Ladies and gentlemen, a very good afternoon and welcome to the Q2 FY '25 earnings conference call of Exide Industries 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 your operator by pressing *, then 0 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aditya Jhawar from Investec Capital. Thank you, and over to you, sir.
Yeah, thank you. Good afternoon to you all. From Exide Industries, we have with us MD and CEO Mr. Avik Roy, Director of Finance and CFO Mr. Asish Kumar Mukherjee, President and Company Secretary Mr. Jitendra Kumar, MD and CEO of Exide Energy, Mr. Mandar Deo, and Head of Investor Relations, Ms. Chhavi Agarwal. Before we proceed, there's a disclaimer for the call. Few statements by the company management in the call may be forward-looking in nature, and we request you to refer to the disclaimer in the earnings presentation for further details. We will start the call with a brief opening remark from the management, followed by a Q&A session. I would now like to hand over the call to Mr. Avik Roy for opening remarks. Thank you, and over to you, sir.
Thank you, Aditya. Good afternoon, ladies and gentlemen, and a warm welcome to you all to the Exide earnings call. In the beginning, I will talk about the industry dynamics, and later we'll take you through our operational and financial highlights for the quarter as well as half-year. In terms of the industry demand scenario for the businesses that we operate in, it was actually a mixed bag. While the automotive replacement demand was strong for both four-wheeler and two-wheeler, the demand from auto OEMs was quite modest in quarter two.
On the Reserve Power segment, both industrial UPS and solar trade markets are seeing a steady increase in business. Home UPS market was soft because of early arrival of rains in many parts of the country and overall heavy rains during the quarter. Private and public sector CapEx continues to keep order booking healthy in industrial infrastructure sectors such as power, railways, traction, etc. However, as you know, the Telecom sector has seen tepid demand due to a very high base effect because last year they had rolled out all those 5G towers, which did not happen, and that rollout is almost complete this year, and also, there is a shift of technology from lead-acid batteries to lithium-ion batteries.
Export demand was robust, both in existing as well as new countries. Given this industry landscape during the quarter, nearly two-thirds of the business, nearly two-thirds of the business, including automotive aftermarket, industrial UPS, solar, and industrial infrastructure, they have all grown by strong double-digit numbers. However, the remaining one-third of the business, which comprises of home UPS, automotive OEMs, and Telecom, they have seen a decline, a sharp decline for the reasons I have stated before. As a result, the overall sales have grown at a modest rate of 4% in quarter two and 5% in H1.
If we look at margins, gross profit margin in the current quarter increased both on year-on-year as well as on quarter-on-quarter basis, driven by favorable product mix. As you saw, the OEM businesses and Telecom businesses, which are low-margin businesses, were going down, and therefore the replacement share was going up. That has resulted in an improvement of gross margin, as well as there was a movement in the material lead prices also in quarter two or quarter one. EBITDA was 11.3% during the quarter versus 11.8% in the same period last year, largely due to the lower absorption of fixed overheads because our top-line growth in many of the segments was very low.
However, for the first half year, we delivered a steady performance with a margin of 11.4% compared to 11.2% in the previous year for the same time period. At Exide, we have recently undertaken an organization realignment with a focus on strengthening and consolidating the go-to-market strategy in both B2C and B2B markets. I'm happy to inform you this resulted in some top leadership hiring who are being onboarded now. Some announcements we have already made, and some more announcements we'll make shortly. This high-quality leadership talent will drive the growth agenda in the next years.
Moving on to the lithium-ion cell manufacturing project, which is under our subsidiary, Exide Energy Solutions Limited. The construction works, including the main cell building, admin building, warehouse, and other support buildings, are closer to completion. Equipment placement and installation work is ongoing at the site. We have also started relocation of the teams to site offices to support project activities. In the current fiscal year, Exide has already invested equity of INR 550 crores until October. With this, the total equity investment by Exide to date is.
I'm sorry to interrupt, sir. Your voice is breaking.
So since when is it breaking?
Last couple of seconds, sir?
Again, it's breaking, sir.
Yeah, just give me a second.
Yeah, sir.
So I'll repeat once again. Is it better now?
Oh, yeah, sir. Go ahead.
Thank you. So let me repeat the last sentence. Equipment placement and installation work in our lithium-ion factory is ongoing at Exide. We have also started relocation of teams to site offices to support project activities. In the current fiscal year, Exide has invested INR 550 crore as equity until October. With this, the total equity investment by Exide to date is INR 2,852 crores. Going forward, the outlook for the lead-acid business remains positive in the near to medium term.
