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

Ladies and gentlemen, good day, and welcome to the Q2, FY '24 Conference Call of Amara Raja Energy & Mobility Limited, hosted by Valorem Advisors. [Operator Instructions] I now hand the conference over to Mr. Anuj Sonpal, CEO at Valorem Advisors. Thank you, and over to you, Mr. Sonpal.

Thank you. Good evening, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Amara Raja Energy & Mobility Limited. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the second quarter and first half of financial year 2024. Before we begin, I'd like to mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Y. Delli Babu, Chief Financial Officer. Without any further delay, I request Mr. Babu to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Anuj. A very good afternoon to everyone who is on the call. Thanks for your time. The current quarter has seen consolidated revenue growth of about 9.5% on Y-o-Y basis, backed up by the New Energy volumes that have grown apart from the growth in the 4-wheeler and 2-wheeler segment. When we look at the lead-acid business on a stand-alone basis, the revenue growth is about 6.4% on a Y-o-Y basis. This is coming on the back of the volume growth that we have seen in the 4-wheeler segment about 7% and 2-wheeler segment about 9%. And the other applications on the inverter batteries we have seen a degrowth of about 11%, considering the lack of manufacturing volumes, while substantial portion is supplied through our trading of the tubular batteries. Within the 4-wheeler segment, we are seeing robust growth in the aftermarket which has grown around 8% or so, while we have seen the OEMs and exports had a subdued growth during the current quarter at about 3% to 4%. We've seen in the export segment, there were some shipment delays considering the name change that we have done and there were certain custom instances that got a bit delayed, but it is not a sales loss, it's only a postponement to the next quarter. So we are seeing good traction on the exports volumes as well. In the 2-wheeler side, while the aftermarket has grown about 12% to 13%, the OEM growth has been subdued at about 2% to 3%. That's culminated into the overall revenue growth of about 6.5% on the regular lead-acid battery business. The New Energy business during the current quarter has actually more than doubled its revenue compared to the previous year. We are seeing good volume growth both in the chargers as well as the battery packs that we are supplying for 3-wheelers and other storage requirements. There has been a significant volume growth. So that's where the overall revenue for the New Energy business for the first half year has almost crossed the full year revenue of last year. On the margin side, yes, there has been an improvement in the overall margins considering the better realizations and also a bit of savings on the raw material side. The other expenses, you would have observed, there is a growth in the other expenses because of 3 major factors. One is because of the fire incident, the insurance premiums have shot up, which I have explained even in our earlier earnings call. That continues to be an issue in all the four quarters. And also there were certain throughput enhancement projects and cost reduction projects that we have taken up, so we are incurring certain consultancy charges, which is also coming and then hit the P&L during the current quarter. Though -- and there are certain provisioning that we had to make towards the warranty expenses. So these are some of the issues that have caused the increase in the other expenses. But otherwise, all other expenses are in line with the volume growth what we have seen. As far as the other updates are concerned, we have completed the acquisition of Amara Raja Power Systems Limited, which is a charger manufacturing unit. This company has also entered into a technology development agreement for other range of chargers for both the 2-wheeler as well as 3-wheeler applications and also the storage applications. This technology agreement will also help us increase the local value addition and thereby, it will improve the overall charging solution capability within this organization. The plastics business integration, which we have started about 10 months ago, is almost at its fag end [indiscernible] expected sometime in the month of November. And thereafter, we will be completing the integration of the plastic component business with Amara Raja Batteries. Apart from this, there were a couple of queries that we have received on mail, let me respond to that. The recycling plant that is in the subsidiary of Amara Raja Circular Solutions Private Limited is expected to commence its production in the first phase. The overall capacity of the plant planned in 2 phases is about 150,000 metric tonnes. The first phase of 100,000 metric tonnes is expected to commence the production sometime in the month of -- in the first quarter of next financial year. That should help us increase the overall recycling material quantum what we use for -- recycling quantum of lead material within the total requirement, what is required for Amara Raja Energy and Mobility. As far as the fire accident is concerned, we have now completed the lodging of the inventory claim. We are expecting the claim process to complete in the next 1 or 2 months, and we are hopeful to recover all the loss that has come in because of the fire incident. With those initial remarks, I will now open for the questions from the participants. Malcom, over to you.

[Operator Instructions] The first question is from the line of Kapil Singh from Nomura.

