Q4 23/24

May 30, 2024

Ladies and gentlemen, good day and welcome to the Amara Raja Energy & Mobility Limited Q4 FY 2024 conference call hosted by Elara Securities Private Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Jay Kale from Elara Securities Private Limited. Thank you, and over to you, sir. Yeah. Thank you, and good evening, everyone. On behalf of Elara Securities India Private Limited, I welcome you all to the Q4 FY 2024 earnings conference call of Amara Raja Energy & Mobility Limited. From the management side, we have with us today Mr. Harsha Gourineni, Executive Director, Automotive and Industrial, Mr. Vikram Gourineni, Executive Director, New Energy Business, Mr. Y. Dillibabu, Chief Financial Officer. I would now like to hand over the call to Mr. Dillibabu for his opening remarks. Over to you, sir. Thank you, Jai. Good evening everyone for joining this call. I will just briefly touch about the numbers of the quarter. During Q4 FY 2024, the consolidated revenue grew by about 19% on the back of the lead-acid battery revenues growing at 19% and the new energy business growing at about 30% odd over the previous year. The lead-acid battery business growth has come broadly on the back of a volume growth, both in the domestic as well as the international business of four-wheeler and two-wheeler batteries. With the domestic batteries business growing around 16% and the international volumes growing around 30%. And our industrial business also has grown at about 5%-6% during the current quarter on a year-on-year basis. The international business growth was aided by some of the new markets that recently we have forayed into. And also, there is a reasonable growth in some of our earlier markets like APAC and Middle East. The domestic volumes, again, aftermarket segment has shown a robust volume growth of about 15% in both two-wheeler and four-wheeler segment. While we have seen a stagnant growth in the volumes of four-wheeler, two-wheeler volumes have grown close to about 20% during the current quarter. While the inverter batteries is where we have seen a big growth compared to the last year, considering the fact that we are meeting the inverter battery demand through the trading resources since we lost the factory in a fire accident last year. The new energy business between chargers and battery packs, we have seen more than 30% kind of a growth where we are currently selling packs for telecom and three-wheeler applications. We just commenced a small quantity of two-wheeler battery packs as well during the current quarter. Our lubes business that we have launched recently is also gaining some traction with overall revenue of around INR 25 crores during the current quarter. In this quarter, we have also completed the integration of the plastic component business that we have acquired with effect from Q1 2022, and the finances have been restated to that extent. This acquisition has given an EBITDA increment of about 0.8% in spite of our tubular battery business not being there and also some of the synergies that are just kicking in. We will see that there will be further efficiency improvement with this integration coming in. As far as expenses of the current quarter is concerned, we had some one-time expenses, about INR 20 crores, which were incurred towards some of the stamp duty payments towards this merger transaction that we have done. Also, during the current quarter, owing to the trading activity of inverter batteries, the overall trading revenue percentage during the current quarter was about 10%-11% as against the previous year number of about 5%. That also has some bit of negative impact on the operating margins per se. But considering all these factors, the overall EBITDA percentage of current quarter on a consolidated basis, about 14% was delivered which is about closely a percentage point higher than what we have done in the previous year. If you look at on a full year basis, we have seen three major events. One, obviously, we have subsidiarized the entire new energy business into Amara Raja Advanced Cell Technologies. As I just mentioned, the integration of battery component business is completed, and we have also completed the acquisition of the Amara Raja Power Systems Limited, which is an industrial charger and EV charger manufacturer. We have seen overall revenue growth of about 13%, wherein the lead-acid battery business has grown about 10% on an overall basis. Also the new energy business, where we have doubled the business compared to the previous year, where both the EV chargers as well as battery packs business has shown significant traction. So in the current year, we have spent close to about INR 800 crores on the CapEx which is split between our recycling venture, the new energy venture, and also the regular lead-acid battery CapEx. With that, I will now hand over to Mr. Harsha for his opening remarks. Over to you, Harsha. Thank you, Delli, and good afternoon, everyone. Our lead-acid battery business did quite well this last year in terms of volume growth, and the figures have been detailed by Mr. Dillibabu. I wanted to share that in our automotive business, this volume growth was aided by the introduction of some new brands while we continued the growth of our Amaron brand and have secured its market leadership in the aftermarket. Our OE volumes have also grown in line with the industry. We have been having some further diversification in the automotive aftermarket that has been started this year and will be continued over the next subsequent years. The inverter battery dip that we saw will be totally covered up as our plans for reinstating that capacity are well underway and are meeting the timelines in place for the start of the next season. We have seen some very good uptake in the international markets. We have market leadership in a number of countries in Southeast Asia, like Malaysia and Singapore. Also in the Middle East, we have a number one position in U.A.E., and we can claim to be number two in the entire GCC. We have expanded into both West and East Africa and have established a key account in North America, and we have some ongoing business in South America. So all of these combined, we can say we are placed in every continent now for the first time. Our international contributions to volumes have been picking up year-over-year, about 30% this last year, as Delli has said, and international will become a much larger part of our portfolio going forward. It has given us the unique opportunity to release certain products, like enhanced flooded batteries and AGM batteries, well ahead of their requirement within India. This allows us to get better realizations, and it is a testament to our technological abilities, and we will continue to be able to gain these market shares and with our combined efforts, bring Amara Raja Energy & Mobility to much larger global market share. On the industrial side, we have seen the shifts in telecom, but we have also been able to have good growth in the UPS segment, especially with data center becoming larger. We have also made certain international inroads on the UPS product, both in