We are a diversified player catering to multiple sectors, both in automotive, aftermarket, and automotive OEM, as well as industrial infrastructure, Telecom, railways, as well as exports. This gives us a lot of resilience across sectors, and we can also capitalize on the large opportunities that these sectors deliver. With this, I close my opening remarks. I'll be happy now to take your questions, please. Over to you.
Okay. Thank you very much. We will now begin the Q&A session. Anyone who wishes to ask a question may press * and 1 on the touch-tone telephone. If you wish to remove yourself from question queue, you may press * and 2. Participants are requested to use handsets while answering a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. First question is from the line of Vibhav Zutshi from JP Morgan. Please go ahead.
Yes, good afternoon. Thanks for the opportunity. Just my first question is on the core business. Given that you've seen some moderation in the first half, and there are a few segments which are muted volumes, how should we think about the second half? I mean, you talked about outlook is positive near to medium term, but given that the base of last year is also high, can we expect to go back to double-digit growth, or could it be a bit lumpy, at least in the near term? And if you could give a broad-level outlook for individual segments, that would be really helpful.
So thank you, Vibhav, for your question. Let me give you a little more color on our segment-level growth. That will actually give you some details of our performance. See, in the first half year, our strongest growth segments have been automotive aftermarket, particularly four-wheeler aftermarket, and the same in quarter two as well. Solar was very good. It was very strong, almost close to 25%-30% growth. Industrial UPS trade was almost 14%, close to 14%-15% growth. The infrastructure space, other than Telecom, was also double-digit. Exports was also double-digit.
So that's why I said almost two-thirds of our business, around two-thirds of our business, they grew by about 14%-15%. The balance one-third, which comes from basically Telecom, inverter battery, as well as auto OEM, that was on the decline. Now, there was a reason for each one of them, which is different from each other. Auto OEM, you have read, you must have read it's in public domain because of the increased channel inventories. There was a cutdown of production by almost all OEMs in quarter two. The channel inventories went up to 70-75 days.
But the plus side is, positive side is, in October, during the festive month, there was extremely good auto sales, both four-wheeler and two-wheeler, one of the best festival seasons they have reported, which means the inventory levels have come down to 30-35 days, which is normal for the industry, and the association body, they have also predicted that on a full year, the automotive industry will grow by about 5%. Now, just consider that the first half was zero, and if the full year is 5%, obviously the H2 growth will be far stronger than the first half. So the declining segment of auto OEM is bound to come back in the second half because the industry will also pick up.
Now, coming to Telecom, I mentioned that Telecom had a high base effect because of the 5G rollout last year, right? Slowly, that base is getting corrected. Slowly, the base is getting corrected, and more or less by 5G rollout was over by last year's Q3. So going forward, the base is corrected, and we don't see this kind of a decline year-on-year on Telecom. On top of that, we have also started supplying our lithium-ion battery banks to the Telecom tower operators, though it is done through Exide Energy. But we also have quite a substantial market share on the lithium-ion side also.
So even if there is a shift of technology from lead to lithium, we will still encash the opportunity through our subsidiary. Now, coming to inverter. Inverter, you know, yes, there was an early onset of monsoon in Q2. We suffered, but we have a very strong strategy in place. Now, we are additionally augmenting our go-to-market and finding out new channel networks. Quarter three will be not so positive because this is not the season for inverter batteries. But from Q4 onwards, from January onwards, we again see a rebound, and with our enhanced network presence, we'll be able to encash on the opportunities.
So in short, the businesses which declined in the first half year are going to rebound. That is our expectation in the rest of the year. In the other businesses where we are already growing double-digit, we are very strong, and we don't see any kind of demand going down in the next half, particularly in the aftermarket and in the industrial infra. Just one additional comment on the industrial infra. If you look at the macros of quarter two, it has been extremely kind of the lagging indicators are a bit disappointing.
Most of the economic indicators of quarter two were not good, but we still posted a double-digit growth because of our order backlog. Going forward, if you see, I just came across the October results. If I see the leading indicators of October, the Manufacturing Purchase Managers' Index, it's showing an increase to 57.5 or something. So I believe, again, the order inflow from infrastructure will increase with increased economic activity in the country. So that's in short to answer your question, Vibhav. Does it answer that?
Yeah. Thanks a lot for the detailed answer. Very, very helpful. Second question is on the lithium-ion business. So given that we are now a few months from completion of the plant, given that Exide Industries is the market that you have guided for, at least could you give some idea how many customers have been onboarded so far? Because from your commentary, it looks like you're now focusing on onboarding the larger customers as well. So I mean, I understand that you have the NDA, but at least some broad number and which segments are they?
Yeah, Vibhav, as I have also told in the past quarters that we will have some limitation in giving out too much of details from the customers because of, obviously, for the NDAs and all. But still, with that in mind, I will also hand over to Mandar Deo, who is the Managing Director and CEO for Exide Energy, who's also on the call to give you some insights. Mandar?