Congratulation on a good set of results. Sir, before coming to results, I just wanted to ask you that we have changed the name of the company, right? And we have -- we are saying mobility is also a focus area. So if you could just talk a bit about it, what all will be the target segments that we can incrementally look at? What is the rationale behind this change?

See, from a simple battery manufacturing, I think the idea is to look at solutions around energy, both for the storage as well as the mobility applications across the segments. I think when we are looking at our New Energy business from the point of manufacturing the cells, chargers as well as packs, we are trying to look at all the energy solutions related to the mobility as well as storage. So in order to imply the right strategy, as you know, we have articulated about a couple of years ago in terms of how do we effectively get into the New Energy business at the same time, maximizing the value of the existing business. So in line with that strategy, the idea is on both these major application segments, one is the storage, the other is the mobility. How do we become energy storage solutions provider across both these segments to reflect that the new journey that we have coined, I think the name got changed. So as of now, if you are indicating to me that whether we are getting into any vehicle manufacturing, I don't think that is the idea. It is to convey that we are looking at foraying into -- expanding our foothold into the solutions related to energy, which is both for the storage as well as the mobility applications.

Okay, sir. That's understood. Just coming to company's performance, usually, we have seen that Amara Raja, especially the OEM segment growth has been ahead of the industry. But -- and we have always topped the market share gains. So this quarter, I see that that's not really the case. So if you could just talk us through in terms of market share on the OEM side, where are we or how are we looking at growth as we go ahead? Do you think we will be gaining market share as we move ahead?

As far as the OEM segment is concerned, our strategy is not undergoing any change. So as we have said, the market share assessments we do at the end of every year. So last year, our assessment is that we should be around 35%, 36% of the market share. And even this year, I think by the time we close the year, we should be around the same number, if not better. So as such, there is no change. In the current quarter, depending on what vehicle platforms that we have been participating in some of the OEMs, there could be a minor dip. Compared to the overall OEM production, our sales might have taken a bit of a dip. But that is only a current quarter's challenge. I don't think that is any reflection of any change in our overall market share aspirations as far as OEMs are concerned.

Sure, sir. And if you could talk about the growth outlook for each of the segments going ahead, what kind of growth are you expecting moving ahead? And also, if you could cover other business revenue segment in that. I noticed it you mentioned around INR 150 crores. Is this -- does this include the New Energy business as well?

Yes. The other business segments predominantly is New Energy business. For the H1, we would have reached the revenue size of about INR 240 crores. And the quarter ended question, we have done about INR 150-odd crores of revenue. That is where I was mentioning, this revenue is almost equal to what we have done in the full year of last year because we have carved this out into a subsidiary sometime in the month of July. So that's where -- this is the first quarter where you see that the New Energy revenues are appearing in a separate segment as compared to the legacy lead-acid business in a separate segment. As far as growth momentum is concerned, both in the aftermarket side of 4-wheeler as well as 2-wheelers, we are seeing market growth rates around 6% to 7% in the aftermarket in 4-wheeler, as I mentioned in the earlier calls as well. And in the same manner with the 2-wheeler in the lower double digits we are seeing the growth. And our growth has been pretty robust in both the aftermarket segments. I don't think there is any significant change in that growth numbers. As far as the industrial business is concerned, we are seeing a reasonable growth in the UPS side of the business at about 7% to 8% kind of a growth, that is stable. Yes, Telecom, like I mentioned in our last call as well, we are seeing certain uptick in the demand because of the 5G network expansion, et cetera. That has continued even into this quarter, which is where the overall industrial business also has grown about 8%, 9% levels. So in terms of the lead-acid battery growth momentum, I don't see any significant challenges at this point of time. In the New Energy business, I know we are currently dealing with chargers, and 3-wheeler battery packs and some of the telecom storage battery packs. We are hopeful that we will expand the New Energy business into other vehicle segments and other storage segments in the coming future. So that's what is the summary of how we are looking at the business now.

And sir, lastly, if you could talk about the profitability in the New Energy business, will it be close to double digits already?

