Amara Raja Energy & Mobility Limited (500008) Earnings Call Transcript & Summary

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[Audio Gap] all participants to 4Q FY '20 and FY '20 post results conference call of Amara Raja Batteries Limited. We have with us today Mr. S. Vijayanand, Chief Executive Officer; and Mr. Y. Delli Babu, Chief Financial Officer. I would now hand over the call to Amara Raja management for the opening remarks, to be followed by the question-and-answer session. Over to you, sir.

Thank you, Mr. Jayaraj. And good afternoon everyone who has joined us the -- this evening on this call. It's pretty unusual times to be engaging on this, considering what we are going through due to the COVID-19 infection, something that's impacting the whole world, something that many of us probably were not prepared to the extent of impact it's having on how we are conducting our businesses, not only businesses, how we're conducting our personal lives as well. We had our Board meeting day before yesterday to review the annual financial results of FY '20. FY '20 per se has been a challenging year for many reasons. The overall economic scenario has been not too very encouraging, particularly in certain segments that we have our presence like automotive OE, the telecom sector continue to have challenges. But I'm happy to report that we have had a decent performance on the financials of the company. I would have my CFO, Delli Babu, initially take you through the financial performance of the company, and I'll come back with additional comments after he has provided some insights to the financial performance. Delli?

Very good evening to everyone and a warm welcome to the call. I would first briefly mention the highlights of the performance of the current quarter and the year as a whole, and then we'll proceed with the balance of the comments. So if we look at the quarter, I think we ended up at about INR 1,581 crores of revenue, which has a mix of about 30% coming from our industrial side and then 70% coming from our automotive side. Again, if we look at the -- on a Y-o-Y basis, though the volume -- the revenue growth is flat, there was improvement in the overall volumes that we have seen in the automotive side as well as the industrial side. If I look at the volume performance of automotive, Q4 per se, we know that we actually got impacted because of the nationwide lockdown. That being it, the 4-wheeler reported almost a kind of a flat volume growth compared to the last year. While the aftermarket has performed better, the OEMs have seen almost a 20% degrowth on a year-on-year basis. If I look at the full year 4-wheeler volumes, we have seen a growth of about 2% to 3%, with aftermarket growing at about 10% level and OEMs degrowing at almost 22% to 23% kind of a degrowth. And partially, this degrowth, what we had in exports, what we had in OEMs got compensated by growth in exports. And if I look at my 2-wheeler segment, the Q4, we have added 2 OEM accounts, and that helped us to some extent arrest the OEM growth, which otherwise was there. So if we look at Q4, the OEMs have grown at about 25% level because of the new accounts coming in, in Q4 and the aftermarket has grown reasonably at about 19% -- 18%, 19% level. So that culminated the year in terms of 2-wheeler at an overall volume growth of about 13%, aided by a strong aftermarket performance at about 18%, and the OEMs degrowing by about 10%. Now I'll move to the next segment, which is our inverter segment. Inverter segment was kind of flat during the quarter. As we know, generally, March is the month where we see the inverter demand picking up, but considering the lockdown situation, obviously, this segment has taken some beating because of the COVID lockdown. But if I look at the year as a whole, even the home inverter business have shown an improvement of about 5% in terms of the overall volumes. But -- again, now I'll come to the volume performance. As far as the industrial side is concerned, we had challenges in the industrial side. Obviously, the telecom business was having its challenges. If I look at the year as a whole, we have seen the overall industrial volumes growing by about 5%. And we have seen the UPS segment has done well with a growth around 10%, though the telecom side of the volumes have shown a degrowth of about 5% compared to the last year. But definitely, these are some good demand from telecom during Q4 because if I compare Y-o-Y basis on Q4, telecom has shown a growth in terms of the volume demand. That has resulted -- even in Q4, we had a decent volume growth of about 6%. So with this volume growth that we had in terms of our various battery segment, the quarter under consideration, we have seen a flat revenue kind of growth because the lead base was almost same as last year. And if you look at the full year as a whole, FY '19 to FY '20, we have seen a lead contraction by almost 7%. Though the volumes have grown, the revenue has kind of grown by about 0.8% or so. So in the revenue -- financial side, there are a couple of exceptional entries that we had during the current year. We had some provisions for certain power, and we have a receivable delay from BSNL. Between these 2 items, on a full year basis, we have taken a hit of about INR 25 crores to INR 30 crores on our P&L. So that is -- we hope the BSNL receivables will get collected in the next year, and then we hope that will get reversed. So that is on the financial performance. Now in terms of our CapEx expansion plans, we are currently building our third automotive plant that will be completing its construction during the FY '21. Now we've -- last year, we have expanded our 2-wheeler capacity. We have also expanded our 4-wheeler capacity. Now our 4-wheeler capacity, with the completion of the expansion of second automotive plant, stands at about 12 million batteries as an annualized capacity, while that was added in a phased manner during the last year. And our 2-wheeler battery capacity with the recent addition of the capacity what we have done in Q4 will stand around 19 million batteries kind of a capacity is possible as far as 2-wheeler is concerned. Now, we have not done any significant addition of capacity as far as the industrial segment is concerned, so we still continue to operate at about 2 billion Ah as a capacity. So that is the brief on volumes and revenues and the financial performance. So the year as a whole, we have closed at an EBITDA in the range of 16.1% to 16.4%, and aided by a couple of reasons. Obviously, the mix in terms of the automotive business was favorable with the lesser OEM volumes coming in and also the lead softness also helped us in terms of maintaining better margins. We have been talking about this in many of our earlier calls. Lead base, obviously, creates kind of a denominator impact in terms of our margin percentages. So overall, it was a good year where we had challenges in segments like OEMs and telecom. But in terms of the lead price being softer on our side, so there was a -- the financial performance as reported was possible. With this, now I'll hand over to my CEO for his comments on the current situation and other comments that he has.

