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

Ladies and gentlemen, good day, and welcome to the Amara Raja Batteries Limited Q1 FY '27 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jay Kale from Elara Securities Private Limited. Thank you, and over to you.

Yes. Good evening, everyone. And on behalf of Elara Securities, we welcome you to the Q1 FY '27 Earnings Conference Call of Amara Raja Energy & Mobility Limited. On behalf of the management, we have with us today Mr. Y. Delli Babu, Chief Financial Officer; and Mr. Swajitha Rapeti, Head, Corporate Finance. I now would now like to hand over the call to Mr. Delli Babu for his opening remarks. Over to you, sir.

Swajitha, you can go ahead with the opening remarks, please. Yes.

Good evening, everyone. Thanks for joining the call. Maybe I'll give a brief of the -- about the Q1 performance first, and then we can move on to the Q&A session. For the quarter ended June 30th, 2026, we have achieved a robust growth of around 24% on consolidated basis with revenue of around INR 4,215 crores, with about 95% of the revenue coming from lead acid business, which grew by around 22%. The new energy business grew by more than 70%, recording a revenue of around INR 209 crores. Our revenue growth has remained strong, driven by sustained volume momentum in both aftermarket and OEM segments. We continue to strengthen and deepen our market position in automotive and home energy sector. 4-wheeler and 2-wheeler aftermarket volumes have grown by around 15%, and OEM segments continue to retain the volume growth momentum of around 24% in 4-wheelers and more than 35% in 2-wheelers on Y-o-Y basis. Further, we also delivered growth of more than 60% in home energy business, both on the tubular batteries and home EPS. During the current quarter, our tubular manufacturing plant operated at 100% capacity However, we continue to supply traded batteries also for meeting the excess demand. The trading revenue in the current quarter stood at around 15% of the lead acid battery revenue. Our automotive international revenue degrew by around 20% owing to significant volume drop in the Middle East market. We are expecting to recover these volumes in these markets in the subsequent quarters. The revenue from industry lead acid battery business grew by around 2% on Y-o-Y basis. The volumes in UPS batteries have grown by around 10%, though the telecom lead acid batteries continue to degrow due to its migration to lithium-ion sector. Lithium-ion telecom volumes grew by around 50%, and during the quarter on a combined basis, we maintained market share of over 60% in telecom segment. New Energy business during Q1 continued to deliver strong performance with revenue growth supported by increased demand for telecom packs and 3-wheeler packs. Both EV and telecom packs have demonstrated volume growth of more than 50% on Y-o-Y basis. Further, we are happy to share that we have inaugurated our customer qualification plant with multi-form and multi-chemistry capability in July 26th. E Positive facility, which is our research facility, is also expected to commence operations in the current quarter. Both the first giga cell and best 10-megawatt-hour factory are, are on track and expected to commence operations as per the timelines indicated earlier. During Q1, the standalone EBITDA margin is around 10.1% and consolidated margin stood at 9.6%. The margins were impacted during the current quarter due to elevated material costs, increased spending on brand promotions, and strategic initiatives, namely Amaron Assist and Factory of the Future. Considering our long-term plans to strengthen our market position at strategic level, we made couple of long-term investments in our manufacturing excellence, organizational capability, and in our brand promotion. The moderation of Q1 operating margins at standalone level reflects these investments. As communicated in our earlier earning calls, we have launched Amaron Assist during Q1 FY '27 in Hyderabad, a pilot project focused on providing automotive services to B2C segment, deepening our customer engagement. Based on the learnings from the pilot, we will formulate a long-term plan on the service business model. Further, to strengthen our market presence in B2C segment and improving our brand equity across all product segments, we've invested in brand presence during various events including IPL, which also led to some moderation in the margins during the current quarter. The other reason that contributed to margin dilution is on account of expenses incurred for improving our manufacturing excellence. By way of capacity enhancement in our existing automotive plants. These costs will add to the manufacturing competitiveness in near future. Higher expenses on these strategic initiatives during the quarter led to a margin moderation of around 0.9%. The other important aspect which also led to the moderation in profitability is a significant increase in the procurement costs of alloy, sulfuric acid, and poly. We did took some price increase during Q4 FY '26. However, subsequently also the procurement cost for sulfuric acid and poly have risen substantially during the quarter. To absorb these costs, we took further price increase in -- of around 3% in June, which helped offset a portion of these cost pressures, although not entirely. Additional price increases of around 2% to 3% will be rolled out during the current month. The above raw material price increases also led to increase in warranty provision and further incremental costs during the quarter led to some margin dilution. Site costs at consolidated level, the margins are lower by around 0.5%, which is around 9.6%, which is primarily due to the additional cost at new energy business towards our upcoming Giga 1 plant and BESS plant. And during FY '27, we estimate to spend around INR 1,700 crores towards our CapEx project with major outlay towards the new energy business of around INR 1,300 crores and rest of it towards the lead acid business including recycling CapEx. This CapEx outlay is majorly towards our upcoming Giga 1 plant which is expected to commercialize during H1 FY '28, and towards other projects including the 10-gigawatt hour and E Positive plant. Out of the planned INR 1,700 CapEx outlay, during Q1 FY '27, we have spent around INR 450 crores, with major outlays towards new energy business. We also like to inform you that on July 18, 2026, Andhra Pradesh Pollution Control Board revoked the closure order issued against the company on April 30, 2021, and the company has withdrawn the writ petition filed before the Honorable High Court of Andhra Pradesh. So, with this, now we can move on to the Q&A.