It is too early to comment because our New Energy business is currently -- is only the pack manufacturing and also the charger manufacturing. Both you know are highly price competitive. So at this point of time, we are able to see some margins in the range of 7% to 8% as an overall margin number. But going forward, when we increase the overall revenue, I think we will still be able to sustain those kind of numbers as far as the pack business is concerned. But when we indigenize more and more charger manufacturing, there is a possibility of improving the overall margins in the New Energy business. So I think I would -- before creating a benchmark for this -- on margins for this business, I would wait for some more time. But as of now, we are finding because the cell prices are also in a reasonable range, and then there is a reasonable comfort in terms of the raw material pricing. But I think I'm sure considering the B2B business it is, so I would wait for some more time before we put kind of a benchmark on margins for the New Energy business.

[Operator Instructions] The next question is from the line of Aditya Jhawar from Investec.

Sir, if you can talk to us about the lithium ion battery and how are we thinking in terms of technology, in-house versus Log 9 and partnership with global companies. And if you can add to that, that when you are engaging in a conversation with OEMs, what is the response of these OEMs with our different approach, specifically with regard to technologies on lithium ion sir?

As I mentioned earlier as well, so there is a plan that is clearly laid out as far as the 2 major chemistries of NMC and LFP are concerned. I have told you that there is an in-house development on NMC. And then we are working with certain other people as far as the LFP product development is concerned. But that does not mean to say that we are not open for any larger partnerships. Yes, there is some work that's happening on that front as well. As and when something comes up, we'll definitely update you. But right now, we are not waiting for that to happen. I think there is a good amount of investment that's happening within the company to develop capabilities around these 2 chemistries. And also see to it that our plan of going for commercial production some time in FY '26 with the first 2-gigawatt hour line are achieved. So to that extend the efforts are on. So if and when we are able to structure a relationship with any of the global battery makers, that will be definitely we looked that. As far as OEM is concerned, we are working with -- we are at least discussing with multiple OEMs at this point of time. For different vehicle categories, there are different battery requirements are being stated, so there are few who are talking with us making packs on their own. So I think it is still -- I won't be able to say so and so OEM is asking for so and so kind of battery. I think it's a progressive working that's going on with multiple people at this point of time. I'm sure as and when some specifics arrangements are agreed upon, we'll be able to share those details.

Helpful, sir. So next question is, if you can remind us on time line of CapEx spend for the giga factory. You mentioned that FY '26, we will have 2 gigawatts. And overall, we have a plan for about 16. So how is the CapEx spend planned over the next few years and how are we thinking about funding?

As far as New Energy business is concerned, as I have articulated earlier, there are 3 major projects. One is setting up our research hub which is happening near the Hyderabad International Airport. And then there is the second one, which is the customer qualification plant, which is to make all the form factors and chemistries at a mega scale so that can be extrapolated to a giga scale in the giga factory. And third is the first 2-gigawatt hour NMC line that we want to put up where we are looking at starting the commercial production sometime in FY '26. That's the current target that is there in place. Towards these 3 projects, the initial outlay to be spent over next 2 to 3 years' time frame is about INR 1,500-odd crores, which we think in FY, '24. We have completed the land acquisition and the construction has just started. So we may have to spend in FY, '24 of another INR 100 crores to INR 150-odd crores. And then next year, the equipment purchase and all other things -- the orders are getting placed now. So we will have another INR 500 crores to INR 600 crores CapEx being spent next year and the similar amount thereafter. That's the plan as far as the New Energy is concerned. As far as lead-acid battery is concerned, I think we will continue to have a regular CapEx of about INR 150-odd crores. And then there is another INR 200 crores or INR 300 crores of the line expansions that we will do in our existing factories. And any new greenfield -- if at all there is greenfield capacity requirement comes up, at that time I'll update you if there is further CapEx requirement is going to be there or not.

The next question is from the line of from Raghunandhan from Nuvama Institution Equities.

Congratulations on good set of numbers. Sir, firstly on the retail side, I just wanted to get a couple of numbers from you. One, can you share the telecom growth for quarter? And you indicated that consultancy fee was also incurred in this quarter in other expenses. So that is not likely to repeat in the coming quarters. So what would be that one-off amount, sir?

Yes, from a telecom growth point of view on a volume basis, it has grown around 9% to 10% during the current quarter, Raghu. As far as the expenses are concerned, these charges, what we are incurring around INR 10 crores or so may not recur going forward of the 2 amounts that I have indicated. But rest will be there as an expenditure.

Understood, sir. And in terms of building the New Energy business, have you started the efforts of like showing the product capabilities to the OEMs? And how -- if FY '26, the plant is coming up, by when would the tie-ups with OEMs get finalized?

