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Amara Raja Energy & Mobility Ltd Charts Course for Growth in EV Battery Market

10 July 20244 mins read by Angel One
This article analyses the key takeaways from the above company’s concall, highlighting its strategic direction and operational plans in the electric vehicle (EV) battery manufacturing sector.
Amara Raja Energy & Mobility Ltd Charts Course for Growth in EV Battery Market
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Strategic Partnership with Gotion Boosts Technology and Supply Chain

A significant announcement during the call was the company’s comprehensive technology licensing agreement with Gotion InoBat Batteries (GIB), a subsidiary of Gotion High-Tech from China. This partnership grants Amara Raja access to Gotion’s robust LFP (Lithium Iron Phosphate) battery technology, including the less common cylindrical form factor. Gotion’s strong intellectual property (IP) portfolio, integrated supply chain, and established relationships with OEMs like Volkswagen Group were identified as key factors in this collaboration.

Furthermore, the partnership leverages GIB’s European presence, strategically located for battery cell production localization efforts. This move reduces Amara Raja’s dependence on solely Chinese suppliers and enhances its access to diverse markets.

Expansion Plans and Capacity Building Target 16 GWh

Amara Raja reaffirmed its plans to establish a 16-gigawatt hour (GWh) cell manufacturing plant in India, with the possibility of scaling up based on market demand. The agreement with Gotion encompasses technology transfer, manufacturing know-how, supply chain support, and export rights, with some limitations on end-user applications.

The company expects this partnership to improve its financial standing through better capital expenditure (capex) deployment and procurement costs. Amara Raja anticipates maintaining its target return on capital employed (ROCE) in the lowest double digits despite recent market fluctuations. They estimate capex costs in the range of Rs 600 crore to Rs 650 crore per gigawatt hour, subject to negotiation and operational details.

Focus on LFP and NMC Chemistries for Diverse Applications

The call highlighted Amara Raja’s strategy to cater to the market with both LFP and NMC (Nickel Manganese Cobalt Oxide) battery chemistries. Initially, they plan to focus on a 2 GWh capacity for NMC cells, targeting the two-wheeler segment. Subsequently, they will expand to 4-6 GWh of LFP capacity for larger vehicles and industrial applications. This phased approach reflects their responsiveness to market dynamics and potential growth opportunities.

Targeting Price Range of USD 70-75 per kWh for Cells

Amara Raja representatives shared their cell price projections, expecting a range of USD 70 to 75 per kilowatt hour over the next five to six years. This pricing strategy considers the current global oversupply of raw materials, particularly metals, which has driven down prices and impacted the profitability of some Chinese manufacturers.

Participation in PLI Scheme and Financial Strategy

The company expressed optimism about their projects qualifying under the government’s Production Linked Incentive (PLI) scheme, subject to the outcome of the competitive bidding process. Amara Raja plans to fund its expansion primarily through internal accruals and a balanced mix of equity and debt financing. They project operating margins of 11% to 12% upon reaching scale, contingent upon achieving competitive manufacturing efficiencies.

Conclusion: Amara Raja Well-Positioned for EV Battery Leadership

Amara Raja Energy & Mobility Limited’s conference call provided a clear picture of the company’s strategic roadmap for growth in the EV battery market. The partnership with Gotion strengthens their technological capabilities and supply chain, while their planned capacity expansion aligns with India’s projected battery storage demand. Amara Raja’s focus on cost optimization, participation in government initiatives, and diverse product portfolio position them well to become a leader in the Indian EV battery landscape.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.

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