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

Yes. Just on the, you know, gross margins, wanted to understand when the -- what are the price hikes we have taken in Q1? And, you know, what kind of cost pressures we are facing now. Have we been able to recover most of the cost pressures?

See, as mentioned by Swajitha, we have taken price increase of around 3% in Q1, and then, with the kind of jump that we are seeing in some of these raw materials, they could not offset it fully. So to further -- additionally, this quarter we will be taking around 2% to 3% further price hikes on across product segments. So if the current prices were to stay where they are, this might be sufficient. But we are continuously seeing increasing trends both on the -- particularly on the poly side and sulfuric acid and also some of the alloys like tin, et cetera, are showing further tendency to increase. But we have to wait and see how those price levels will prevail and take those decisions regarding price at an appropriate time. But the B2B segment will continue to -- the price hikes in B2B segment will get delayed because these negotiations have to happen with various B2B customers. To that extent, there could be an impact that we may have to see. But most likely we should be able to pull this back in the -- if not fully in Q2, in the next quarter we should be able to do it. Yes.

And on the other expenses also, are there any items which we can say are non-recurring? Because, you know, other expenses growth has been higher than the revenue growth. So just trying to understand that.

Yes, again, as explained by Swajitha already in the call, some of those initiatives, particularly on the brand promotion, will continue for some but I'm sure over the next couple of quarters they will come back to their normal levels. And also the provisioning that I need to do for warranty when the underlying product costs increase, I also need to carry those provisions for the entire unexpired population. So that also kind of becomes a one-time hit on the P&L. If the freight costs, the fuel costs were to persist from here also, again, with the lack of with the geopolitical issues, then that cost is something might recur in the next quarter as well. Beyond that, the other costs are all in line with the volume that has gone up because substantial tubular volumes that what we have seen in the last quarter have also caused a lot of -- because they are bigger batteries, we need to incur higher freight costs. So rest of the costs are growing in line with the volume throughput enhanced during the last quarter.

Yes. And just one question I had on the BESS business as well. If you could just outline, you know, what kind of asset turns we can expect and what kind of CapEx requirement will be there and, you know, margins in what band will be there. You know, there is, you know, heightened competitive intensity also, it seems, in this segment. So if you could just talk of, you know, what will be our competitive advantages here. How you are thinking about it?

Yes, see, the initial capital outlay for the BESS project could be in the range of, INR 250 to INR 300 crores, and then it can actually -- its capacity will be around 10 gigawatt-hour. So, with the current day's price at the containerized solution level could be anywhere between $100 to $120. So asset terms-wise, it will be, definitely higher. But operating margin-wise, it may not -- it might mimic the way the current pack business is doing. So around 5% to 6% or 6% to 7% kind of level. But as we localize more and more components, the margin profile might change a bit. But still, it will continue to have that kind of operating margin levels of about --- at BESS, margin could be around 7% to 8%. And the conservative margin could be around 5% to 6% could be the possibility. As far as competitive intensity is concerned, I think this project should also, over a period of time, help us bring the cell production into the country. And I'm sure in line with the government's support as well in terms of localizing the supply chain for these BESS systems, it would augur well for us to establish that customer relationships with -- for all these products, and eventually leading to our own cell localization required for this BESS, this program. So we have to think long term and I'm sure this is the increased demand in energy storage requirements in the country, not only at the grid level but also at the C&I level, will definitely help fill this capacity and then we should also feed in well for our cell program expansion.