existing geographies of Southeast Asia and Middle East, but also into Europe and North America as of late. The data center segment in India is still a small part of the overall UPS industry, but we see that it is fast-growing and we are well-placed to seize a lot of that market share. I think overall for lead acid, we know that there are questions in terms of technological obsolescence over the next 15 years. But we see a clear runway through that, and we are well poised to take advantage of it. Thank you, and over to Vikram. Thank you, Harsha. Just a couple minutes quickly giving an overview of the new energy business as it happened the past year. I think as Delli Babu mentioned, we witnessed a very healthy growth, especially around our packs and our chargers. Our pack business continues to grow at a very healthy uptick. We believe we have a very commanding share of the market, especially in 3-wheeler, but overall in the light electric mobility among independent battery players. As well, we have made significant inroads in stationary applications like telecom, growing our revenues with all of our respective customers within these segments. On the charger side, we have seen that with the localization efforts coming to fruit, that we will be starting commercial production within the last part of this quarter with our own localized charger. This would initially go into applications like a 3-wheeler, but we believe by the end of the year, we should be able to catch up with all products coming in. Even on the 2-wheeler side, we should be able to make higher volume. Coming to the pack facility in our new location in Telangana at Divitipalli, the construction has completed and the last of the equipment is being commissioned. We believe that within the next month, commercial production can start from here, and this should actually allow us to start breaking into newer pack customers at an accelerated pace. Overall, the new energy segment has seen good growth. On the cell side, we have actually commenced our 2170 project. This is the NMC 2170 cell that we will be predominantly catering to the 2-wheeler market with. This has been a predominantly an in-house effort along with joint development with a partner. Our partner shares good credibility within the Southeast Asian and Chinese markets, as well as some penetration in India. The plant construction will be starting shortly on the 2170 project, and we are still targeting the commercial production to start in the latter half of FY 2026. As mentioned in the past couple of calls, we are still at advanced stages of discussion with various players for a more comprehensive cell partnership, looking at technology, manufacturing knowhow, and supply chain linkages. That is something that we will keep you updated in due course. Thank you. Should we begin the question and answer session? Yes, please. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to only use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Kapil Singh from Nomura. Please go ahead. Good evening, sir. My apologies. Could you please repeat the growth rates for four-wheeler and two-wheeler replacement and OEMs for this quarter? For the quarter, the four-wheeler aftermarket growth rate is around 15%, whereas the two-wheeler was around 18%-19%. The OEM growth in four-wheeler was about 2%, whereas in the two-wheeler we have seen a growth of about 15%. Thanks, sir. Sir, what would be the mix of auto and industrial revenues now? It is more or less the same, Kapil. There is no change. About 70/30. There is no change. Okay. Could you comment on the growth rate for the industrials? What kind of growth rates you are seeing and what is the outlook? Going ahead, will it grow faster than the auto part, or do you think both the businesses could grow in similar range? Yeah, as mentioned in the earlier calls, I think again, we are consistently seeing a 6%-7% kind of a growth on overall basis in industrial. As Harsha was mentioning, while we are seeing some conversion in the telecom side of the business, but still considering other opportunities, what we have both in the domestic segment as well as in some export markets, I think industrial business will continue to grow around that 6%-7% kind of an index. Okay, sir. Okay. Just one question on the new energy business. I was noticing your presentation, this other business revenues was quite high in Q2, then it has come off in Q4. Could you just help us understand if there is any seasonality here? No, in the new energy business, except for depending on the OEM's requirements, there will be some oscillations, but otherwise, we have not seen any major seasonality as such because the EV offtake sometime, depending on what happens to the same subsidies and sometimes depending on the supply chain challenges, there will be some oscillation, but otherwise there is no seasonal factor as such because I am sure it is still early days as far as EVs are concerned. I do not think there is a seasonality in the revenue as such. Sir, I was referring to slide 18, so it was INR 148 crores revenue in Q3, other business revenues, and it is INR 116 crores in Q4. You are looking at quarter-on-quarter numbers? Yes. Q3 is INR 148 crores and Q4 is INR 116 crores, other business revenues. Yes, these are you know the Power Systems acquisition was also completed during the second half of the year. Naturally their revenues are also accruing to us on a consolidated basis, and Power Systems had a bit of a higher revenue in Q4 considering their industrial charger business. Otherwise, there is no major oscillation between one quarter and another. Okay. Understood. Sir, lastly, just wanted to understand, you talked about the fact that we are looking at a partnership as well. If you could help us understand the conversations that we are having right now for this business with the customers. What kind of need do you see to have a partner in this business and what will be the things that you would look for in the partnership, basically? Kapil, if I understand your question, you are asking about what are our expectations from a partner? Yes, sir. That is correct. Also, when you are having conversations with the customer for the battery cell, do you see that those conversations would meaningfully improve, or the conversion rates could improve quite a bit if you have a partner? Thanks for the question, Kapil. I think first I will start with the first part of your question, which is what we look for in a partner. I think we definitely find that a comprehensive partnership to access the more complex parts of the market, like high voltage battery packs for electric mobility, is a must. We believe that there are companies out there who have been doing this for a very long time who enjoy great customer credibility across OEMs, the same way we do right now in the lead-acid market. So what we look for is definitely a partner that not only has technology that is relevant today, but enough R&D and pipeline of products that are taking us through at least the next 5 to 8 years in terms of technology changes, even within the same lithium chemistry, if not further chemistry. In