Yeah. Thank you, Avik. Thank you, Vibhav. Can you hear me okay?
Yeah, yeah. Thank you.
Okay. So like Avik said, we have a very significant portion of our customers covered through NDAs, if not all. Therefore, we cannot go into the details right now. However, those customers that have put in the public forum, you've already seen that, right? So those, for example, Hyundai, we can talk about, but others we cannot say right now. However, the only thing that I will add is that we are seeing a lot of traction now in terms of volume uptake. Okay, okay. That's great. And I'm assuming that the start of production will happen sometime around FY '25, and then it will take six to eight months for stabilization, and basically the major ramp-up will happen from FY '27.
Yes, Mandar. Some insights on the target date of completion?
Yeah, certainly. Happy to do that. So like we have repeatedly said in the past also, our schedule remains unchanged, where we have said that in the middle of 2025, we will have our installation commissioning as well as initial run-off completed. And then in the due course of certification and customer approvals, we should be seeing SOP in 2025. No change in our originally published schedule. Thank you.
Okay. Thank you so much. That's very helpful. All the best.
Thank you, Vibhav.
Thank you. The next question is from the line of Siddharth Bera from Nomura. Please go ahead.
Yeah. Thanks for the opportunity, sir. So my first question is on the battery pack business. So would it be possible to share any order book number for the battery pack business which you have right now?
For the lithium-ion, you mean, right?
Yes, yes, sir.
Again, I mean, I'll request Mandar to take this question.
Yeah. Thank you, Avik. So on the battery pack business, again, due to several NDAs, we are not in a position to mention numbers. However, all I can say is that given the recent demand, we have seen good utilization and, in fact, some capacity expansion because of the order book that we see. However, we are not able to say the numbers in the public domain yet.
Okay, sir. Got it. So the second question is on the lithium-ion cell business. Now, as we are very close to commissioning within the next few months, how do you think the pricing will be sort of done? Will it be on a cost-plus basis, or it will be more on a landed cost parity basis? So some thoughts there. How are we looking at pricing in the lithium-ion cell business?
Siddharth, our first objective is now to start the production and increase the utilization of the operations. We have committed capital. We have gone far ahead than many people in terms of progress of the project. The first one is we'll start the production, we'll increase the utilization of the factory, and everything else will fall in place. We are not theoretically trying to forecast something right now because our whole focus is now on starting the factory and developing the products, getting it homologated, getting the entire homologation process complete, and start delivering.
And of course, raw material prices are volatile. Lithium prices, how it will look like after six months or seven months or eight months, not anybody can tell you. This is also a function of, as you know, some kind of underutilization in China. People are dumping prices. So we do not know how sustained this will be. So therefore, we would refrain from a comment which is very, very for us, it is more of a hypothetical question because right now the whole focus is on absolutely with zero error starting the factory and increasing the utilization, stabilizing it, and then increasing the utilization. That remains our focus.
Okay, sir. Got it. So lastly, can you talk about the total investment which you will be doing in this lithium-ion cell plant for this year and next year? And the phase I of it was awarded, by when do you think we will be sort of operate the full capacity will come on stream?
So definitely we'll answer that. I'll request Mr. Mukherjee, our CFO, to take that question for you.
Yes, please. Thanks. So the phase I investment is, as we said earlier also, it will be around INR 5,000 crores.
That will be complete by next year, or you think it will take longer?
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We have connected the management line. Yes, sir. Go ahead.
Okay. So starting with the last question on the investment in the lithium-ion business, as I said, that phase I investment will be around INR 5,000 crores, and a large portion of that will be in this fiscal only. There may be some spillover to the first quarter of the next financial year, but that's what looks at it now.
Got it, sir. Thanks a lot. I'll come back with you.
Thank you.
Thank you. The next question is from the line of Raghunandan from Nuvama Research. Please go ahead.
Thank you, sir, for the opportunity and festive greetings. Sir, firstly, on the lithium business, in terms of cell chemistry, how are you planning your mix of chemistry between LFP, NMC within the phase I of six GWh? And if you can talk a little bit about how easy or difficult it is to shift capacity from one chemistry to another, the fungibility part. And within lithium, given that you're investing 5,000 crore in phase I, another 2,000 crore in phase II, your thoughts of getting private equity or some funding for the lithium business, considering the large funding requirements?
So Raghu, for the first part regarding the cell chemistry and fungibility of capacity, I'll request Mandar to take the question. And regarding funding, I'll again come back to Mr. Mukherjee, our CFO, to respond. Is that okay?
Yes, sir. Thank you.