Thank you, Delli. I think that gives an overall perspective on how the volumes panned out for us in FY '20 and the financial performance, as you could see, has been pretty satisfying for us. In one way, we see that this is a year where it helped us entrench ourselves stronger, particularly in the replacement markets, in the domestic markets here, both on the 4-wheeler, 2-wheeler, to some extent on inverter, and of course, the commercial UPS segment for the industrial business unit. Another thing to talk about is the continued growth we experienced on the exports. The first 3 quarters have seen substantial growth on the export volume in automotive side. Of course, by the time fourth quarter came in, quite a few markets have started shutting down because of the COVID issue. So our shipments in February and March were partially impacted by the COVID. But otherwise, year as a whole, if I were to take it, we have had strong export volume growth happening. It's a good reflection that the Amaron as a brand is taking stronger roots in our focused export markets, and we'll continue to put emphasis on growing there. Beyond the volume and financial performance, I just also want to recollect that for various other reasons, FY '20 has been kind of a momentous year. That's the year where 20 years of our partnership with Johnson Controls has come to an end. And we have started the implementation of stamped grid technology project. It's going on course, except for this COVID disruption in the last 2 months. We are still tracking the project implementation time line with a marginal deferment of commissioning of the plant. We're also implementing the new ERP platform, SAP S/4HANA platform. Ideally, we should have gone live on that couple of months ago, but we postponed it. We would be going live on S/4HANA next week. We are currently in the cutover plans right now on that. And as Delli has briefed you, most of our capacity expansion plans are tracking the project schedules and cost schedules that we have put for ourselves. And we are deferring where we think there is a need for deferring the capacity addition sensing the adjustments required to look at the short-term dip that we have had so far due to the COVID issues. So all in all, I think Amara Raja is pretty nicely poised at this stage. All our efforts over the last 2 months are to handle the crisis on hand in terms of shutting down our plants in line with the lockdown conditions. Certain essential product categories were continued to be produced, particularly to support the telecom networks, which are classified as essential services. And as the lockdown 3 came into picture, partial operations started happening in the other product lines as well, and we are currently in the ramp-up mode as far as our production plans are concerned. So I think we have a very interesting time ahead of us. Quite a few things are still uncertain. How the virus will play out, how the government framework for lockdown conditions will be eased up as we go along and how the demand will resurface across many of our customer segments. So we're pretty well prepared to deal with that emerging situation, but then anything to predict at this stage would be uncertain because of the uncertainty of the overall health as well as economic conditions on account of the COVID virus. Now I will open the floor open -- for questions and answers. Mr. Jayaraj, back to you.

Operator, you can go ahead with the questions.

[Operator Instructions] First question is from the line of Ashutosh Tiwari from Equirus.

Sir, congrats on good set of numbers. Firstly, I want to understand how are the sales shaping up currently after lockdown the last month in different segments like 4-wheeler, 2-wheeler, replacement, UPS and telecom?

The economic activity around the country is picking up and hence most of our channels are activated now, both on the tertiary sales and secondary sales. Of course, there are certain constraints in few warehouses where still if it is coming under containment zone, we have to follow the guidelines provided there. But the overall demand pickup, maybe this is because of 5, 6 weeks of freezing of economic activity, a bit of pent-up demand is reappearing. And May month has seen reasonable traction on some of the product categories. For example, the tractor segment has seen a significant traction. Inverter has seen a significant traction for us. The 2-wheeler and 4-wheeler also had a reasonable volume throughput in the channel. So I think we'll have to wait for some more time to see how fast the full-scale activity will reappear in terms of the sales channels, but we are more than happy with the way things are shaping up at this stage.

But what utilization level we have reached, like compared to pre-lockdown?

Can you come again, the question?

Sir, compared to pre-lockdown utilization level across different segments, what kind of level now we have reached in terms of utilization of plant?

See, from a plant utilization, it's a slightly different scenario. If you remember, that lockdown was announced around third week -- end of third week of March. I think 22nd March is when we had the Janta Curfew followed by the Phase 1 lockdown. There's quite a bit of pipeline inventory that was built. So when the economic activity started and easing of lockdown considered, we had an opportunity to push our pipeline stock. From plant operations perspective, right now, we are in the range of 40%, 50% of manufacturing operations, feeding into the stocks that's getting depleted in the channel. And over the next few weeks, we are confident this will continue to ramp up.