addition, supply chain is something that is quite critical. While India can probably absorb technology and build factories and infrastructure at a pretty fast pace to keep par with China, we do not enjoy the type of raw material ecosystem that other parts of the world have built out over the last 10, 12 years. So a partner that can help us to take advantage of, possibly, in lack of a better term, piggyback onto existing supply chains that they enjoy at competitive rates for global purchasing. Lastly, of course, we would look at a partner to help us with the manufacturing know-how, factory design, just help us get off on the right foot and having some customer credibility that we can easily go. That brings us to your point. I think customers would definitely rather see that Amara Raja has partnered with somebody that is already supplying into automotive sector. I think on the EV side, especially on the passenger vehicles, that is where a partnership in terms of credibility becomes the most important. It is not that it does not help in other areas, but areas like stationary, light electric, like two-wheeler, we believe that we are able to, on our own credibility, have a little bit more success without a partner adding to it. Sure. Just one follow-up on that. Thank you so much. Coming back in the queue for the follow-up questions. Definitely. Thank you so much. Okay. Participants are requested to limit their questions as two per participant. The next question is from the line of Jinesh Gandhi from Ambit Capital. Please go ahead. Hi. My question is a follow-up on the previous question. We already have a partner and the technology on which we are developing the cells, right? We are looking partnership beyond that? Thanks, Jinesh. This is for the 2170 project that I mentioned. This is a joint development, something that large level of in-house efforts. I wouldn't really call that as much the partnership in the natural sense. We are looking for a more encompassing partnership for a larger portfolio of cells in, across chemistries that can help us to cater to larger part of the market. Okay. Also, can you update for the cell manufacturing capacity where we are now? You indicated it will be starting from second of April 2026, but I believe our last sort of investment is yet to happen in that. If you can talk about how much we'll be investing in FY 2025 for that and for FY 2026 for cell manufacturing and overall CapEx for FY 2025. See, the overall cell manufacturing roadmap, I think as Vikram has mentioned, the first gigafactory, which is what we have said in the earlier calls as well, we'll be looking at commencing it sometime in FY 2026. It is also possible that we may coincide that with additional capacity for other chemistries also. But since those plans are still on the drawing board, I'm not able to give you a clear timeline as to when will the next capacity for the gigafactory will also be started. Because what we are starting in the next year is about NMC. Obviously, we need to look at the LFP chemistry, which is also relevant for the Indian market. As far as the CapEx spent on this is concerned, as we have mentioned initially, at least for the customer qualification plant for which construction is almost 40% complete, then we have ordered the equipment as well. The pack facility has been completed and cell facilities, the construction has just started. For fiscal FY 2025, we may need to spend close to about INR 1,500 crores between both lead acid and the new energy. I think lead acid would need about INR 300-INR 400 crores of money to be spent, whereas new energy business will require about INR 1,000-INR 1,100 crores as CapEx spend for the FY 2025. It may be of the same order even for FY 2026. Okay, and split would be similar? Sorry. FY 2026 also split would be similar? Yes. Maybe a little less for lead acid, but I think we can go with the same split. Got it. Lastly, a clarification. In the notes to accounts, you mentioned about the insurance payments which you have received, INR 24 crores and scrap of INR 100 which you have for plants which had caught fire. Where is this accounted for and which quarter would it be reflecting in? Because I could not find it in the extraordinary items. Can you please confirm that? I think the way it is accounted is the fixed assets and the inventories that we lost due to fire are transferred to, the fixed assets will be transferred at their net book value. It will go and sit in a claims receivable account, and any claim that we are receiving from the insurance company will be going to offset that. Any claim or any scrap realization. For example, by selling the inventory in that plant, we could realize about close to INR 95 odd crores and other plant scrap, we were able to realize about another INR 10-15 crores. An insurance company has also settled the inventory claim and also they have given the first tranche of claim for the plant reinstatement. As of now, when you compare the book value, the claims receivable will be a small amount because all the claim realization that has been done so far will be offset against the claim receivable that is recognized in the books, which is basically the net book value. But the actual claim that needs to be collected will be on the basis of the reinstatement value. Naturally, as and when we complete the reinstatement, we will collect the demand. Okay. This doesn't go through the P&L directly, it's recognized in the balance sheet. Yeah, because when we have written off, it would have gone to the balance sheet as claims receivable. So any cash flow that is coming in will go to the balance sheet only. Once we get in excess of whatever we have to realize for the goods, then it will come as part of the P&L account. Got it. Great, thanks. A few more questions. I'll fall back in queue. Sure. Thank you. The next question is from the line of Raghu N.L. from Nuvama Research. Please go ahead. Thank you, sir, for the opportunity, and congrats on good numbers considering the higher trading share and turnover related to Mangal. Sir, firstly, I had question on lithium cell manufacturing facilities. As you said that customer qualification process is currently going on. Can you indicate for this facility how many customers you have, and would that be across auto and industrial segment? Also, that NMC 2170 cell, you indicated there is a partner who has been well respected in Southeast Asia, China, who is the partner? Also, the PLI scheme where you have applied, would this 2 gigawatt-hour be eligible or would it be the future capacities that can get eligibility? That was on the cell manufacturing side, sir. Yeah. As far as the first part of your question is concerned, Raghu, I said the customer qualification plant is under construction, but when it comes to understanding the product requirement of the OEMs, those discussions are anyway going on. It is not that I can name any OEMs in this call. That is the first one. The second one that you asked was on the Partner who was the partner on the 2170 cell. I do not think we will be in a position to name the partner, but as far as NMC cells are concerned, he is a reliable supplier based out of China, having presence in all these additional geographies. That is what as far as the partner is concerned. The third question you asked is about the PLI, whether this 2170 will fit in or not. From the energy grid, what has been given in the PLI, at 2170 level, I think it will fit into that, but when we get into higher energy densities, that is where it will easily fit into that grid as such. But I may have to come back to you whether the initial cell configuration itself will fall into the PLI grid or not. I am not remembering it immediately, but I will come back to you. But I am sure at an NMC level, the energy density grid will still be applicable. 