Over to Mandar.
Yeah. Thank you, Avik. So in terms of the chemistries that we have chosen, as we have earlier announced, after having a comprehensive analysis of the market for India, we have chosen LFP and NMC. There is no change in the plan, and we see that our approach of having a solid, experienced technology partner helping us with both the chemistries is actually resulting in a good confidence of delivering both the chemistries on time.
As far as the fungibility of the capacity is concerned, we would refrain from answering that in the public forum given it's two things. One is we are under NDA with several suppliers and technology partners. And two, there are different approaches industries can take around this. Therefore, we can't answer that in the public forum. But in terms of LFP and NMC, both the capacities will go online at the stated times earlier.
Thank you.
So regarding the funding, Mr. Mukherjee will give you.
Yes, Raghu, thanks for this question. So as I said earlier, the phase I investment will be expected to be around INR 5,000 crores, and we are quite confident enough of managing this investment. The large portion of that will come through the equity infusion. The balance, of course, we have to take some bridge loan because we cannot match the outflow immediately. And in due course of time, we are also quite confident to repay the bridge loan in future.
Got it, sir. Maybe at the future stage, once you reach the capacity has been at a more matured level with the higher utilization, would that be the time when you might think about monetizing or getting in some kind of investment partner or a strategic partner there?
As I said, Raghu, we are quite confident enough of managing this investment, and we do not anticipate any such equity partnership as of now.
Understood, sir. Very clear. Sir, on the lead-acid battery business exports, you've been seeing a strong growth. If you can elaborate a little on the drivers of growth, the segments, and the main regions where you are seeing a good traction.
So I'll take this question, Raghu. See, first of all, one of the major reasons why our exports are showing a very strong growth is because historically, our vehicular exports, automotive exports, were at a very low base. We never actually took it very seriously once upon a time. We were supplying, but it was not a part of our core strategy. So since that was at a low base, therefore the growth potential right now is very strong. We are also coming out with some new portfolios for new markets.
We have diversified our portfolio beyond what we were supplying so far. Those portfolios are also premium category, and those are also targeted at the developed world. All the homologations and trials are in process, and that will be a major growth driver going forward in the short term, maybe in one to two quarters, which is incremental in nature. We also have substantial industrial exports, which is going on well. There were some hiccups because of the geopolitical situation in Europe because Europe is quite a big market for us. But we have to live with the geopolitical uncertainties.
There are some economic downturns in countries like Germany and France. I'm sure they predict that by end of winter, which means around springtime next year, those demands are also going to come back further. These are our export strategies: new products, new markets. Not too much of a complicated thing. We have identified those markets, and we have developed those products for those markets, and we are now homologating and carrying out the trials for them. Yeah. That's our export strategy.
Got it, sir. Thanks for the comprehensive answer. Just one last question to Mr. Mukherjee. Sir, was there any run-up in other expenses because Q1, Q2, other expenses have grown at 17% and 11%, which is much higher than the revenue growth? Just trying to understand any run-up there.
Just to answer your question, the other expenditure has gone up, but it is primarily as a percentage of revenue it has gone up because of the lower top-line growth of under-absorption of the fixed cost. There is nothing particular, but because of the under-absorption, primarily as a percentage of revenue, it has gone up.
Got it, sir. Thank you very much. I'll fall back in the queue.
Thank you. A reminder to all participants: you may press * and 1 to ask questions. The next question is from the line of Sonal Gupta from HSBC Mutual Fund. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. So just wanted to understand just on that same point of other expenses. I mean, in absolute terms also, it's up INR 30 crore quarter-on-quarter, and year on year, it's up almost INR 55 crore or something, INR 56 crore. So could you just explain a little bit more on what's happening here?
As I said, that other expenditure, there is nothing in particular. Few elements have gone up. It is not like that. There is some increase, and primarily because of the normal inflationary factor in certain expenses have gone up. But as a percentage, it is higher compared to the previous year, primarily because of lower top-line growth, as a result of which it has caused a lower absorption of fixed cost.
Got it, and overall, in terms of the profitability, I mean, I think one of the objectives has been to improve the profitability of this lead-acid business, so I mean, what do you think are the main drivers for that, and how long will it take for you to get that?
If you look at the profitability, we are at the level of this quarter, we are at 11.3%. Of course, we do not give any guidance on the margin in the future, but just to give you a feel, that our immediate objective is to get around 13%, and obviously, at a longer horizon, we'll look at around 14%.
Sure. So what I was trying to understand is how do you get to that 13, right? I mean, what would drive it? Are you looking at some cost-cutting program? Are you looking at some greater efficiencies coming because of certain process changes or whatever? I mean, like you're mentioning in your opening remarks, you're making more investments in personnel as well. So just trying to understand what will drive it, right?