And sir, I mean, are we seeing a surge in the warranty claims and complaints and all because a lot of automobiles were not operational? Is it completely abnormal we are seeing a trend in warranty or is it not that high at the moment?

Not really, in fact, if you are tracking, we've taken a volunteer service program called jump start campaign. We knew that as vehicles are being parked for too long, there would be the discharged battery issue that can come up as a concern for the customer. And in most cases, 8 out of 10 such cases, the battery is getting charged back once you do the jump start. So it's not that we have warranty claims, but proactively, our service teams are going and providing the jump start backup in case if you have a flat battery in the vehicle.

Okay, sir. And sir, lastly, in terms of telecom segment was a laggard for last 4 years, sales are declining. Now that probably bandwidth consumption has gone up during lockdown period now with the trend of work from home, sir, are you seeing a significant improvement in telecom battery sales and what do you expect for FY '21 overall for next year?

Telecom, amongst very few select segments is seen as belonging to that particular quadrant that typically consult and do analysis. The credit risk as well as the revenue compression is seen as moderate or low. So that way we are seeing that telecom is the positive side of the equation. But to be able to translate that into specific demand numbers, we need to wait and see what's the kind of network reinforcement that operators and tower companies would do. Data throughput is significantly higher, I'm sure all of us have taken note of that. And the reliability of network functionality demands are much higher. During the 2 months of lockdown that we have experienced, we had a strong contingent of service teams working to make sure that the network up times are maintained, where we have direct responsibility. But in terms of demand growth, I think it's going to be a few more quarters before we actually see volumes appearing on the growth phase. As you rightly said, telecom went through such a stressful period that the demand has compressed significantly from what it was 3, 4 years ago. Thankfully for us, we were able to recover some strong market share gains during FY '20, though there was overall industry demand compression, and that helped us sustain our volumes in FY '20. We are only looking at the future with little bit more positive angle. It depends on how the network reinforcement is going to happen, what kind of additional traffic throughput capability that the network will be built with, would we see more towers coming up or reinforcement of existing towers. Another thing we need to also factor is that the power availability situation has significantly improved in the country. So the backup times required from the battery would not be the same as what they were earlier. So we are working on a model where all these things can be factored in and then see how this will help us. But in a -- general consensus is that telecom sector only can do better than what it went through last 3, 4 years.

Next question is from the line of Binay Singh from Morgan Stanley.

Congratulations for good numbers, especially when we look at it with regard to other companies. My question is that in FY '20, we did see better mix, which contributed to gross margin expansion. How do you see the mix changes in FY '21? Do you sort of expect a similar trend to continue where replacement broadly leads the charge again and then gross margins further expand?

Yes. I think the outlook for OE segment continues to be cautious in that sense, but we'll have to wait and see how the OE volume will pick up. Probably, the vehicle manufacturing took a very strong beating during this period. The demand -- the revival trends need to be looked at. Our view is that it will take at least a couple of quarters before confidence comes back and customers are willing to go to buy new vehicles. So year as a whole, we still see that OE contribution to the overall automotive product mix will be subdued. To that extent, from a mix perspective, we should see the trends continuing. But we also have to watch out how our export markets will open up because that was another significant volume contributor and a reasonably acceptable level of margins on that. So if we can see the export markets in replacement segment opening up in the geographies that we operate, the trend on export growth should continue. So to that extent, we continue to see that the overall product mix will be more biased towards a healthier margin.

Right. That is helpful. And secondly, could you just give us a few numbers on your export revenue in FY '20, your industrial revenue and CapEx outlook for FY '21?

The overall export revenue in FY '20 is about 10% of the overall revenue. In terms of the industrial business, as I mentioned in my initial remarks, contributes about 30% of our overall revenue. Now coming to the CapEx plan for FY '21, we expect in terms of cash outflow perspective, it should be around INR 350 crores to INR 400 crores to complete the greenfield unit of ABD 3 and some other debottlenecking and the maintenance CapEx in the range of about INR 150-odd crores. So it should be in the range of INR 350 crores to INR 400 crores, while, yes, there is a -- as Vijay was explaining some time back, we are revisiting as much as possible to see what all CapEx that we need to reconsider considering the demand situation and also the current economic scenario. So at this point of time, our estimate could -- the estimate is on CapEx around INR 350 crores would be the cash flow.

Next question is from the line of Siddharth Vora from Reliance Nippon Life Insurance.

Can you explain your export strategy, this jump which we've seen for FY '20, was it planned? What change have we done? And is the partnership breaking with Johnson Controls have any play over here that gives us more freedom for exports now?

