion delays
Amara’s traditional lead acid battery (LAB) business contributes more than 95% of revenue. Here, the company expects to grow faster than the market by gaining market share and expanding new regions such as Europe and North America. In an interaction with Nuvama Research, Amara management said the Indian LAB market was projected to expand from $4.6 billion in FY25 to $5.8 billion by FY30, reflecting a modest 5% compound annual growth rate. Amara expects to outperform the industry by 3–5% on the back of market-share gains and higher exports, said a Nuvama report dated 1 October.
Amara is also investing in lithium-ion battery technology to meet the changing needs of the industry. Electric two- and three-wheelers are growing quickly and battery storage systems are gaining traction in homes and industries, the lithium-ion businesses will help Amara tap this demand. It has committed significant capital expenditure to build the Amara Raja Giga Corridor, an industrial complex in Telangana that will be a hub for advanced lithium-ion battery cell and pack manufacturing, R&D, and battery recycling.
However, the phase-1 of the lithium-ion cell plant with a 1 gigawatt capacity, which was expected to begin in FY26, has been deferred to the second half of FY27, leaving investors nervous.
Amara Raja stock is down 18% so far this year, underperforming Exide Industries Ltd (down around 7%), by a wide margin. “While the market is optimistic about Amara’s lithium-ion initiative, we are cautious about its potential returns,” said a Motilal Oswal report dated 1 October. Note that lithium-ion cell manufacturing is expected to deliver a low return on capital employed.
Amara stock trades at 17 times estimated FY27 earnings, versus 24.4 for Exide despite its relatively better financial position, showed Bloomberg data. A meaningful re-rating hinges on the pace of margin improvement in the core business and timely execution of the lithium-ion factory.