So just a couple of things here. First of all, I mentioned in the last call also that we had undertaken a comprehensive cost excellence project for over two years. And this was done in a very structured manner. That project is almost coming to an end. And the large part of the savings, which will be accrued, are supposed to be in the back end because a lot of changes on reduction of increasing efficiency, reduction of factory rejections, and all those kinds of things. So that is a major driver that we should get benefit out of that.
Secondly, as you were saying, that we are constantly working towards our mix. And going forward, since the trade market or aftermarket looks very, very robust. And just to give you a feel, for example, motorcycle OEM business, the demand. It grew by 10% over the last three years. And I'm talking about the OEM production figures. 10%, 10% in the first six months, it grew by 16%. So these are all the things which give us confidence of a huge rebound after 18 months on the replacement side.
So similarly, if you look at the top three automobile manufacturers, four-wheelers, everybody has committed their CapEx for IC engines as well on top of electric vehicles. The top manufacturer of the country, they have announced that they are increasing the capacity by almost 80%, 1.8x. Out of that, 60% will be IC engines. So 60% of 80, which means about 25% will be clear capacity expansion in lead-acid business. And this is the top manufacturer saying. So these are the things which actually are encouraging us to de-bottleneck our capacities, weigh our assets, and make some additional investments on the lead-acid side to encash on the opportunity because the aftermarket will only go up as a ratio.
So this is one. Mix plays a role. Secondly, we are also focusing on some profitable exports, as I mentioned in the previous question, which will also improve our utilization as well as also give us penetration into high-margin markets with high-margin products. So there are multiple levers. Cost excellence is just one part of it, but also mix and go-to-market plays a major role. And this gives us a feeling that we will be able to drive the margins up through better mix, better cost efficiencies, and of course, premium product.
Got it, sir. Sir, just last question. Have you taken any price hikes in Q1 or for the lead prices or in Q2?
See, there are two parts. One is the aftermarket. In aftermarket, in quarter two, we have taken price hikes in two tranches. So in two tranches, we have taken price hikes. And cumulatively, it will be about 1.5%. I can also share with you. So on the OEM and industrial side, these are mostly passed through. So these prices are indexed with the customers through LME or HZL or any kind of standards. So it goes up and down based on a particular formula. But for the trade market, yes, we have taken corrections.
Sure, sir. Great. Thank you so much for answering the question. Thank you.
Thank you. The next question is from the line of Pramod Amthe from InCred Equities. Please go ahead.
Yeah. Thanks for the opportunity. So the first question is with regard to can you elaborate the reorganization effort which you have taken? Which are the segments you are trying to revive so that we can look forward to build the same?
So all I can tell you is that, as I said, we are realigning the B2C businesses of the company and the B2B businesses of the company together in two parts. And therefore, there are leadership hirings. We have hired some of the best talents to drive the agenda in both B2C group and the B2B group. And there will be international groups, which is exports. So this is how we have reorganized. This will give us a lot of, I would say, a lot of power in go-to-market.
Sir, is it to revive the distribution or strengthen the distribution? How do these leaderships will help you to in what angle it will help you? Because this is not on the product side, right?
No, no. This is also on the go-to-market side. This is to make sure that there is a clear strategy so that the size of the wallet of the network doesn't get melted. There is no melt-off because multiple guys going to the same person and taking a share of wallet within the company. So it's a comprehensive strategy. I won't be able to give you more details than this. But basically, on the go-to-market side, we are strengthening the network.
Okay. Thanks. And when you expect these to start yielding results, is it early part of FY '26?
You will shortly hear the announcements. Maybe within two weeks or within a month, you will hear the rest of the announcements. Some announcements we have made. But we are onboarding the leadership. So these will be all informed officially to the exchange.
When do you expect them to start yielding results, early part of FY '26 or later part, if you can give?
That's basically the expectation that once they are onboarded, two, three months, quarter four, we'll in any case have some kind of seasonal push from the demand side. And by quarter one, they will be fully on the job because this is also the time period when we plan for the next year, right?
Sure.
They will be part of the management team.
Okay. And the second question is with regard to lithium-ion. I want to check what is the, in the sense of since you're almost entering the production stage middle of next year, what is the when you expect BIS approvals to come through. One second. At what stage your labs are in terms of approving local component supplies or the chemical supplies so that you can get into the next part of localization and the cost control?
I have to pass these to Mandar once again.
Sure.