I think I have to say I would answer this from industrial and automotive perspective. Industrial never really had any major restrictions because Johnson -- earlier Johnson Controls or rather the current Clarios is not involved in industrial markets. So we never had any constraints to export our industrial batteries to any geography. But lead acid product is such a thing that we need to determine the economy of reach considering the freight cost and also that the product is having limited shelf life. So to that extent, we have mapped Indian Ocean Rim as a focused geography for us. And within Indian Ocean Rim there are specific country markets that we have identified based on multiple other parameters in terms of local manufacturing, tariff barriers and things like that, growth rates. So to that extent, on the industrial side, there's no significant change in our reach to various markets. On automotive side, we are putting together plans to see how do we have a higher reach on our geographic expansion. But again, primarily, the current volumes come from the Indian Ocean Rim, which basically means some of the African countries, the Middle East, Central Asia, South Asia and Southeast Asia. So the focus on these geographies continues to be there. Going forward, if we have more opportunities opening up for us on the automotive space, we definitely will be leveraging that.

Any -- no, what was the target in terms of pushing exports to like 15% of revenue is a possibility or there is a virtual feeling which you think that won't be the case?

Ideally, our idea is to push as much as we can, but there's so much uncertainty, to be able to predict even domestic market is a challenge now. So we'll have to wait and see how things will evolve post the COVID to be able to see if there is a need for us to readjust our strategy.

Sir, can you give any split to the industrial 30% of overall, which you set for the year in terms of telecom or data centers or anything for the order category?

Yes. See, obviously, industrial has 2 major segments: the UPS and telecom and other segments like railways, power control, et cetera. So telecom contributes on a full year basis, if I look at it, roughly around 9% of our overall revenue, and UPS contributes about 11% to 12% of our -- or 12%, 12.5% of our revenues. So that's how the -- these 2 major segments. Between these 2, the overall revenue contribution is close to about 21%, 22%. Rest, 8%, 9% comes from exports, railways and power control, defense, et cetera.

Okay, sir. And the third automotive plant you spoke about in terms of our CapEx plans. So incrementally, with this, do we expect our overall auto share to go up in the business when the third plant is in force maybe 2 years down the line?

Yes. The third plant -- the eventual capacity of the third plant is about 6 million batteries as the capacity. But in the first phase, we'll only be adding about 2 lines with about 2 million capacity. So now in terms of how it is going to impact our market share, obviously, the objective is naturally to gain volumes, both in the domestic as well as in the export market. And we have been trying to expand our presence even in the OEM markets also as well. So while we do -- there is no particular number that I would like to highlight here in terms of what's the kind of shares that we would -- going ahead are going to achieve. But yes, the objective is definitely to ensure that our presence is there in all the 3 geographical segments that we currently operate.

With this -- in terms of the OE, we said 2 accounts we have added in 2-wheelers this quarter itself. You will say your presence is fair across all major OEs in 2-wheelers, 4-wheelers and EVs? Or there is any area which you still hope to do better on?

Yes, largely. I think there's been a gap in our 2-wheeler OE portfolio that's getting now filled up by our entry into 2 large OE accounts in the country. So in terms of customer portfolio, we would have covered 95% plus of the customer portfolio, both on 2-wheeler and 4-wheeler. Of course, the individual share of business in each customer varies depending upon which platforms are we present and what's the platform growth for that particular customer, it keeps varying. But largely, I can say that we cover a significant portion of the OE players, both on the 2-wheeler and 4-wheeler.

Next question is from the line of Amyn Pirani from CLSA.

Most of my questions have been answered. But I just wanted to get some sense on this -- the agreement that you have signed with Gridtential Energy. So what kind of vehicles and what categories will you be operating in this? And what's the kind of market size or opportunity that you're looking at?

Participants, please stay connected. The lines of the management are off. [Operator Instructions] Mr. Amyn, may I request you to unmute your line and please go ahead with the question once again?

Yes. Okay. Well, so I was just wanting to understand if you can give some outlook on this agreement that you have done with Gridtential Energy. So what are the kind of categories that you're looking at? And what are the kind of opportunities that are there in this agreement? And if you can give some clarity as to how this can progress over the next few years?

Yes. Thank you for asking this question. That's a fresh news this morning that we have shared. Fundamentally, I would like to emphasize that this is the research and development effort to look at certain new opportunities in enhancing the lead acid battery performance. This is focused on a technology domain called bipolar batteries within lead acid chemistry. Gridtential is a research organization based out of U.S., and they have been working on this for quite some time. We believe, specific to Indian context, there are certain specific applications where the battery performance requirements are little bit more demanding from a cycle life perspective, from efficiency -- round trip efficiency perspective. So we are evaluating the credentials of this technology. We have done some work already with Gridtential on that, and then now we entered into a formal agreement, and we'll continue to explore how best this technology can be deployed for various applications in India. For example, we are talking about the low end traction requirements in the country. We would evaluate it for that. There are certain commercial UPS applications that would require specific performance requirements on the battery in terms of high rate discharge, in terms of quick recharge. So there are some of those specific industrial and automotive applications where we might be finding a better alternative or a better option using the bipolar technology. The uniqueness for bipolar technology is that the reliability levels of this product is much higher because fundamentally, the design elements are relatively simplified, but more precise. So you will see that the possible failure modes that would result in the end of the life of the battery in the form of a bipolar battery, those are much more reliable in that sense. So the idea is continue to explore it, prove in our own testing environment, the credentials of this technology. Then like what we have done many times in the past, adopt this technology specific to the Indian context. That's the whole effort. As we go along and as we find more interesting outcomes out of our testing program and evaluation program, we'll definitely share as to what are the possibilities with this technology.

