India’s second largest battery manufacturer Amara Raja Group has said it is participating in the government’s PLI scheme for advanced chemistry cell batteries that was launched earlier this year and expects the announcement of its first Gigafactory by the end of this fiscal.
The company is ready with a corpus towards investment in future technologies and believes demand will rise sharply as more manufacturers launch electric vehicles over the next few years. Amara Raja, which sells the Amaron brand of lead acid automotive batteries, has been investing around INR 400-500 crore every year, which it would ramp up to $ 1 billion for the Gigafactory over the next 5-8 years. The PLI (Production Linked Incentives) scheme for manufacturing ACC (Advanced Chemistry Cell) batteries has an estimated outlay of INR 18,100 crore.
“The timeframe would be about four to six months in terms of the bidding process to be completed unless something comes up as a surprise. That’s the expectation right now. I think by the turn of this financial year, the investment action should start,” says S Vijayanand, President of the company’s new energy wing. “We are talking about investments to the tune of $ 1 billion for a 10-12 gigawatt capacity.”
The company recently inducted Harshavardhana and Vikramaditya Gourineni, nephews to the company’s managing director Jayadev Galla as executive directors on the board. The young duo have specific roles with Harshvardhana tasked with managing the lead acid side of the business while Vikramaditya would be overseeing the group’s diversification into future technologies alongwith Vijayanand.
When it comes to the lithium investments, we think it’s an opportune time. On one hand the government is pretty keen on taking up this opportunity in advance of the OEMs making their big move.Vikramaditya Gourineni
“When it comes to the lithium investments, we think it’s an opportune time. On one hand the government is pretty keen on taking up this opportunity in advance of the OEMs making their big move. They want to encourage the battery manufacturers and give them some level of subsidy to level the playing field with the imports,” says Vikramaditya. “So we would be looking to participate in that production linked incentive tender for AC advanced chemistries. But at the same time we also see that the market drivers are starting to align and it looks like the number of customers today willing to buy an electric vehicle is significantly higher than it was just a couple of years ago.””The main challenge a few years ago was range anxiety and infrastructure etc, but today people aren’t able to buy electric cars simply because of lack of options. So we’d be very keen to take this up, we think there’s a great opportunity ahead of us, and we’ll be making that investment.”
On paper the plan to invest hundreds of crore on a technology that has neither fully matured nor has the demand to back it right now, sounds dangerous. Added to that is the uncertainty of how long lithium ion battery technology will remain relevant before some other better technology upstages it. Yet, Vikramaditya Gourineni believes it is worth the risk.
“One of the biggest risks is not having enough demand. From that aspect things are getting better and the market is building up in India. To a great extent, the government initiatives around the PLI scheme are going to help,” he says. “So whatever support the government is giving with a little bit of subsidy now we do feel that this is going to help to bring the battery industry first. And then at the same time, we do see that a lot of the OEMs are working even harder with a number of new platform launches just in the next couple of years.”
“Any new technology definitely will not have the run like lead acid battery. Lithium itself is already a couple of decades old, and we’re already talking about threats to it whereas lead acid reigned supreme for more than 100 years. But the important thing is right now, it is the most commercially viable technology. I don’t think in a matter of just five to 10 years, something is going to come and supplant it. New technologies will come to coexist with lithium. But we are aware that we will have to keep up with it and get used to much shorter technology cycles.”
At the same time, the company is not losing sight of its core lead acid battery business which remains strong and is still growing. Purely on the back of this, the firm, which clocked revenues of INR 7,150 crore and a profit of INR 647 crore in fiscal 2021, is expecting a 14-15 per cent growth in the next five years when it hopes to register a topline of $ 2 billion.
In India, we’ve grown ahead of the market and established ourselves as one of the local market leaders. But we also have to sustain our growth and so we are looking to expand internationallyHarshvardhana Gourineni
“In India, we’ve grown ahead of the market and established ourselves as one of the local market leaders. But we also have to sustain our growth and so we are looking to expand internationally. Right now we have significant exports, but to really pick up the international operations, we’ll be looking at having a local presence in, in countries that will give us give us more access to new geographies,” says Harshvardhana Gourineni. “We’re also actively exploring inorganic means of doing this. The global Lead Acid industry is around $ 50 billion and India is probably 15 percent of that. So we definitely see a lot of headroom to grow internationally.”
From the outside, the onset of electrification in mobility may look like a death knell for the lead acid battery industry but Harshvardhana feels there is still enough juice left till at the very least the end of this decade.
“We strongly feel that the industry will grow for at least this decade. In this growth, we’ll be seeing disruption a little bit earlier in the two wheeler segment, if you’re looking at the automotive space,” he says. “Until 2030, we see strong growth, after which we will see some factoring and then tapering down. We will be closely tracking the technology curve to make sure that any investments we make or any acquisitions we go for, give us full payback and yield good returns for us in this window of opportunity.”
This in turn sits perfectly with Vikramaditya and his future technology division. For the next few years, it would be the lead acid business that will bring in the cash to be spent on the lithium ion segment before it takes off on its own in the latter half of this decade.
“When it comes to the kind of per unit spend on lithium, it will be significantly higher than what we’re used to in lead acid. But we are confident on two factors. One our lead acid battery business will continue to grow and outperform so we have a very good financial backing to the company,” Vikramaditya says. “And the second point is the lithium–the billion dollar investment, where we don’t require all of that money upfront. It’s going to be spread over 5-8 year kind of period.”
Along the way, the company also wants to turn investor picking up stakes in any firm it finds interesting in the future mobility domain. On Monday, it made its first move when it invested $ 5 million (INR 37 crore) in battery and deep tech startup Log 9 picking up an 11.36 percent stake in the process.
“The investment in Log 9 is complimentary to our future plans for lithium products and solutions. We would similarly be actively looking at opportunities for investments in the startup ecosystem, because that’s where an existing action is happening in terms of disruptive technologies,” says Vijayananda. “There will be some amount of investment that will go into creating that kind of technology access, though we have not quantified that but we are open to look at similar opportunities in and outside India. We are a debt free company and there is enough opportunity to raise funds through internal accruals or by leveraging our balance sheet.”
Technology transition can be a painful experience for companies but like the animated turtle from its popular adverts in the 90s said, Amara Raja is geared up for the long haul.
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The battery maker would be focusing more on the new-age energy storage systems such as Lithium-ion Technology keeping in view the market trends as Lead Acid battery market growth rate is expected to taper off over a period of time, S Vijayanand, President, New Energy wing of Amara Raja said.