Yeah. Sure. Thank you, Avik. So in terms of the lab readiness question, either for localization or for other purposes, the labs are running in parallel to the gigafactory. So like Avik mentioned in the opening statement, the buildings are completed, equipment is moving in, the lab progress is in line. So labs will be ready along with the gigafactory. Now, as far as the BIS certifications and not just BIS, other required customer certifications, we have a comprehensive timeline that aligns because there are requirements of what the equipment state has to be before we can apply for certification.
And some customers more stringent, some customers equal to BIS. So in terms of comprehensive plan, we plan to finish all of those, typically from the industry experience, in the same as you have seen globally. So, our lithium-ion certifications will be in timeline, will be in line with what the global certification timelines are, which generally range anywhere. Again, this is a vague answer because certification requirements are different. But we don't see that we will take more time or less time. It will be in line with what global industry standards are.
Sure. And in terms of vendor approvals for chemicals and all, any update?
Yeah. So once again, we have a very robust approval mechanism for any supplier approval, right? So we have a partner that is helping us with that before our labs come in. And once our labs come in, typically those also take, depending on what the component and the supplier capability is, those also take variable amounts of time. Once again, we don't see any reason why we should take longer or shorter than what typically a chemical supplier needs to get approved in a lithium-ion cell.
Sure. Thanks and all the best.
Thank you. The next question is from the line of Lakshmin arayan from Tunga Investments. Please go ahead.
Thank you. You had mentioned that you put a total of close to INR 2,800 crores in your joint venture, and you also mentioned that you will invest up to INR 5,000 crores. Is it the same thing which you like to do in the phase I?
This is the phase I. The phase I, the expected investment is around INR 5,000 crores.
Okay. By when will the phase I get started commercialized?
So this is just what Mr. Mandar Deo said, that commercialized means we'll be in the middle of the next year, we'll start the production, and we'll take time to stabilize and complete homologation. So in FY '25, we should be able to commercialize it. And this is for the first phase I, six GWh.
What about phase II? What is an outlay that is planned?
So phase II, of course, we'll take a call in due course of time, depending on the market situation and, of course, demand scenario. And as of now, it is too early to comment on phase II. Of course, phase II investment outlay is expected to be lower because we are already investing in the common facilities as well as land, etc. So it is expected to be lower. But we will decide in due course of time.
What kind of project IRR you actually expect at phase I?
I think the situation is now a little volatile with the lithium prices, extremely volatile, and also on the lower side, so I think it is too early to comment on that. Our first outlook is to complete the project as well as go through the successful stabilization process, and then we can have a feel on this.
Sir, just one more question. Do you intend to take part in this grid energy storage system, as it is, as an organization?
So Mandar, would you like to take this question?
Yeah, absolutely. So as far as our lithium-ion cell product plan is concerned, we have selected a product portfolio that will serve both mobility as well as energy storage market segments, of course, with different products. So we will be serving both the stationary as well as mobile lithium-ion consumers.
Yeah.
Got it. Okay.
Some of the cells will be common for both. That is how we are developing.
Okay. Thank you.
Thank you. The next question is from the line of Aditya Jhawar from Investec. Please go ahead.
Yeah. Thank you for the opportunity. My first question is to Mandar. I understand, Mandar, that you have signed NDAs for your lithium-ion project. But if you can qualitatively throw some light on what kind of business win we have seen so far, number one, for example, out of the first 6 GW, how much of the capacity are you seeing commitment from? And what kind of customers are we seeing in terms of percentage of customers going for only cells, percentage of customers going for the battery pack? And are we also seeing engagement from OEMs on hybrid cars? Yeah.
Yeah. Thank you, Aditya. Avik, I'll take a first cut at it. Is that okay?
Yes, Mandar. It's for you.
Yeah. Okay. So as far as the mix of pack versus cell is concerned, Aditya, what we have experienced is that there is a good mix of customers that would like only to focus on their product and leave the complete battery pack with us. And also, there are others who are fairly evolved in terms of their pack design pack manufacturing who would like to focus only on getting a cell from us. So if you look at our original business plan that we put out in the public domain, the cell and battery pack product mix remains pretty much unchanged.
Now, as far as you're right, the NDAs are there. Therefore, we can't go much into the detail. However, qualitatively, what I can say is that across different target market segments, we have seen now, like I said earlier, a fairly good traction as we get closer to our SOP and as customers deeply engage with us and look at our factory, look at our preparedness. We have seen a lot more deeper engagement from our customers in terms of capacity evacuation. So while I'm not at the liberty to talk about names and percent evacuation, all I can say is that we are really energized by the heightened interest by OEMs across the segments.
Yeah, so does it also include hybrid cars?
Right, so in terms of hybrid, right now, the current technology sort of takes us into the EV segment. BEV is not in our current product portfolio.