That's helpful, sir. So just to clarify, these would largely be newer applications where you are not -- which you're not serving today? Is that a correct way to look at it?

No, not necessarily in newer applications that we do serve today. It will be also some of the applications that we cater to today, but with a better product promise.

Next question comes from the line of Gokul Maheshwari from Awriga Capital.

Could you just comment on your comparative growth rate in a broader segment for the FY '20 in terms of how you are [indiscernible] the industry?

Can you clarify if this question was with respect to automotive segment?

Yes. This is broadly on the automotive segment and also in terms of the big industrial segments such as telecom and UPS.

I think a general comment to start with is that we've been gaining incremental market share across various market segments, definitely in the replacement market. I wouldn't be able to exactly give the market share numbers on a quarterly basis. But if you take year as a whole, we would have definitely gained incrementally on the market share with 4-wheeler product, with 2-wheeler product. Telecom, there's been a significant gain of market share. We lost it for a couple of years in between because of pricing issues. But I think the continued collaboration with customers and offering them solutions that are beneficial to them in the overall total cost of ownership definitely has built that confidence for them to look at offering a higher share of their business to us. Today, I would say, telecom, we are back to the range of 65% plus kind of market share today. So there is gain incrementally in market shares across the product segments. Obviously, the OE is in a lower demand cycle right now. So while the market share gains may not have necessarily translated to volume gain there, but on the 2-wheeler OE side for sure, there is market share as well as volume gain because of the new accounts that we have entered into.

Okay. Great. And given -- I mean there's a fair bit of unorganized competition in the aftermarket -- automotive aftermarket segment. So during these times, would there be a scope for you to raise market share given there would be supply constraints in terms of buying used or lead acid batteries for the unorganized competition. If you could correlate that with historical events when such kind of disruptions would have happened?

See, the general industry view is that historically, the unorganized replacement markets have been compressed. I remember when we got into the market, they were more than 50%. Actually, in some specific segments like tractor and truck, they continued to have a strong presence. But over these many years, it's been shrinking. It's been shrinking much further. We expect that -- the trend to continue. Now if you were to look at the GST, it made it easy for organized players to be able to distribute the product without restrictions on the state boundaries. And the overall -- the distribution footprint has become -- made it easy to go across and reach much -- rural markets for us. Overall, taxation implications also will make it relatively less favorable or relatively less challenging on the -- competing against the unorganized sector. And with more and more environmental concerns being expressed by government on one hand and generally, the customer segments, we believe there is a higher level of sensitivity to buy products that are not necessarily made to environmental standards -- compliance to environmental standards. So continued ingression into the unorganized sector share will happen, in general, by the overall organized sector players and Amara Raja's effort would be to lead that effort and continue to gain. So will there be higher resistance to keep growing our market share? Obviously, at the level where we are, it's not going to be the same as what it was 10 years ago, for sure. But I think there are multiple approaches and strategies that we have put together to see that we continue to gain market share to a level where we should be able to have a clear reduction in the unorganized sector participation here, a much more robust environmentally compliant supply chain systems being put in place. So we are pretty hopeful on that. And market itself is reasonably growing at this stage in an attractive manner. Automotive cycles have been seen in the past, so we will see probably a period where replacement demand also will be constrained considering that OE production is lesser now. But those short-term cycles will always be there.

Right. And lastly, just on the -- given that the softness in the lead prices, are there any changes in your pricing policy, especially in the automotive aftermarket?

Typically, the pricing policy is based on how competitive we are. And if you take a long-term average of, let's say, a 5-year view, I think industry has neutralized the impact of lead, whether it goes up or down, eventually stabilizes at that level. Then it's left to the individual players to see what kind of pricing power that they have in the market. So I don't think we have significantly changed our pricing strategy, but we will continue to stay competitive and leverage the brand strength where it's possible to leverage.

Next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

Sir, you spoke of initiatives to gain market share reach rural markets? Any changes that we are trying to implement on the marketing -- the channel initiatives that you can talk about? And sir, secondly, there is an increased environmental concern on the used battery side. Does it present some consolidation opportunities for the more organized players on [indiscernible]?

Yes. Let me address the question related to the environmental concerns. Definitely from Amara Raja, but I think in general, the organized industry has been doing everything required to comply with the environmental regulatory requirements in supply chain networks that we control, whether it is sourcing of materials, whether it is manufacturing systems that we have in our own facilities and also in the distribution channel where we need to collect batteries. The enhanced sensitivity on the environmental compliance is only going to be helpful because right now, while there are clear guidelines and rules that are available on how to handle scrap batteries, compliance to those rules by unorganized sector is a challenge. And we've been working closely with the state level as well as central level government agencies to enhance the collection of scrap batteries and process them in an environmentally sound way. I think government is definitely aware of the ground situation and is willing to increase the adherence to compliance from an implementation perspective. So the larger picture is that as you apply more and more controls on the environmental compliance across the market segments organized, unorganized and different kind of product verticals, it will only help us to make further inroads into that because if you look at our PowerZone brand, that's actually positioned to take care of the semi-urban, rural areas, offer a globally competitive global quality product that can meet the local requirements. So those efforts will continue. And I'm sure we gained in the past and we'll continue to gain on that front in terms of market share from the unorganized sector or in rural markets.