90% it should fall in, but maybe I will check once with my technical team and come back. Thank you, sir. My second question was on Mangal. Can you share the EBITDA and PAT contribution in FY 2024 or Q4, whichever you have handy? The overall EBITDA percentage improvement on account of Mangal is about 0.8% in FY 2024. I do not have an immediate PAT number with me. The EBITDA has increased by about 0.8%, both in FY 2023 and FY 2024. As I said, that is without the tubular battery operations being there. Got it, sir. Thank you so much. I will fall back in the queue. Thank you. The next question is from the line of Aditya Jhawar from Investec. Please go ahead. Yeah. Hi. Thanks for the opportunity. The first question is on the lithium-ion cell. Are you seeing the companies are much more open, the global for tech tie-up? Are we looking at equity participation which can also help in funding or we are exploring only purely a tech tie-up? That is the first question. I think, if you look at the global scenario, India is definitely an exciting market because we have a burgeoning sector in the EV sector and already a huge stationary footprint. But as far as India as an investment destination, it is currently getting a little bit overshadowed by countries like the U.S., where huge government incentives like the IRA and there is several countries in the European Union that are giving pretty attractive packages for people to come in and invest. Secondly, for some of the players, especially the ones in China, investment route into India seems to be highly restricted at the moment, and we are not sure if that likelihood is about to change anytime soon. So as for any sort of JV equity participation from China specifically, maybe that is not the right way to look at the moment. Other players are obviously there from Korea, Japan. Looks like their efforts are more focused today towards the U.S. and IRA. As for Amara Raja, we are open to different modes of participation, and that is how we have been fostering to our prospective partners. But a technology partnership, the technology licensing arrangement is the most likely scenario for the time being. That is quite helpful. The next question is there any update on ACC PLI? Why I am asking so, because, Vikram, you made a comment that tech partner would also help in laying out the manufacturing process and further help building up manufacturing. But the ACC PLI, one of the requirement is commissioning of the manufacturing facility with certain timelines. So any update, where are we on ACC PLI and what are the timelines that is mandated for commissioning of cell manufacturing facility? We have submitted the bid. I mean, the tender. I think they are yet to open the bids as such on the PLI scheme. The latest we heard from them is, maybe because of the elections and all, it may take another month or so for them to open the bid, and then it will take some time by the time the full award is given. But going by whatever we have quoted for the PLI, we are confident of meeting those manufacturing timelines, because we are not only, as Vikram said, a partner. Equipment vendors as of now. We are already working with other equipment vendors, and as we mentioned in the earlier calls, even on the cell development side, we are working with other people. In that sense, whatever we have quoted for PLI, I do not think there is a big risk attached to it considering the terms and conditions, what are there in the PLI scheme. Okay. That is good to hear. All the best, sir. Thank you. Thank you. The next question is from the line of Rishabh Gang from Sacheti Family Office. Please go ahead. Thank you, sir. I wanted to ask, on the lithium-ion side, since we are looking for this technology partnership now, would our guided return on equity from the lithium-ion business actually improve going forward? And any timeline on such partnership coming in? Also, wanted to ask, the plant that we are actually building, is the plant fungible to other technologies as well, like metal air, sodium-based, or even different lithium-based compounds? I will answer the second part actually. Yeah. As far as the ROCE discussion is concerned, I think we had a similar discussion even in the earlier call. I have explained earlier, we are seeing with the current version of machineries that are being used and the CapEx estimates what we are seeing, and the cell prices, what are prevailing today, still we are confident the EBITDA margins in the range of 10%-11% are still possible to be achieved. But considering the way cell prices have come down, we have also seen some reduction in the overall CapEx numbers, what we need in the initial construction of the factories. But the ROCEs can be estimated only when we look at overall size and scale of around 8-10 gigawatt-hour. Until that time, I think the business will continue to need augmentation of capital and there will be some cash burn that will be required. But eventually, when we look at other cell makers in other geographies, what we are looking at, if I were to make an estimate, obviously I cannot certainly say this because there are many variables that are at play. But when we look at other players and considering an asset turnover ratio in the range of 1.3 to 1.4 and the kind of margins what I have alluded to, we may still see return of equity around 12%-13% or maybe 15% once we reach a scale of 10 to 11 gigawatt-hour. Maybe eventually when it becomes a mature business, I am sure the return of equity can be further improved to mid to double digits. That is how I see it today. But considering the opportunity size, I think these numbers can change significantly when we gain scale. Coming to the second part of your question about fungibility of the lines across chemistry. Very technically speaking, we can change over lines and do deep cleaning and change the line to operate from one chemistry to another. But we feel that is highly non-productive and that is not how we will be designing for our plants. Any time you change from one chemistry to another, this should ideally be a one-time changeover. More or less a permanent change. But it is not that on subsequent running shifts very quickly you can be shifting from one chemistry to another. It requires quite a bit of time for cleanup changeover, and that is not something we are planning to do. All right. My second question is regarding the lead-acid batteries, right? Wanted to understand what is our