Okay. Okay. Fair enough. Now, the next question, Mandar, is on profitability. I mean, I understand it's too early, but we are very close to commercialization, and you would have already entered into agreement with multiple customers, whether two-wheeler, three-wheeler, or four-wheelers. So what is the line of sight of breakeven and what capacity in terms of GW h and utilization you think that we will be able to do breakeven? And one of the competitors commented double-digit profitability target in the near term. So what is your overall thought process on profitability?
Yeah. So in terms of breakeven capacity, profitability, IRR, obviously, we are right now focused very methodically and laser-like on making the factory run, stabilize, improve yield. Therefore, right now, the organization is focused on that. However, all I could say is that when we look at the global industry benchmarks, both in terms of capacity breakeven as well as other financial measures such as ROEs, we will be in line with what we see in the market. If you look at the industry trends, we don't fundamentally see any reason to be different from where the industry on lithium-ion cell side is right now, Aditya.
Sure. Just a thought. May I request, Mr. Mukherjee, do you have any additional points towards Mandar?
Yeah. So Aditya, as Mandar said, our primary focus is now on the completion of the project and stabilization of the product. And then, of course, once we do that, then we'll have a better feel. But you know, Aditya, that across the globe, there is a wide variation in the margin profile of the business. In some players, margins are extremely good, and in other players, numbers are on the lower side. But what we feel that going forward, we should look at a margin similar to lead-acid, which is kind of mid-teens. That's what we expect when we reach the full capacity utilization.
Okay. That's helpful, sir. My final question is on the lead-acid business. What is the pricing difference between the recycled lead and the lead and the spot market? And what has been the trend in this spread over the last couple of quarters? Are you expecting it to change in the near future?
See, Aditya, lead price is extremely volatile, and LME, of course, as of now, is likely on the lower side, but there is no constant delta kind of thing between pure lead and recycled lead. As we are saying that sometimes the pure lead, I mean, the LME prices are pretty low, but the local market prices on the recycled lead is on the higher side, so there is no, as such, a constant delta kind of thing. Of course, in general, the recycled lead is lower than pure lead, but again, it all depends on the situation.
But Aditya, as you know, we are playing this game for many, many years now. I mean, this is our bread and butter. Finally, what we have seen is that it evens out over a slightly longer period of time. With lags, it evens out.
Sure. Thank you. That's it from my side.
Thank you. The next question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities. Please go ahead.
Yeah. Thank you so much for the opportunity. Sir, I just want to understand on the industrial side, the BESS- Battery Energy Storage System. Any order traction there in that segment, sir? Any order wins there also? And also, just want to understand how is that industry shaping up in India? What kind of size, say, would be now in the next two, three years? What could it be, sir?
So let me give you just some color on how the industry might shape up. See, with the government announcements that you see on solar and other renewables, the capacities that they are planning to put up till 2030, which the government has announced, and a lot of steps have been taken towards that also, it is obviously going to lead to a huge amount of intermittency on the grid. The transmission grid will be under pressure as is to take that intermittency of the renewable load. Therefore, the only technical solution at this moment is battery storage to make the grid more resilient.
Also, you have to see at a very high voltage level, the point of generation of renewable and the point of consumption will be far away from each other. In India, it's such a large country, and obviously, we'll put up the plants in some states, but the main load centers will be in some other states, which will be likely to have longer distances. So the transmission grid is even susceptible to more inefficiency. So if that is the big driver, if the solar targets of the government have to be successful, then battery storage is a no-brainer. There has to be large storage systems installed both at the point of generation as well as on the point of consumption.
So having said that, what portfolio we are developing, as you said, there has to be some kind of synergy between automotive batteries and storage batteries because we have to have the benefit of scale also. As Mandar mentioned, some of the cells which we have developed will be used both for EV packs as well as for BESS. This is something which we are going to get ready with. Now, there is always a question at the regulatory level or at the government level on liability gap funding. How does the economics look like?
Sorry. I'm sorry to interrupt, sir. Your voice is not clear. Voice is breaking some.
So I think it was fine, sir. You can go ahead, sir. It was fine, sir.
Okay. So what was I saying? As I said, the only question and only driver for the market to pick up is the economics. Will this increase the tariff? If yes, then who's going to fund the gap? So it's more this BESS business will be largely in the regulated environment of power. So therefore, a lot of policies need to happen to support the real growth. And I think it should happen because otherwise, the renewable policies will not be implementable. So that's on the market side. Mandar, would you like to add anything more on this?
Yeah. Just maybe one or two technical points. Like Aditya mentioned, our product portfolio benefits from the scale between the automotive and energy storage. So some of our cells are fairly close to each other, and they benefit. Therefore, we think that we will have a really good product lineup for battery energy storage solution, number one. And number two, I think given that in some of the segments where we already, like Aditya mentioned, we already have a good foothold through lithium-ion, I think we see that as an extension of that business. So both scale as well as the connect with the potential customer is already on our side. Thank you.