Right, sir. That was helpful, sir. And on -- any changes to our marketing or the channel structure, sir?

Right now, we do not see a need for change. I think it's doing pretty well. The Amaron has a very clear 2-tier channel. PowerZone is a mix of single-tier channels in rural markets and the hybrid channel in urban markets. So it's paying dividends to us. I don't think that we have kind of saturated or exhausted the growth opportunities in that. We clearly map different product lines where our strengths are, strengthen it further, where in certain geographies and some product lines we see an opportunity to strengthen our presence further, the same channel is able to deliver to us and we'll continue to pursue that.

Understood, sir. Understood. And sir broadly from an export outlook perspective, sir, I mean, will we continue to see a reasonable pickup in the exports as these countries open up? Or are you seeing any hiccups there? I mean from a supply chain perspective, from a less sourcing, is that all largely sorted out at this point of time?

Thankfully, on our supply side of materials, we never had any hiccup. I think there's been enough caution exercised on that starting from January when we came to know about the COVID issue in China. We get a small portion, but critical materials from China. So we have tied up that, ensured our suppliers are prioritizing our requirements where required. We have premium freight options that we resorted to. So as I see next 2, 3 months, I don't think that we would have any major concerns coming in, in terms of the material availability. When it comes to export growth opportunities, at this point of time, it's very difficult to predict how each country markets will open up. I think India is large enough complication for us to imagine that and to do this across 30-odd countries that we do. But we are in close contact with our local distributors there to understand the dynamics playing out. In a few countries, our distributors have done a fabulous job of reaching out to customers who needed batteries in these tough times. I think as the markets open up, we will have to carefully calibrate how the demand recovery will happen. Replacement markets are expected to have strong and fast recovery. And we also have to carefully calibrate particularly in markets where they are largely dependent on imports, how would the sources from other suppliers behave? Will the other suppliers from other countries have the same ability to serve the market? Or do we see some opportunities opening up for us because of supply constraints from other manufacturers? And we will definitely leverage if there are opportunities like that presenting to us. I think one general comment I want to make here, Amaron in many market sees in the premium end of the market pricing there. We do -- unlike in India, where we have multiple price points and multiple product lines available, in the most export markets, we have positioned Amaron at the premium price. So the address -- the market that we address there could be limited to about 20%, 25% of the market size, on a general sense, varies from country to country, which means there is another 70% plus of market available for us to explore if we get a bit more focused product strategy in those markets. So these are all options available on the table for us. And we'll be actively pursuing that in collaboration with our local distributors there. So far, over the last many years, we've had a fabulous growth on the export volume, and we will continue to pursue those opportunities going forward.

Next question is from the line of Prateek Poddar from Nippon India Mutual Fund.

Sir, could you just talk about the mean reversion of -- I mean you did talk about it, but a bit more quantitative, if possible, in terms of mean reversion of this replacement demand in the automotive sector versus pre-COVID levels, where have we reached in the month of May? And how do you see this trend now?

I think -- I don't have numbers immediately to share in terms of what happened in the May. In the sense that May ended only yesterday night, and we're consolidating the feedback from all our franchisees. But from a tertiary sales perspective, I believe in semi-urban and rural markets, the demand pickup has been strong enough. There are still some urban centers. I think if you -- in a general sense, if you speak today, Delhi, Mumbai, Chennai continues to be at the peak of concerns in terms of number of cases. The containment zones are many -- much higher there. The health crisis is much bigger. So I think the metro markets may take little bit more time to open up. On an overall sense, we are pretty encouraged by the demand recovery patterns that we have seen during the course of the month of May.

Sir, when you say reasonable, it would be in like 50%, 60% of pre-COVID levels? Is that the way to think about it? Not trying to put words in your mouth, but just trying to understand the definition of reasonable, to be honest.

Yes. If -- I mean you need to see whether this is the whole of the month or it's a run rate for let's say last week of the month. The run rate for the last week of the month has reached better than the numbers that you talked about. But please also understand that first half of the month was still having certain lockdown restriction. So not all geographies and the number of markets that were active -- till 10th, 12th, 15th of May was still restricted. So if you take last week of the month and then want to know what the run rates are like, they're better than 50%, 60%.

That's wonderful to hear, sir.

Next question is from the line of Nishit Jalan from Axis Capital Limited.

Congratulations on good set of numbers. Most of my question is answered. Just 1 or 2 questions. Firstly, on the CapEx front, you talked about expansion on the 4-wheeler side. I think there was some expansion going on, on the 2-wheeler battery also, right, to take the capacity to 25 million units. And secondly, we had undertaken a CapEx to expand capacity for tubular batteries also, basically to cater to the home inverter and the e-rickshaw market. So just wanted to understand where are we in that process?