As you know, there are no specific tie-ups that are generally done in our ecosystem. It is generally we work on a particular product development and then as and when that becomes commercially acceptable to both the parties, the supplies will start. So while I can't disclose some of these discussions at this point of time because right now we are dealing with a couple of OEMs on the 3-wheeler side and 2-wheeler side. And also on the storage side, we are dealing with some of the telecom players. As and when there are certain specific agreements that are getting entered in the form of a supply agreement because generally, supply agreements are entered only when the firmed up supply is agreed between both the parties. So I think I would wait for some more time before I can actually come and discuss those specifics in these calls. It will take some more time for me to come back.

Got it, sir. And any progress on that PLI scheme because that 20-gigawatt hour was supposed to be again like offered to the players. So would you be participating in that? Or do you find the conditions of the PLI scheme restrictive?

I don't think as of now, the specific conditions are out. But if the conditions that are going to be laid out in the second round that they are going to come in, if they are reasonable for us to think that it will help the overall business growth, definitely we will not hesitate to participate in. But we will -- for me to answer an yes or no for this, I will wait for the scheme. Once it is out, then definitely, we can discuss on that.

Any time line there, sir? Because...

[Operator Instructions] The next question is from the line of Abhishek from Dolat Capital.

Sir, how is the pricing trend for lead and non-lead RM, like separate and plastic parts? And have you taken any price hike in aftermarket in last quarter?

There were no price hikes taken in the last quarter in the aftermarket, Abhishek. And the raw material prices are fairly stable between first quarter and the second quarter. While we are seeing some uptick in the lead number off late and also a currency depreciation that has happened, I think we will see whether that will have an impact on our overall scheme of things. Accordingly, the pricing decisions will be taken. But as of now, the raw material prices, at least for the last 2 quarters, have been fairly stable, and we are not seeing a serious challenger out of it.

So despite the higher revenue from this New Energy business and fall in export volumes, this quarter, we have seen a gross margin expansion. Is it because of the product mix change, especially for the aftermarket growth in this quarter?

See, I wouldn't call export volume fall and all, definitely they have grown compared to what we have done last year. So I think the timing issue in terms of some of the shipments will get evened out as we move into the next quarter. So as far as margin expansion is concerned, if you see on one side, we have a higher trading volume. For example, in the current quarter, our trading revenue is about 11% and our manufacturing revenue is about 89% on -- when you look at it on a stand-alone basis. Even on consolidated, maybe a 1% change will be there. So in that sense, just because there is a minor reduction in the OEM mix, I don't think it is going to have a very significant impact on the margin profile. I think the initiatives that are taken on the material cost reduction and some of the expense control is definitely giving us some dividends and also some of the realizations that are also helping the overall profitability.

The next question is from the line of Jinesh Gandhi from MOSL.

Couple of questions from my side. You indicated that exports have started to see growth on last year's base. Are we seeing the total normalization of our export volumes? Are we growing on high base, which we had seen till, say, 1Q last year or it is growth on a lower base?

I think last year, base was also reasonably higher. It is not that last year base was lower. We are seeing growth. But in this quarter, we had a blip considering some of the clearances, but otherwise, they are on a clear growth trajectory of 10% to 11% or 10% to 15% that we have been talking about. I think even this year on a full year basis, we will see a double-digit growth in the export volumes as well.

Okay. Okay. And secondly, on -- you indicated about the lead prices have started to inch up in 3Q and also that's fairly reasonable. I think it's almost 8% to 10% higher than the 2Q average. So in that context, given that we haven't seen a material price increase in replacement market for, I think, over 12 to 15 months now, any -- you think this can be passed through to the customers now or demand is not as strong as what we would have liked to before we take price increases?

Price increase decision is definitely in the aftermarket, it's not a dynamic of only cost, it's also about how the competition is behaving. So once we see a trend getting established, generally, we have seen industry have taken the price increases. I don't think it will be any different even now. So I think whether a price increase will happen in Q3 or not is something that I will not be able to comment at this point of time. But at a sustained elevated lead levels, we have always been taking those price increases, but there will always be that lead and lag in these decisions, yes.

The next question is from the line of Mr. Mukesh Saraf from Avendus Spark.