Yeah. And in this BESS business, finally, for all government entities, the prime bidder, the lead bidder is always a system integrator or the EPC or these kind of corporations who are not essentially battery manufacturers. They are system integrators, solution providers. We would like to stick to manufacturing. So we are on the left side of the value chain, and obviously, these lead bidders will be our customers. This will also help us to mitigate our risk exposure to regulated environment, if that helps.
And just generally, sir, how would be the competitive intensity in this segment versus like in auto? How do you see that, sir? Because in renewable energy side, there will be multiple customers, much more number of customers will be much larger. So how do you see that competitive intensity in this space, sir?
What I feel is that there will be few players with large capabilities in BESS. That is how it is globally also. Because everybody cannot benefit, cannot have the scale. Only a guy who's active on the EV side will also be competitive on the BESS side because he gets the benefit of scale. No manufacturer can have their setup only targeting BESS. That is too subscale. Secondly, number of tenders, these are tender-driven businesses. Number of tenders will be at the most, let's say, five, 10 projects going concurrently.
So that way, I don't think this is going to be any kind of capacity shortage for that. But these are also long-duration contracts. These are regulated contracts. So these have to be treated completely differently from our EV side of the business. The only synergy comes from the scale, from the sales side.
Got it, sir. This is to Avik, sir. I just want to understand what is driving such a strong growth in the auto replacement market. And just want to get a sense of how you're seeing the market share there. I mean, we are going double-digit. And just anything you want to indicate on how the enhanced network can further strengthen this segment?
So there are three questions. I think I forgot to.
Firstly, how do you see the, I mean, what is driving strong growth in the auto replacement?
Firstly, growth. Second is market share. You wanted to know.
Yes.
The third one is forward-looking, future strategy.
Yes, sir.
So I think this is more or less in public domain. You have to define the market between organized players and total market. And we do not track the total market, which includes the small scale and the unorganized sectors. So market share is a bit tricky subject because it depends on what do you consider as a market. If you consider all the gray market of lead-acid battery, then it's infinite. But largely in the auto market, the passenger vehicle market and the motorcycle market is passenger not passenger, the car market and the motorcycle market is largely consolidated with only organized players.
And you know, I mean, I don't have to tell you that we are very strongly placed on the aftermarket side. I will not be able to give you exact numbers. I have it in front of me, but I'm sorry. We are the leading player in four-wheeler. That's what we can tell you. Having said that, there are a lot of other segments, like let's say tractors, rural part, which is also growing. And a lot of shift is happening from unorganized to organized sectors. The only macro in quarter two, which was positive for us, was that rural consumption was far higher than urban consumption. And our penetration in the rural dealer network is quite strong, as you know.
So this gives us a hope that on the rural side, there are people who are having aspirational purchases, whether it's a motorcycle or even a small car. And also, it's not only tractor batteries, of course, but also aspirational vehicles. So this rural side is going to go up. Also, these people have started having some brand awareness, so they want to go for organized brands rather than buying from roadside gray market. The rural consumption pattern for us is changing very favorably going forward and beyond tractors. These are the positive signs. Our market share is, of course, in four-wheelers more than half if I consider the organized sector.
What is driving growth? I told you the rural consumption. We have also identified those white spots in our go-to-market strategy to capture that. The more in the future, in the new realigned organization, we will be able to capture many white spaces like this, where we might have subscale presence at this moment. When we pull our might, then we can really capture those white spaces, as I mentioned. Just for example, I mentioned rural, but there are two, three other areas where we have identified white spaces, and we'll go full blast on those markets. So today, as I said, we are double-digit on the four-wheeler side. On the two-wheeler side, we will also become double-digit because the demand is so strong. And these are also, by the way, more profitable. So it helps us in the mix also.
Got it.
That's more or less kind of a summary answer to the three questions.
Fairly to say, sir, over a medium term, double-digit can be seen in the auto replacement segment.
Yes.
Got it, sir. Got it, sir. Thank you so much for this opportunity.
Thank you.
Thank you. As that was the last question, I now hand the conference over to the management for closing comments. I'll hand it to you, sir.
Thank you very much. Thank everybody for joining in. I hope we have been able to answer all your questions satisfactorily to the extent possible. I also have to excuse us for certain details which we were unable to give you because of the situation, which are not in public domain. But we have tried our best to give you as much color as possible on our company operations. If you have any further questions or would like to know more about the company, we would be happy to be of assistance. Thank you. Over to the moderator.
Thank you, sir. On behalf of Investec Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.