Yes, we [Technical Difficulty]

Sir, sorry to interrupt you. You are not audible.

Yes. Is it okay now?

Yes, sir.

Yes. The 4-wheeler third plant is currently under construction. It should be completed sometime in FY '21. As far as 2-wheeler is concerned, yes, the second plant, whose eventual capacity could be around 16 million, 17 million batteries, currently, we have added line sufficient to take the capacity over to about 10 million. So that's where the overall 2-wheeler capacity, I have mentioned earlier, around 9 million to 10 million. So including my first plant put together is in the range of about 19 million as a capacity, as we speak. So now any further addition of capacity in the 2-wheelers will be based on how the demand signals emerge because these are line additions, will not -- this is not a greenfield unit expansion, so it will not take so much time. So any line addition will be based on how the demand signals are going to evolve. Now coming to the tubular side, currently, our capacity is about 1.3 million batteries capacity is what that plant has. We have plans to expand that 1.3 million to about 1.6 million, 1.7 million batteries. That work is going on now. So that should be ready for our -- because now that we are also moving into the e-rickshaw product segment, our product is ready now, and then it has been -- now the field trials are also getting completed. So we will be needing this additional capacity to meet the e-rickshaw battery demand also. So by the end of FY '21, we should reach about 1.6 million to 1.7 million battery capacity as far as tubular is concerned.

Okay. And sir, just one more question. On -- again, on the replacement side, lead prices have come off further. We have seen a big decline happening, obviously, probably related to the COVID and the global slowdown. Have you started to see any price cuts happening in the replacement market to pass on the benefit of lower [ lead prices? ]

See, at this point of time, during this lockdown period, obviously, battery makers will be impacted because of the capacity utilization. And I don't think there is a severe immediate action that is there in terms of reducing the prices. But as Vijay was mentioning sometime back over a long period of time, obviously, when the lead corrects quite a bit, there is a possibility that things will get passed on to the customer. But if you notice, not only the lead has come down, but if you also look at on the rupee side, it has substantially appreciated to about 78 levels, and there is a possibility, obviously, you guys are better judge in that, but obviously, it may touch an 80 level also is one projection that I was seeing. So in that sense, any price correction and -- in the retail aftermarket will be a calibrated one. As of now, we have not seen any such action till now in this financial year.

Next question is from the line of Mukesh Saraf from Spark Capital Advisors.

Okay. So the question is primarily related to the non-auto business. So there were talks about some of the newer subsegments within that, you have the Motive power for the warehousing business or the solar segment, also telecom as a service than just a product. So could you give some update on any of these newer areas within the non-auto segment?

Yes. Mukesh, these are all initiatives that we've been pursuing. They have not scaled up to a level where it will be making a significant quantitative impact on the business, but strategically very important for us. We're continuing to push the Motive power product availability in the market today. We have had some reasonable amount of success in reaching out to the aftermarket requirements of Motive power. We have got also some positive signals from the forklift truck manufacturers in the country. Solar is a key sector. Project-specific supplies have been made where we were also looking at opportunities outside India. In fact, last year, we executed one very prestigious large project in Nigeria. So these are right now strategic in nature, and we are pursuing and going all out on building our capability in this area. Telecom services that you talked about is shaping up pretty well for us. So the emphasis will continue to build the capabilities and the competencies here. Going forward, over the next 2, 3 years, I'm sure it will start paying dividend in terms of the operational performance of the company.

Right, right. So it will take about a couple of years? Okay. And...

To scale up to a level where we can specifically talk about that as a sector, yes.

Right. Right. Right. And second question is regarding the punched grid, which we have started at a certain level, and we're obviously looking to scale that up. Could you give us some sense on the benefits of that we have seen so far in terms of either cost for us or the product being better and hence the market shares? Any sense that you can give on that?

Sure. We started with punched grid -- I don't want to call it as punched grid technology, for us it's more like a stamped grid technology for obvious reasons, but -- the stamped grid technology that we've used for motorcycle is stabilized now. A significant portion of our product line is being made with that technology today. Right now, it's been put into the aftermarket in large volumes. And we are working with our OEMs for technical approvals for this technology to be able to supply them the punched grid product -- the stamped grid product. Automotive project is under execution right now. If COVID has not interrupted, we would have been in advanced stage to commission the plan now, but it will only probably be delayed by a few more months before we are able to commercialize the production. So far, all the technical aspects of it in terms of product testing, in terms of plant execution, equipment -- capital equipment coming in, all of that is tracking our plans perfectly as per the schedule, except that window of time delay caused by COVID.

Right. Sir, the question was more related to the kind of benefits we have seen, say...