Just some bookkeeping questions. Sir, last quarter, you had mentioned that the power cost was higher by about INR 10 crores to INR 15 crores, and there are some efforts being taken to reduce these costs. Have we already started seeing some benefit of these efforts or its going to take some more time, sir?

Yes, Mukesh, I think last quarter, we had seen certain levies by the government in terms of electricity duty and all. So that is partially compensated because now our solar plant has also started generating the energy, and we are now getting settlements in a particular periodicity. So that has definitely has given us the cushion. So that's where in this quarter compared to the previous year, we have not seen a very significant jump beyond -- I mean, after adjusting for the increase in the volumes, we have not seen a substantial jump in the power cost.

All right. Okay. And I mean in the raw material costs, we do see a inventory buildup if I look at it, about INR 150 crores, INR 145 crores in the stand-alone numbers. So I mean this is just a kind of a seasonality here or any -- could you explain this, sir, the inventory buildup?

Yes. See, I think this -- generally Q3 will definitely be a place where we will see extra demand coming up considering the winter season. So obviously, there are certain inventories that got built up. And also some of the export clearances also has made some of these inventories higher. I think that will come back to normalcy by the end of Q3 as usual, Mukesh.

Right. And just the last thing on the insurance claim. I think you had said INR 100 crores is what we have received so far. And the balance we'll receive in this second or third quarter. So any more amount you have received on the insurance claims?

No, that INR 100 crores is what we have received, but we have also now whatever the lead that could be recycled what was there in that factory has also been recycled. So that, I think, we were able to recover roughly about INR 85 crores to INR 90 crores out of that. And also there were some amounts that were realized on debris clearance. So roughly we can say another INR 90 crores is recovered through the material recycling. And the rest, we are confident that we'll collect those claims from the insurance.

The next question is from the line of Parv Jain from Niveshaay Investment Advisory.

Just a few questions on EPR front. Sir, you mentioned about recycled materials during your presentation. Can you please repeat the figures?

See, we are setting up a recycling plant for lead acid batteries with an eventual capacity of 150,000 tonnes. In the first phase, we'll be having a capacity of 100,000 tonnes, which will be used captively by the battery manufacturer. So we'll be collecting these batteries from the channels and then these recycled batteries will be processed within the Amara Raja Circular Solutions subsidiary.

So these batteries is generally available batteries in the market or particularly our batteries.

Yes. See, the way scrap is procured is not necessarily our own batteries. Generally, the retailers pool up other brands as well. It is not that it is only be our batteries, it can be other brands as well.

Okay. And what is the primary usage of recycled material, our own consumption or resales?

Yes. It will be 100% own consumption. Even today, we use a lot of recycled lead because lead-acid batteries are almost recyclable up to 95%, if not more, because you can recycle the plastic, you can recycle the entire lead. So this is one of the most recyclable product. So in that way, currently, we are using almost like 60% to 70% of lead and alloys requirement through the recycled material. Once we go through our own smelting unit, that percentage will only increase. So once we put up our 100,000 tonnes capacity, that plant itself should give us roughly about 25% to 30% of our overall requirement. Rest, we will continue to procure from other smelters as well as the virgin lead producers like [indiscernible].

And sir, what is the cost advantage that we are seeing here, vis-à-vis procuring a primary lead versus recycled lead?

From a procurement side from external smelters, all the lead is generally linked to the LME, so we will not see a significant cost difference. But when we do our own recycling based on our project estimates, we see that there would be at least a further saving of about 1% to 2% on the overall material cost. That's what is our estimate because we are setting up one of the best technology around recycling. So that should help us give some raw material edge. But we have to understand one more thing that in India, this scrap prices generally move in line with what the LME moves and also in the seasons of tubular batteries, you see that the scrap prices sometimes even shoot up more than what the LME benchmark is. So in that sense, that price volatility of scrap batteries also have to be factored in. If you observe all other listed smelters, the profitability numbers you must be already aware. So I think there will be some level of cost reduction because we will also be reprocessing the plastic granules and then we'll be using them in our -- you know that we are acquiring the plastic component business, that should also give us some cost advantage. So at this point of time, my estimate is on the lead material cost, we may see about 1% to 2% of cost advantage. But I would wait once we run the factory at least for a couple of quarters, I think we can say with confidence as to how much is the possible material cost savings.

Just one last thing. What is the expected time line for this setup?