So this will be LFP, right?

Yes, it will be an LFP. Right now people use 314 Ah cell and there can be suitable modifications in future. Yes.

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

Yes. Just going a bit deeper into this other expenses, and the 0.9% hit which you called out, which is around INR 35 crores, can you just provide a broad split between, you know, these cost for the brand presence, warranty, freight, and the manufacturing processes?

Yes, I think overall number is already given. It is split between the brand promotion activities and the Amaron Assist pilot project, and also some of the Factory of the Future -- that is basically enhancing the throughput across our manufacturing plants where we are doing certain initiatives. From an accounting parlance, though the throughput is enhanced I cannot capitalize them. I need to treat them as revenue expenditure. So those are the 3 major initiatives which have caused a higher increase in the expenses, apart from the warranty expenses provisioning that I have told, and also other power and freight-related expenses owing to the volume increase what we have seen in the last quarter.

Okay, okay, got it. So just a broader question, just a follow-up here. I mean, in the last few years, are other expenses as percentages, percentage of sales used to be somewhere around 12.5%. This has been, you know, going up, and obviously there have been multiple cost increases including power and fuel as well. So I mean, where do we see this stabilizing, say over the, you know, next few quarters? Can this come down to 13%, or I mean, should we expect some elevation?

Yes, because see, some of these initiatives are big ticket items. Once we stabilize our promotion expense and all these, upgradation of debottlenecking expenses we are incurring on the CapEx. I think we will see a reducing trend, but there are a couple of expenditures like freight because of the higher fuel costs that we are currently having, and also the warranty expenses because of higher raw material cost that what we are seeing. These things have to -- will come down only when the bottom cost drivers actually come under control. But otherwise, the other expenses what we are looking at, whether it in terms of employee cost or admin expenses, etc., they will continue to be under moderation as we go ahead. But these exceptional items which I am seeing now will get reduced once these projects are fully done.

Okay, okay, got it. So second question is on the, you know, the whole EV and lithium-ion business. So firstly, you know, have we received the equipment for the 2 gigawatt-hour NMC line? I think last quarter you mentioned the order has been placed. So just wanted to understand the current status.

Yes, they are due for a delivery in Q3.

Okay, okay, got it. And just a follow-up here, the, you know, the BESS facility. So I mean, how do we see this ramp-up happening? Do we have customer commitments? What is the utilization level going to be like, assuming that this gets commissioned over the next, you know, couple of quarters?

Yes, see, initially I think there are enough visibility with the major EPC players who are actually installing projects for various power generating stations. There is a reasonable order book that we are seeing in India itself, and it may also throw some export opportunity as we move ahead in other markets as well. So I don't see a major challenge of maybe in within a period of about 6 months from the time the factory is completed, at least getting to a level of 5 gigawatt kind of a utilization. From there it depends on how the market moves from there, but the capacity can be made up because the line capacity itself is at a 10 gigawatt-hour. So that's the reason we have gone ahead with the 10 gigawatt-hour line capacity. But I think we should be able to ramp up considering the way the requirement on the solar energy is growing in this country.

The next question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities.

Just first to clarify, so on the BESS area you mentioned, in next -- once the plant starts, within the 6 months you can ramp up the utilization towards 5 gigawatts, is it right, sir?

Yes, yes, because depending on, see, how we see the market and then what kind of order flow that we see, our belief is within about 6 months-7 months we should be able to ramp it up to that level. Thereafter, it's a question of how demand moves from there.

Got it, got it. So, that much order is packed with the capacity?

No, I'm saying based on the market demand what we are seeing today, there is a possibility that we can reach that kind of level, in a span of 6 months or so because of existing various order book that we have seen in this country. And we also should find a way to see the market in other geographies as well. So that we increase the utilization level and also keep them consistently growing.

Got it, sir. So this quarter there was a credit mix of around 15% of the revenue. I just want to understand how this, credit mix will go ahead and how much was the impact of because of that, in this quarter. And also just any update how this new tubular and recycle plants are supporting margins, sir?

