Amara Raja plugs into new energy

Amara Raja Batteries Limited, the country’s second largest auto battery maker and owner of brand Amaron, is at an inflection point in its business journey. The near $1 billion revenue battery major is transitioning from being a lead acid batteries (LAB) maker to a new energy player driving into growth segments such as lithium ion batteries, and solutions for electric mobility. It is also evaluating plans for a giga factory to produce batteries for electric vehicles at scale.

The decision to tap new areas was on the cards, but was formalised at a Board meeting last week. It was an emotion-charged meeting as Founder-Chairman Ramachandra Galla, who had steered the Group for 36 years, decided to step down and put his son Jayadev, 55, in the driving seat.

The meeting also gave indications of the succession planning: Jayadev’s nephews — Harshavardhana Gourineni (Harsha) and Vikramadithya Gourineni (Vikram), were appointed as Executive Directors.

The Group began its journey from the temple town of Tirupati when Ramachandra Galla, then 50, returned from the US and decided to venture into entrepreneurship. He set up Amara Raja Power Systems Limited in 1984. The first manufacturing facility and office was in Karakambadi, 12 km from Tirupati. Jayadev and Ramadevi joined the business. He followed it up with a sortie into industrial batteries with Amara Raja batteries and an allied business, Mangal Industries, which made battery components and auto components. In 1991, Amara Raja Batteries went public.

The foray into automotive batteries was actually at Jayadev’s insistence. Ramachandra Galla was initially sceptical, given Exide’s dominance, and it was admittedly tough going initially. But Amaron’s superb advertising — its animated ads are still recalled — and unusual strategies such as selling factory-charged batteries in air-conditioned showrooms helped it power forward.

Apart from batteries, the Group has seven businesses — including infra, electronics, media and entertainment and food processing.

Talking to Business Line soon after the Board meeting, Vice Chairman Jayadev Galla called the new thrust an “orbit shift” for the company.

“This Board restructure has been brought through a succession planning in 2013 where both Harsha and Vikram were identified as gen-next leaders. Both have played transformative roles and proved their leadership capabilities over the past 7-8 years,” he said.

Galla was optimistic about the future. “As we pause and look at the future, we believe there is a huge emerging opportunity in electric mobility, lithium ion batteries and other solutions around batteries and storage, including charging stations, battery swapping, battery solutions for fleet management,” he said.

By repositioning ARBL as an Energy and Mobility player, the group is essentially future proofing the business. The company has established a New Energy SBU encompassing lithium cell and battery pack, EV chargers, Energy Storage Systems, Advanced Home Energy Solutions and related products and services.

But this does not mean the LAB business will be neglected. As Vikram Gourineni said, “The new strategy is aimed to further consolidate the Company’s existing strengths and market share.”

He said there was a buoyant demand from automotive, industrial, telecom and new emerging segments such as data centres for lead acid batteries, as well as immense scope for expansion in other markets.

The company plans to expand in a big way globally. “The overall company export contribution is about 15 per cent and this is projected to grow as the company globalises its lead acid batteries. If the volumes grow as per plans, this may entail local manufacturing in some countries,” said Jayadev Galla.

The global market for LAB is huge with Amara Raja accounting for about 3 per cent of the global industry at 490 Giga Watt hour. It is expected to remain so till 2030. Thereafter, this could be challenged by other types of batteries, including lithium ion. The Group has a business of about $1 billion from lead acid batteries.

But there could be consolidations. The company could, in markets with potential and with high tariff barriers, either look at mergers and acquisitions or consider setting up a greenfield plant.

Currently Amara Raja supplies automotive batteries under original equipment relationships to Ashok Leyland, Ford India, Honda, Hyundai, Mahindra & Mahindra, Maruti Suzuki, and Tata Motors and also exports industrial and automotive batteries to countries in the Indian Ocean Rim.

The Gallas and Gourinenis also confirmed the company was evaluating the possibility of setting up a Giga factory. “Typically, a large Giga factory of about 8-10 GW could require an investment of about $1 billion over 5-10 years,” said Vikram Gourineni.

S Vijayanand, President, New Energy, Amara Raja, said, “How this potential area of growth could take shape under the Government’s ₹18,000-crore Production linked Incentive scheme is likely to be known over the next 4-5 months.”

Galla said a lot would depend on demand. “Without demand, one cannot invest huge resources in setting up a factory,” he said.

The near $1 billion revenue company has seen a CAGR of 7-8 per cent in the past few years. With new areas of focus, it is looking to get back to a strong volume growth in the 15-20 per cent range, company CEO Y Delli Babu said.

Although the family has put forth an admirable business plan for the future, experts feel how it manages regional politics could also have a bearing on the company’s growth. The Gallas are intensely political — Jayadev Galla is the MP from Guntur representing TDP in the Lok Sabha, while his mother Galla Aruna Kumari was a minister in the N Chandrababu Naidu government. Currently the company is facing pressure from the Jagan government, including receiving pollution control notices. For the present all eyes are on how the Gallas will juggle business and politics and meet this challenge