We are expecting to start the commercial production of this recycling unit sometime in the first quarter of next financial year.

The next question is from the line of Vibhav Zutshi from JPMorgan.

My first question is on the New Energy business. So during our 4Q call, you had mentioned that this year, we could see around INR 750 crores of revenue growing 3x that of FY '23. So would we be still on that target? Any thoughts if 2H is going to see further ramp up?

That was a possibility that I have quoted, Vibhav. We may or may not go closer to that number, but I'm sure we should -- because now that the first half has almost hit the last year's full number, I'm confident that we will be at least doubling the last year number, if not more.

Okay. Got it. Correct. And in your presentation, I'm seeing Omega SEKI as a partner. So is this like a new partnership that you have won over the recent past?

No. these are -- I mean, you know that we are supplying 2-, 3-wheeler OEMs our battery packs. We have started supplying to them as well.

Okay. Okay. Got it. And my second question is basically your announcement on entering into the lubricants business. I think early in September, you had launched a new product. So just wanted to get some thoughts around this business. Do you have plans to scale it up, how should we think about the CapEx going forward and how does this tie into the synergies that you are guiding?

Yes. You would recollect that as part of our value maximization strategy, we have said that all the effects that we have on the legacy lead-acid business have to be, I mean, used more effectively. So naturally, channel is one of our big asset. And we felt there is a possibility of selling other allied products through this channel so that both the value for the channel as well as value for the company is maximized. So that's where the loops came in as one of the products that we thought we can participate in. So initially idea is we are doing trading on these loops for 2-wheeler, 4-wheeler as well as the trucks and tractors. So as part of optimizing the channel's capability -- in one sense, this will also help expanding our channel as well because now we'll be touching even those sole lubricant points as well, which may become one of the potential battery sellers as well. So that's where I think it should actually augment our channel as well. So right now, the thought process is to see what are those allied products, which will actually help us grow and also help the channel to grow their overall business so that's where we have started this. Going forward, we'll come back if at all -- right now, the CapEx investment into this is very meager, except for a few moulds that we invested. So there is no great capital that we are putting behind those business. So if at all there any plans around it, we will come back and share it with you.

The next question is from Ayush Mittal from Mittal Analytics.

Am I audible?

Yes. Yes. You're audible.

Sir, first question from my side is more about the growth in our core lead-acid battery business. One, what is the aftermarket number that we would be having as of now? And given that we see that the number of vehicles keep piling, what kind of growth rates are we seeing in this segment for us? Because the growth rate of 6%, 7% overall looks a bit low. So I'm trying to understand more about the consistent growth for us.

When we look at the vehicle segments, we know the OEMs were sluggish in the last 2, 2.5 years. Naturally, the fleet size growth is definitely limited on account of lower volume growth that we have seen in the OEMs. That will definitely play how the aftermarket grows with about 2.5 to 3 years kind of a lag. So at this point of time, we see that on a full year basis, the aftermarket for 4-wheelers maybe in the higher single digits. That is around 7% to 8% on the optimistic side and maybe about 6% to 7% on the pessimistic side. And 2-wheelers, we are seeing a lower double-digit growth around 12%, 13% kind of an aftermarket growth is being seen as far as a 2-wheelers are concerned.

Okay. Okay. And this what is the sustainable thing you see?

Sorry?

This is the sustainable number you see?

Yes, yes.

Okay. Sir, second question I keep wondering is that recently, a partner pulled out a big chunk of equity, but there was no participation from the promoters. Any thoughts on that? And why we are not thinking of buyback or something at some point of time?

I think the exit of Brookfield -- because after Johnson Controls exited their power solutions business, Brookfield was the financial investor. It's a decision that they have taken as part of their global strategy. So at that point of time, there was no direct purchase that has happened by the promoters. So we will -- decisions around other buyback or any other capital allocation decision are a matter of continuous debate. It is not that we are ruling out anything at this point of time. We will take those -- because as a business, we are also investing heavily into the New Energy business. So once we see the cash flow sustenance, the management is on a constant review of all these matters with respect to the capital allocation. We'll come back to you as when a specific decision is taken around that.

The next question is from the line of Gaurav Nigam from Tunga Investments.

Sir, my first question was on, I just wanted to understand how is the auto OEM volumes and Amara's OEM segment volumes are correlated? Because one thing is very clearly visible in the market is that higher priced products are growing more and there's a muted volume growth in the lower price segments in both 2-wheeler and 4-wheeler segments. So does it have any implication on the Amara's auto OEM volume growth?