See, as far as trading is concerned, this quarter, because we had a big tubular season, so which is where our tubular plant, as Sajitha was mentioning earlier, we are fully using the plant. And in addition, we had to buy -- we had to do the trading of inverter batteries and also the HUPS systems. That's where, being a tubular season, the trading revenue percentage is higher. Naturally, at the gross margin level, the trading will show a dilution on the gross margin as you, you incur the manufacturing cost also as a purchase of stock-in-trade. Now whether the same percentage revenue will continue in the subsequent quarters? May not be because now in the subsequent quarters the tubular requirements will be met from our own manufacturing plant. The second part of your question as far as recycling is concerned, the battery breaking operations is still in the trial production, so which should -- and also recently the way these scrap prices in the country have moved substantially higher. Right now, if you do a purchase of scrap and then reprocess the lead, the costs are almost either equal or little higher than what the LME lead is. To that extent, in this quarter there was a bit of a cost pressure on the recycling plant, but otherwise the battery breaking plant, once it gets stabilized, our own battery that we procure from the market for satisfying our EPR obligation should be good enough to feed that plant. And that the recovery from that plant, if it is higher than what we are getting today, then it should help contributing to overall operating margins as well. I think I'll be able to put a -- while at a larger picture, even in the earlier calls we said it could improve the material cost over and above what we are buying today, but provided the local scrap costs are within the earlier limits. But we have to wait and see to put a clear number to it once our battery breaking operations stabilize. That's when I think we'll be able to give you a correct number, and then so that can be clear.

he next question is in the line of Raghunandhan from Nuvama Research.

For Q1, can you indicate on the export side, there was muted performance. How do you see the trend going forward? And also within industrial, if you can talk about various categories like UPS and others, how have you seen the performance across segments?

Yes, I think as Swajitha articulated in the opening remarks, the overall automotive exports on a Y-o-Y basis, we have seen a 20% volume degrowth, predominantly because lower shipments to Middle Eastern markets because the alternative sea routes are quite costly from a freight point of view. We are expecting that there is some normalcy that will get restored in the coming quarters, and then we will be able to recover this loss of volume in the subsequent quarters and still go back to our regular volume throughput what we have seen in these markets. That is one thing. Of course, is dependent on how the evolving geopolitical situation turns from here. As far as industrial is concerned, again, the UPS batteries have grown around 10% during the current quarter, while the telecom continues its shift to lithium-ion. But still, even the lithium-ion offtake was also substantially higher during the quarter, which is why the new energy business has grown by almost like, 60 to 70% over the previous year as a revenue. as far as the other segments, they are growing in the range of 5% to 6%. Of course, they are all smaller -- Railways and Power Control, the smaller volume segments -- there the growth is in the - in line with our earlier estimates of 5% to 6% kind of a number.

That's helpful. On the BESS revenue potential, you indicated that $100 to $120, if you can indicate, you know, like for this INR 300 crore kind of investment, would you be looking at something like a 3x to 4x gross asset turnover? Would that be possible?

See, I think I wouldn't want to jump on conclusion around the numbers because some of this will also depend on, the product mix that will eventually come in. I am just giving you an overall unit metric from an overall industry point of view. So once we actually, as I was indicating, if we actually run this plant for about 6 months or so, I think that's when the picture will be clear. But I would say its economic metrics will be more or less in line with how the pack business is behaving at this point of time. But any improvement from there will only depend on how much content you can actually localize.

On the lithium cell side, you will be starting that customer qualification plant and sample supplies to customers. So, is the acceptance faster for telecom stationary applications in comparison to automobiles? You know, how much time does -- do you think the customer testing and homologation process will take? By when do you expect, you know, like, clarity on new orders from customers?

See, currently, the 2170 cells is what we are making, the B samples, which we would like to provide to the OEMs that we are discussing who need those NMC cells. And they will take the EV side, as you know, there will be an extensive testing of those cells. And then eventually when our gigafactory is ready, the sea sample testing and other processes will also take some time. So it will definitely reduce some amount of time taken by OEMs for completing their homologation even when the C sample is ready. And this customer qualification plan not only helps the approval process acceleration, it also helps to understand the production process better and also see how we can arrest some of those ramp-up costs in the first gigafactory. That's the dual purpose for which we have constructed that facility. So right now the NMC cells are being produced. And after the internal testings are over on those cells, we will be giving them to the OEMs for their testing. Now coming to the storage side of it, any LFP cell that we generate by our own technology effort, can be tested in this plant. And if we are able to convince the B2B customers on the energy storage requirements, then because some of these packs also go with a warranty promise to the energy storage customers, there the time taken for acceptance by the customers might be substantially lower than what an EV customer would take. But certain critical installations like telecom, people will -- customers will ask for the extensive testing before they actually accept any particular cell because any cells that are made by any supplier for that matter require to be approved by the customer. But relatively the time taken by these energy storage customers is definitely lower than the EV customers.