total annual lead consumption, and in that, how much is the recycled lead requirement of Amara Raja, right, in FY 2024? How could it look in FY 2025? I would appreciate if it can be in the terms of metric tons. Yes, sir. We consume roughly about 3 lakh tons of lead per annum, and almost 70%-75% of that will come from recycled sources. Going forward, that number will go as high as 85%-90% as well, because we have plans to increase the recycled lead portion with the commencement of our own recycling plant that is coming up. I would request Harsha if he has any further thoughts on this. Yes. Securing our supply chain and also improving our sustainability factors have led to the commencement of this recycling unit, which will ultimately do 150,000 tons per annum. Once it is instated, it will cover about 40% of our requirement, and we will continue to source recycled lead from our existing vendors. With the addition of our own unit, we will be able to do this in a much more efficient way with better recovery targets. And ultimately, the lead-acid battery being the most recycled product in the world, you will have about a 99% efficiency in converting old product into new product. All right. Would you also plan to build more recycling capacity? Because from what I understand, the payback period for the recycling plants are very high. It is less than three years kind of stuff. So, do you also plan to build more capacity? And, what do you think about the supply chain for procuring the scrap for the recycling unit? Do you have such capabilities at the moment, or you are building it across? The first part of your question, we do not have any further plans on building new recycling units. I am sure we will be able to enhance the capacity of the ones we have coming up. In fact, it is coming up in phases, but with an ultimate capacity of that 150,000 I had shared. We have a robust system of vendors and other recycling partners and scrap is already existing in the country that we have been working with for 20 years now. So we will be able to leverage them for the same. In terms of collecting scrap, we have a very robust mechanism within our channel for collecting scrap back as we are selling new batteries. We have access to different stocking points of scrap as well. And once our recycling unit is up, we will have the option to also import scrap. Collecting scrap is not a challenge for us, and we have many ways of doing that. Okay. Just last question on this. What is your EBITDA per ton for the lead actually recycled? Any idea on that? Because I understand one of your vendors makes INR 18,000 per ton. So any idea on how much you would be able to make? See, I think, looking at lead-acid, where the recycling ventures as on a standalone basis may not be the right approach because the way we are building this facility is not only to recycle the lead, it is also to recycle the plastics. We will be using those plastics again in the battery covers manufacturing. So even if you align with the LME prices, the way that we are currently buying the lead, and if you are able to source, like Harsha mentioned, source scrap from some geographies which are far more cheaper, I am sure EBITDA margins can be definitely improved. And with the technology that we are coming up with, we believe it will add to the recovery percentages what currently our vendors are having. So in that sense, it is definitely EBITDA accretive when we look at it on an overall consolidated basis. Also it is an important sustainability initiative for us because eventually when we bring more and more lead through the organized channels back, naturally the lead that will be used in an unorganized market will start coming down and thereby you will have more organized play emerging and the lead being handled in a more responsible way. So it is a mix of helping our own improvement in the market share, and doing the things in a more sustainable way and also ensuring the security for the supply chain. So there are multiple objects surrounding the recycling venture rather than simply looking at it as only a financial returns approach. All right. If not EBITDA per ton, how much incremental gross margins or EBITDA margins can come because of this? Our estimate is we should be able to bring at least about 2%-3% incremental advantage on the material cost on an overall level. At the EBITDA level, that should give us at least 0.5%-0.7% kind of an improvement. All right. Thank you so much. I will come in with a follow-up. Thank you so much, sir. Thank you. The next question is from the line of Abhishek Jain from Alfaccurate Advisors Private Limited. Please go ahead. Good afternoon, sir. Thanks for the opportunity, sir. In lithium and batteries, you had mentioned that the CapEx would be around INR 24 billion for the next two years. Just wanted to understand, is it for the 2.5 gigawatt or it is for the 4 gigawatt initial phase? As I mentioned, it will be for three projects. One is the 2 gigawatt-hour pack line, the customer qualification plant and the pack facility and also some of the initial building construction that we will do for the second gigafactory. It will be these three projects plus some bit of building construction that may have to be completed for the second gigafactory as well. Okay. When it will be commissioned, the first phase of 2 to 2.5 gigawatt? As Vikram mentioned, the cell line is concerned, it will be towards the end of FY 2026. Okay. Sir, you have also forayed into the lubes business and you are quite aggressive in that business from last few quarters. If you can throw some color on this, what kind of the revenue are targeting? What would be the margin in that business? Sure. I will take that up. Yes, we have been quite aggressive over the last two quarters, specifically in diversifying the automotive aftermarket, and we have entered into lubricants. Our target for the year, last quarter we finished around INR 25 crores. Target for the year will be in excess of INR 150 crores. Sorry, sir, how much? In excess of INR 150 crores. In FY 2025? Yes. What would be the margin, EBITDA margin? The margin could be in the same lines of what our existing business is because it is still at a nascent stage. It is definitely giving us same margins as what we are seeing in our regular business. My last question on the Mangal Industries. Basically, we are expecting around 150-200 basis points of the improvement in the EBITDA margin, but we have seen only just 2.8% improvement in the margin because of this integration. So can we expect that going ahead, because of this integration, margin expansion would be around 150-200 basis points? No. As I mentioned earlier, 0.8% is the EBITDA margin. We said it will be in the range of 1%-1.2%. I don't think we said 2%, because it's only a 10% of the total material cost is what it is. Then because of the lack of tubular capacity, we've not manufacturing those batteries. That's where the input on the plastics venture has also come down. That is where it is a shade less than what we actually said. But I think once the tubular factory is coming back to full stream operations towards the end of