The OEM platforms, whenever we participate, it does not say that we will only participate in certain segments, and we don't participate in others. So it is like there are certain vehicle platforms, sometimes the shares will differ, how much is given to one player vis-a-vis the others. So beyond those operational details, I don't think there is any change in our overall strategy of participating in the OEMs. We are participating in almost all the OEMs as of now. We are even trying to -- in some of the OEMs, which are now working on an AGM battery, we are also now ready with the product, and we are now trying to work with those OEMs to provide the AGM battery as well. So in that sense, be it on the product development, be it on participating in as many vehicle platforms that we can, there is no change in our stance. I think the idea to grow the market share within the range what we have set for ourselves will continue.

Got it. So just a clarification. You are saying that overall volume growth of the industry should broadly mirror the auto OEM volume growth for Amara Raja. Is that correct understanding based on this statement?

Yes, yes. On a full year basis, yes, but definitely minor deviations are always there.

That's fair, sir. That's fair. Understood. And sir, second question was on the...

[Operator Instructions]

I just asked one question.

Sorry, go ahead.

Yes. Sir, just one question on the lithium ion batteries. Sir, I understand you're planning for FY '26. But from a design perspective, who are we targeting as a customer segment? Is it 2-wheeler, 3-wheeler or 4-wheeler and are these capacities fungible in nature that we can do any kind of end-user segment? And do we need to have MOU in place before we do the FY '26 capital commitment? Just wanted to understand perspective on that?

Initially, the NMC sales are going to be used in a 2-wheeler product. There is also a possibility that some of the 3-wheelers may also use the NMC product. So secondly, as far as fungibility is concerned, from a chemistry point of view, they are reasonably fungible. There may be a requirement of a minor capital addition. But only when it comes to the form factor, there could be an additional CapEx that we may have to spend. But otherwise, when we want to change from NMC to LFP, there may not be a significant CapEx penalty. So -- but as such, in our long-term view, at least at this point of time, we believe LFP chemistry will have almost a 60% kind of share, whereas NMC chemistry may have about 30%, 35% and rest could be with the other chemistries that can come in. So in that sense, we don't see a great capital risk around the initial investment what we are making both from a chemistry point of view as well as from an application segment point of view.

Got it. Got it, sir. And sir, your answer on the MOUs, is that required for FY '26 like capital commitment or that you will do it as and when it comes?

I think -- the B2B scenario at this point of time, I don't have any specific MOUs that I can share with you, but these are ongoing discussions. As and when things come to a shape, we'll let you know.

The next question is from the line of Sandeep Dixit from Arjav Partners.

I just had 2 questions. Number one, you had mentioned that there is some kind of a one-off in the cost or expenses in this quarter. Is it possible to point it again?

I think I mentioned that about INR 10 crores would be the one-off item in the expenditure because there are some specific projects that are running. So once those projects are done, we may not incur it in the subsequent quarters.

Second question was, we haven't seen your margins go back to the 15%, 16% levels that you used to enjoy. Is there some structural change that we have to live with this 13% kind of a -- 12%, 13% levels? Can we expect to go back to 15%, 16% in the next 2 years or so?

Yes. Like we discussed in some of our previous calls as well. If you align the margin percentages with the lead cost, for example, we have seen 16%, 17% EBITDA margins also when the lead was around INR 1,50,000 or even less. I think we have seen INR 1,35,000 also in some quarters. So when you have such low level lead levels, naturally, the denominator impact itself will play and then you see that -- though you make the same amount of money on per battery produced, you are suddenly your margin percentages will appear bigger. So we have seen from there, the lead moving up to about INR 200,000 level. So we have been mentioning that we can -- we are from an internal process efficiency improvement or maybe realization improvement point of view, we can look at that kind of a 15%, 16% kind of an EBITDA margin around when the lead is around INR 1,75,000, INR 1,80,000 level. But now we are -- though we are at about INR 200,000 level, we have now in the current quarter, we reached about 13.8% or so. So the idea is how do we increase our margin quality though the lead -- underlying lead rate is constantly increasing. So that effort is on. So it is not that we can completely delink the lead price level vis-à-vis the margin profile where we are at. So I think if we adjust for it, I think I'm sure we are earning the same amount of money for every tonne of lead processed subject to some product mix changes.