Yes. Fundamentally, there are 3 things that this technology is expected to deliver, and we have started experiencing that in the motorcycle product line where it is already commercialized. One is it's a much cleaner operation, much more efficient operation, in the sense that the production scale and production rates are significantly higher than the earlier technology of cast grids. The -- environmentally, these are much cleaner. It doesn't generate all the scrap and the dust and other things that you normally see happening with the cast grid. And the process flexibility is pretty high, which allows me to create multiple product variants without significant tooling change or equipment change, which gives options for us to create multiple product variants on that. And then there is an overall material saving because of the basic stamped grid technology character, there is an expected material saving, which we have already started seeing in the motorcycle product line.

Okay. On the material savings, any numbers you can give, say, x percentage of raw material cost saved and...

No, Mukesh, I would not be able to give any specific number on that right now, but it would be suffice to say that it gives a leverage for us to make the overall product design much more efficient.

Next question is from the line of Kapil Singh from Nomura Securities.

Sir, you mentioned something about INR 25 crores to INR 30 crores hit due to some of the receivables, which could not be taken. So could you mention where it is taken, in which line item and in which quarter?

Yes. Actually, it is because we have a policy of provisioning the receivables and we have some delays from the BSNL customer where the dues -- I mean it's a news that everyone knows, there is a delay in terms of receivables. So we had to go by our provisioning policy, which is where we have created a provision for about INR 16 crores during FY '20. While we have collected some money, and there is a balance amount that is due, and right now, we are hearing with whatever steps the government is taking, we are sure that we are going to collect it in FY '21.

Okay. So this is taken in Q4 in revenues?

Yes, it was there in all 4 quarters. Q4, specifically, if you look at it, it's about a INR 5 crore hit.

Okay. Okay. And secondly, one question is on lithium ion technology. Could you give your thoughts on both auto and industrial segment in terms of what is that the company expects in both of these segments in terms of technology change? And how are we preparing for it?

Well, this is a subject that keeps occupying our thought processes, discussions and strategic reviews. We've been tracking the developments globally as well as domestically on this. I'm sure all of us are aware that there is some effort that has gone into introduce 2-wheeler and 3-wheeler, EVs in the country with mixed luck. We are yet to see a significant scale-up of numbers happening on that. 4-wheeler effort was much smaller in scale, but significant in terms of the total developmental effort that went behind that. Our estimation is that there will be certain specific sectors of the vehicle as well as on the industrial applications where adoption of lithium will happen. But to get to a scale where it's becoming significant in terms of volume is going to be quite some time away. We are not very clear how COVID is going to impact it. Too early to say, will it accelerate adoption of electric mobility in the country, will it accelerate in terms of renewable energy that needs some energy storage solutions, that's -- I don't think the last word on that is said yet. But in terms of the company's efforts to understand the implications of this and the readiness to adopt it as and when there is a right time to do that, we are pretty much on course with that. We have shared in the past that we have set up a pack assembly facility. Today, we have the capability to manufacture 2-wheeler and 3-wheeler packs of different ratings. We work closely with many OEMs on this opportunity, both in 2-wheeler and 3-wheeler side. And when we make some significant progress on that, we'll be able to share that information.

Sir, particularly on the industrial side, anything to highlight? Like can there be technology changes there as well?

Nothing that would dramatically alter the way the current industry structure is there -- industry preferences or products are there. At least in the next 2 years, I don't see a significant change coming in there. But there are certain niche applications and niche installations where lithium is being used, for example, lithium in data center, it's happening in a small way. You know the entire Jio network is built on lithium product -- lithium batteries. But at the same time, no other telecom tower operators -- tower companies or telecom operators have not really adopted it in a significant manner. But we will be watching it carefully. And as and when, we think there is an opportunity to scale up that product offering, we would be ready to do that.

And sir, could you repeat the automotive side numbers or I can take it offline, if -- however you want to. I missed that at the start of the call.

Yes. What is it regarding?

The 4-wheeler and 2-wheeler growth numbers for the year and for the quarter? OEM and...

Yes. I think I've shared it in my initial remarks and in case if you have not captured reach out to me, we'll be able to -- anyway, we will be uploading the transcript. So...

Ladies and gentlemen, due to time constraint, that was the last question for today. I will now hand the conference over to Mr. Annamalai Jayaraj for closing comments.

Sir, do you want to make any closing comments, sir?

Yes. Thanks a lot for attending this call of -- for full year financials. We are in a very unusual and interesting period, but I'm pretty confident that with all the measures that we are taking right now, the primary focus being the health of our employees, our channel partners and their extended families and the entire stakeholder community, we've managed last 2 months with no major setback to our operations other than the demand being -- due to lockdown, the demand being to almost nonexistent in April and subsequently recovering in May. I think next 2, 3 months would be critical for us to see how the situation evolve. And the best approach we have said is not to loosely predicting what is happening, but be prepared to deal with the context as it emerges. I thank all of you for supporting us all along, and look forward to your interaction subsequently. Thank you very much.

Okay. Thanks, sir. We thank all the participants. We thank Mr. Vijayanand and Mr. Delli Babu for taking time out for the call. We thank Amara Raja Batteries for providing us the opportunity to host the call. Have a good day. Thank you.

Thank you very much. On behalf of B&K Securities India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.