this financial year, I'm sure we will be able to meet the financial targets, what we have set for the year. And any benefit of this in the top line? Can you come back in the queue for the follow-up question? Okay. I come on queue. The next question is from the line of Anirudh Shetty from Solidarity Investment Managers. Please go ahead. Hi. Thank you for the opportunity. I had two questions more around just the overall industry per se. My first question pertains to the new energy vertical. What I have been reading is that companies in China like BYD and CATL are talking about further 50% reduction in battery cell prices for this year. Through a combination of just dumping and government support, scale, automation, they are able to kind of keep prices very low. Over time, do you see challenges in being able to localize the lithium-ion market in India because of the challenges that could come from China pricing the products very aggressively? How important do you think support from the government in various forms, whether it is potential anti-dumping duties, how much of that is actually required for the localization to play out in lithium-ion? Yeah, definitely. We believe that the pricing pressures that are coming from China, it is going to provide challenge for India. Actually, I would say, if you flip the question, it is going to provide more challenge to other Chinese players. What we understand, talking to our prospective partners, today there is more than 200 lithium players in China, and there is an active effort to reduce that amount, consolidate that market too by at least 50, because there is a very large amount of underutilization of capacity, stagnant capacity sitting in China today. After that, I think inevitably there is only so much that prices can drop. We also have to look at the material prices are not dropping as quickly as the cell prices are dropping. So how sustainable and how long can they continue to do that? When it comes to India, I think adding a partner that can help us to absorb some of these rapid changes in price by having a very robust supply chain and helping us, see your questions. If anything, there is a couple parts to your question, please let me know. I can answer that as well. Yeah. A slightly different question, but more on the stationary storage side. We are seeing capacities being added, but the battery storage still remains under-penetrated. So, what are the constraints that are there today and, what would need to happen for the battery storage to pick up in India? Also your thoughts on just the rooftop solar opportunity. Do you think that could be a sizable market for us over time? Yeah. Thanks for the question. I think when it comes to storage, today probably in terms of capacity, the pumped hydro, non-chemical storage, non-battery is coming as the bigger option. But pumped hydro has its challenges. It requires very huge project financing, lead time, and it's limited. Obviously, you need to have those formations geographically appearing in order to be able to do that. Battery, I think it's a function of both price of battery as well as policy. In the country, we don't have uniform policy across all of our states in power. That leads to a lot of confusion and differences in how robust of an energy storage rollout we can have. That would help quite a bit, and price definitely needs to come down a little bit more for it to be more relevant and more applicable in a wider range of applications. In the solar part, I think the rooftop solar, of course we're watching pretty actively given the PM's recent announcement. But I think the same thing happens there. From state to state, we have wildly different policies, and to be able to really roll out in a nationwide way, a larger rooftop solar thing, I think there's always some limitations on that. So larger roofs, industrial roofs have seen that benefit. But how to penetrate further in the home market in a larger way, we'd like to see personally more policy consistency across all states. Got it. On the battery storage front- Can you come back in the queue for a follow-up question? Yeah, sure. Okay. Thank you. The next question is from the line of Himangi Tiwari, an individual investor. Please go ahead. Okay, sir. Thank you for the opportunity, sir. What are your thoughts on domestic supply of lithium in the context of discovery of lithium reserves in Jammu and Kashmir and any other part across the country? When do you think that the mining and extraction of such resources would be commercially feasible? To what extent such mining in India can improve the competitiveness of Indian-made batteries with the Chinese imported from China? Thanks for the question. As per the findings within India for the lithium deposit, that is not something that is factoring into our next five to 10 years plan. I think because it requires a lot more than the mining once everything is coming out. Refining capacity, various parts of the value chain have to be located in India for it to be very beneficial for the near term. To be honest, I am not very sure on the timelines and the process it takes to actually get that commercial mine up and running over there, but it is not part of our immediate plan. Eventually, down the line, if truly there is significant deposits coming in and we can attract investments into more of the downstream, which requires us to refine the lithium and then formulate cathode here in India, definitely that can be a huge advantage. But I believe that it is going to take more than the next five years of our planning. Right. Thank you. I had another question. For the export segment, what is the use case and benefit of importing a battery from India versus producing the battery in their own country, for example, for the developed nations? Which other countries are at present exporting, let us say, batteries to developed nations? Are any Indian players doing this? Akshay, you got the question? I'm sorry, can you repeat that once? Yeah. What is the case and benefit of importing a battery from India for the customers, for our customers, export countries? What are the benefit for them for exporting from India versus producing in their own country, like some developed nations? Which other countries are presenting exporting, let us say, batteries to developed nations? Any margin profile difference for export business versus domestic business for Amara Raja? Okay. Thank you. I understand the question. I think first, it really depends on the type of customer and the geography. If you look at some of our stronger areas like Southeast Asia and Middle East, we've been in the market for almost two decades now because we have a superior product performance and quality, which was not characteristic of some of the Asian suppliers. For example, outside of Korea and China, now in Vietnam also. We have that performance and quality benefit, and similarly into the Middle East. Now, of course, when we're looking at markets like Europe and North America, our benefit is the fact that we're able to give the same, in some cases, slightly better quality also for a more competitive price. People that are either