Okay. So then should I be actually looking at it's an absolute EBITDA per battery rather than looking at it in terms of percentages. Is that what you're implying?

Yes. From an efficiency measurement point of view, yes, I would feel that is the right metric, but the effort is to see how do we increase the percentage as well.

Okay. But what would that number be?

Sorry?

What would that number be in terms of EBITDA per battery?

These are measured at each application segment separately. I don't think we used talk those numbers here, yes.

The next question is from the line of [ Saket Kapoor ] from [ Kapoor Company ].

So taking into account our first half growth numbers, what should we anticipate going into H2? These are sustainable numbers in terms of the revenue and the profitability, what should we extrapolate?

I don't want to give a guidance here. But I think on an overall basis, on a full year basis, we can think about considering the industry growth rates, what we are seeing, a 10% revenue growth is possible at this point of time.

Sir, when you were answering regarding our insurance claim part and the other income components, do -- have we accrued any amount for this first half, sir? I missed your comment. I think so INR 80 crores, INR 90 crores or some figure you mentioned. So can you repeat the same once again?

The claim amount received is INR 100 crores. The inventory recycle is about INR 80 crores, INR 90 crores. So they are not part of the other income. So they go as part of the claims receivable that is already recognized in the last year.

They do not form part of the P&L. That is -- these are all operational numbers?

Yes. P&L, yes, yes. P&L, you will not see the impact of the insurance claim because last year itself -- because the fire accident occurred in January 2023. So last year itself those claims and recognition of the claim receivable has been completed.

Right. And last -- second point was regarding the telecom investment pipeline, sir. If you could give us some color what we asked from the telecom companies, especially in terms of the replacement demand and also in terms of new tower being erected for 5G deployment or if you could give us some more color, what we asked from them?

Right now, because of some of the 5G deployment, the base tower stations are also getting strengthened. So that's where there is a requirement of additional batteries over there. But going forward, yes, this sector is also susceptible for chemistry change. So the storage side, if the lithium prices were to be coming in a particular range, then we could see that penetration happening even in the telecom level. But at this point of time, there is a reasonable demand for the lead-acid telecom batteries. We've been using our capacities almost to the level of 85%, 90% kind of utilization, which was earlier around 75% kind of utilization. So we see this demand might sustain for at least, I think, next couple of years. And we have to wait and see how the new chemistry will come in, in terms of its price on per kilowatt hour. And based on that, the migration to the new technologies may happen.

Right, sir. If I may squeeze in just small point. So when you look at the investment cycle or the investment phase where the company is currently and the amount of cash being generated since we are net cash success company, how -- what should investors -- investing community should look at company as a whole, for, say, 3, 4 years down the line? And the incremental cash generation even post the CapEx that has been announced, how should we look 4, 5 years down the line as the name says, Amara Raja Batteries Solutions Company, what should be....

[Operator Instructions]

I just put forward my point, it's up to the management. No issues. I have put forward my point. If they heard me, it's okay, otherwise I will join the queue.

Yes. From an overall capital allocation point of view, [indiscernible] years, how we should think is definitely a question that we grapple with on a daily basis because the investment seem to the New Energy business are quite sizable. And it is also not necessary that the entire additional cash accrual of the legacy business will be totally used for this CapEx either to put up CapEx for the legacy business or for the New Energy business. At a certain point of time, when there is -- how do we fund the New Energy business, what's the right debt and equity mix that should be there for the New Energy business is a decision that we will constantly evaluate. At this point of time, our idea is we should invest the initial risk capital and then make significant progress on some of the milestones that we have set for ourselves. Once we do that, then definitely the capital allocation decision is a matter of time. I think each quarter, we need to review these decisions and accordingly the decisions have to be taken. I don't think I can say any particular formula for it at this point of time.

I now hand over the conference over to the management from Amara Raja Energy & Mobility Limited for closing comments. Go ahead, sir.

Yes. I'm sure a lot of you might have many other questions and clarifications. We will definitely try and clarify them as much as possible. It's always a pleasure to interact with all of you. Some of your questions are always add value to our thinking process. We welcome your questions. Thank you so much for your time, and it's a pleasure talking to all of you.

Thank you very much, sir. On behalf of Amara Raja Energy & Mobility Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.