trying to get a certain amount outsourced for that benefit or they're trying to replace China, we've been a very viable supplier in that sense. Thank you. Between domestic and exports, like I said, the Middle East and Southeast Asia, we've been able to offer similar products as we have in India at sometimes better realizations as well. The ultimate benefit we have as an organization is that when we're going to markets like North America, we're able to actually sell much more premium products than we do domestically. That would be the differences. Okay. Thank you. How much, can you tell the size difference between our price and any other prices from U.S. or China? I think at that level, I don't have the information. All right. Thank you. Thanks. Thank you. The next question is from the line of Samil Surendran from Argus Media. Please go ahead. Hi. Thank you for the opportunity. My question is on the pack facility. What is the initial capacity that is going to go commercial next month? The facility is being built for an eventual capacity of 2 gigawatt-hour, but the first line will be, which can be further expanded to 5 gigawatt-hour. But right now, we will be starting with a 1 gigawatt-hour line in addition to our half a gigawatt-hour facility, what we are having in Tirupati. So together between both these facilities, we will be having about 1.5 gigawatt-hour as capacity. Okay. And sir, in the phase one for the cell capacity, what chemistry are we currently looking at? It will be both. The first factory will be with NMC and thereafter, we will be starting with the LFP chemistry as well. It is LFP? Yeah. NMC and LFP are the two relevant chemistries for the market, and we will be starting with the NMC, which is more catering to the two-wheeler application, and thereafter we will be moving to the LFP chemistry as well. Okay, sir. That is all from my side, sir. Thanks again. Thank you. The next question is from the line of Raghu Nandan from Nuvama Research. Please go ahead. Thank you, sir, for the opportunity again. Sir, on the lead-acid side, lead prices have seen about a 10% increase if I see the current price versus the last quarter. So any pricing actions you are contemplating to offset the commodity cost increase? Given lead prices have the tendency to make these moves occasionally, we do not make very dynamic pricing changes. We see that when the price consolidates, we do make that change in the market. We also know that we are not quick to react as prices fall. So we try to maintain that unless there is some very adverse move on the lead prices. Got it. So no pricing action in April, May taken? In the replacement market. No. Secondly, just a clarification on the lubes business, that will reflect in the standalone business, right? Yes. That is right. Yeah. On the lead-acid industrial, within lead-acid industrial, can you share how some of the segments like telecom, UPS have done for the quarter and the year? They are not very dissimilar between one another. I think more or less, every segment is doing within a range of 1% or 2% here and there. Nothing specific to add for that. Got it, sir. Thanks, sir. That's all from my side. Thank you. The next question is from the line of Jinesh Gandhi from Ambit Capital. Please go ahead. Yeah. Hi. A couple of questions. One is, can you talk about the price increases you have taken in FY 2024 as a full year on the replacement market side? Are we seeing enough of pricing power in the market now, in the replacement market? Yeah. As Satya was mentioning, Jinesh, we did, I think one or two price increases during FY 2024. I don't exactly remember the numbers. We did. But as of now, I don't think there is any serious challenge if the lead costs were to consistently be at a higher level, we will still be able to take some price action. But that has to be taken based on the competition and various other factors. But I don't think there is any erosion in the aftermarket segment for us to not to take a price increase in spite of a severe cost escalation. Got it. Secondly, on the cell manufacturing plant. We indicated that there is also a joint development of the cell being undertaken right now. Based on that, by when do we expect to see commercial phase of cell to happen? Because once our cell is developed, we'll have to get it validated from our customers. Do you think we should be able to see some bit of commercial revenues from FY 2027 itself, or it should be a bit longer than that? Yeah, we should see some revenue in FY 2027, yes. In FY 2027. Got it. Lastly, one clarification. You mentioned our own recycling plant will contribute 20% of our lead requirement. Is that correct? It should go to close to that. Once we have the full capacity, it should go even up to 35% or so. By the time, obviously, our lead requirement also will increase from the current level of 3 lakh tons, let's say, if it goes. The recycling facility eventual capacity is about 150,000. It will oscillate anywhere between 30%-35% of own capacity. Got it. Great. Thanks, and all the best. Thank you. The next question is from the line of Vaibhav Juthshi from JP Morgan. Please go ahead. Yes. Thanks for the opportunity. Just a housekeeping question on the CapEx. I think in previous call you mentioned that the 2 gigawatt-hour cell capacity would need around INR 1,500 crores of CapEx. Is that number still in that ballpark? Yes, Vaibhav. Okay. Thanks. That's helpful. Just as I look at your longer term plan to go up to 16 gigawatt-hour and INR 9,500 crores of CapEx, I just wanted to know how you're thinking about funding this. Because you mentioned that the JV route or equity investment may not be possible, with China right now. Obviously, while generating healthy free cash flows, the amount of CapEx is quite significant. So any fundraising plan, any debt that will be taken? Yes, Vaibhav, as mentioned in the earlier calls also, I think the initial CapEx of between this year and part of next year, I am sure we'll be able to take that burden on the holding company balance sheet, considering the free cash generation, what we are having. Once we have the initial capacities up and running, I'm sure we can explore other possibilities of funding that growth either through a debt plan or an equity plan at that time. So a comprehensive financing plan for this, considering various factors available, is being drawn upon. So we have some plans for looking at mobilizing finance at least for the next couple of years through the holding company, and then thereafter that business has to find its ways of funding its growth. Got it. Just one last question. The tech partnership that you mentioned, so is it fair to say that this is primarily for the supply chain linkages, and the licensing agreement? No, I think, see, when we look at cell, as Vikram has explained, it will be a partnership looking at the cell product technology for certain higher cells which we need for four-wheeler and other applications, and also part of that will be our ability to access the supply chain relationships that our partner may have. which will first meet the cost requirements. Okay, got it. Just one last question. You are already in discussions with OEMs including two-wheelers, four-wheelers, and telecom players for these cell supplies. Is that correct? Yes. There are multiple discussions happening. with various customers who will be needing packs. As such, when they need packs, it is obvious that they also will be requiring cells. So there are various technical and commercial discussions that do happen with many OEMs and other energy storage customers. Got it. Thanks a lot. That is very helpful. I will come back in the queue. Thank you. The next question is from the line of Rishabh Gang from Sacheti Family Office. Please go ahead. Thank you, sir. Sir, wanted to know what is your view, like 5 or 10 years, of the lead-acid battery business? Actually, I was reading some report, it mentioned about a terminal growth rate of minus 10%. So how do you actually see the segments of automotive, industrial, and export evolving over 5 or 10 years? Any view on the terminal growth rate that you think about this business for 10 years? If I can address this by application. On the automotive side, definitely we know that the decarbonization of transport has been a huge priority, driving a lot of investment and build-up of technology on the EV side. That being said, the applications of lead-acid battery in both start-stop and hybrid vehicles, and ultimately as an auxiliary battery in electric vehicles, gives it quite a runway, and I'd be conservative to say 10 years of that runway, where we would see different levels of growth throughout the road. But what we've seen in India, from high to low double digits would slow into maybe a mid to high single digit. And in Western economies, we're seeing that it's a low single digit. We don't feel there's a degrowth happening soon, but definitely a plateauing. The jury's still out on how long lead-acid battery will be used as auxiliary battery. But it stands to show that at the moment, all EVs are coming with a 12-volt lead-acid auxiliary battery. That's largely on the four-wheeler. In two-wheeler, we know that the electrification is happening much quicker. We're approaching with cautious optimism in this regard. We're seeing record numbers in our aftermarket growth, and we've seen good growth in OE. But we are also calibrating our CapEx. We are squeezing out more and we're sweating our assets to make sure that we're not losing any opportunity. But the runway is definitely shorter there. On the industrial side, we're seeing disruption in telecom, especially with the prices of the lithium cell and pack becoming much more competitive in terms of TCO over this last year. In the industrial UPS segment, lead acid is still having quite the runway because there's no form factor limitation there. For data center, lithium is taking a larger share. And we know that that runway would be limited. We have a specific small VRLA format of battery that is showing at least a 10 to 15 year of runway, given the performance requirements in certain applications like elevators, short backup home UPS. These are all having longer runways. So we're quite cognizant of these changes. I know I spit out quite a few applications here. We're tracking them at an individual level, and we're taking calls appropriately. At what point, of course, at what efficiency level, will lithium-ion battery make lead-acid battery redundant for industrial application? Also, would like to know what is the use case and benefit of lithium-ion against the lead-acid battery for industrial use. Thank you. For industrial use, if I look at performance characteristics, lithium is much more competitive when form factor is a limitation, when increased cycle life is a requirement, and of course, when it is a power application, especially like data center where the battery would be discharged in a very rare occurrence, but it would have to run that entire data center until the diesel generator or alternate energy source comes online. These are all certain areas where lead-acid battery is not especially competitive. That being said, there are various programs that we are running, and also in the industry at large, where characteristics like dynamic charge acceptance, compression of the form factor, all these things are being pursued. There is a middle ground between how a lead-acid battery is performing now and what we see from lithium that could potentially be covered and extend the runway. Also, one analyst actually asked about export business. We wanted to understand what is the margin profile difference for export business versus domestic business of Amara Raja? We do not discuss the margin splits at the sub-segment level in these calls. No, that is fine, sir. But can you give some direction on that? No, they are all in a reasonable range. All right. Just one question on the EV side. I understand the auxiliary battery is for all functions other than the propulsion of vehicle. Since EV have a lot of electronics inside it, could that lead to a bigger lead-acid battery for supporting the entertainment system and other functions? In a 12-volt electrical system, the lead-acid battery, that is an AGM battery, which is able to support the increased usage of electronics. It is able to operate at a partial state of charge, and it has been sufficient till now. We believe that over time, as vehicles move to a 48-volt system, that is when other chemistries may be coming in or even a different technology on the lead-acid, like bipolar, would have some visibility. That is speculation at the moment, and we are carefully monitoring the industry trends in this regard. All right. Just one last question, sir. In the past, we have merged the promoter companies which were doing a task in the value chain of the business in which our listed entity is also engaged in. Do we still have any other promoter company which is doing any business related to batteries or energy? If yes, do we also plan to merge it in future as well? Okay. Mostly everything that is selling any significant quantities into the listed entity now has been either merged or acquired by the listed entity. Possibly, we have a construction company that continues to provide services. We have no plans to merge that as the bulk of the cells for that company comes from outside. As well, we have an electronics manufacturing company that provides home UPS systems that goes into our Amaron, Powerzone various brands and channels. But that is also not seen as its core. It is more to provide general and manufacturing for the industry. We do not have any further plans at this time to merge any further entities of the group into Amara Raja Energy & Mobility. Okay. So no major other business, right? Okay. Thank you so much, sir. Really appreciate it. Thank you. Thank you. That was the last question. I now hand the conference over to the management for closing comments. Yeah. Nothing further to add, I think. Thanks, everyone, for your time, and thanks for the questions that you have raised. See you soon. Thank you. Thank you. On behalf of Elara Securities Private Limited, this concludes this conference. Thank you for joining us, and you may now disconnect your lines.