Comparative Analysis of Best Battery Companies in India
In this article, we are going to do a comparative analysis of Amara Raja Batteries Ltd. Vs Exide Industries Ltd. which are the major battery companies in India. Battery companies form a major part in Auto Ancillaries. Lets analyze these two stocks in detail.
Amara Raja Batteries Vs Exide Industries
1. Company Profiles
- Amara Raja Batteries Ltd is part of the Amara Raja Group. Amara Raja Group is an India-based multinational company. It is headquartered in Hyderabad. The Amara Raja Group is known for its automotive battery brand Amaron, the second largest selling automotive battery brand in India after Exide Industries.
- Exide Industries Ltd is a storage battery producing company. It is headquartered in Kolkata, India. It is the largest manufacturer of automotive and industrial lead-acid batteries in India and 4th largest in the world.
- These battery companies form a major part in the auto-ancillaries. Both companies are mid cap companies.
2. Battery as an Industry in India
- Market Size Battery Industry in India = Rs. 30,000 Cr
- Amara Raja Batteries and Exide Industries each have 30% market share in this industry in India. In this industry, 60%-65% of the market share is of the organized players and the rest 35%-40% is of the unorganized players.
- Earlier, there was a difference of 30% in the prices of batteries between organized and unorganized players. But post GST, this difference has come down to 10%-15%. After the implementation of GST, the unorganized players faced a lot of problems. But in the long run this good, as now the reporting of their business will be done more accurately and properly because of GST implementation.
- Thus, the organized players have a lot of scope to increase their market share and reduce that of unorganized players. This is the first opportunities these 2 companies have.
- The 2nd opportunities for the battery industry, specifically to the organized players like Mara Raja Batteries & Exide batteries, are the Electronic Vehicles (EV). E-vehicles are the next big thing. This opportunity will open up in the next decade, that is by 2022. The OEM’s have planned on shifting to e-vehicles as soon as possible. Mostly all the companies have started working towards it with the R&D procedure being run with full speed. Many major companies have the timeline to start the rollout of the e-vehicles by 2022.
Thus, this new e-vehicles market looks like a major opportunity which can be grabbed by these 2 companies.
3. E-Vehicle Market Preparations
- Both the companies have started their preparations for this market. These companies too have R&D running at great speeds to benefit from this market.
- For this, Exide Industries has found a foreign partner to help them out. Amara Raja Batteries already has foreign partner. Johnson Controls hold 26% stake in the company. Johnson Controls have the uniqueness to provide technology support and gain stake in the company.
- Hence, Amara Raja Batteries have an advantage here from the technology side. This so because their partner is also specialized in the same industry.
4. The Start
- The Amara Raja Group was formed in 1985. But the batteries division (Amara Raja Batteries Ltd.) was actually started in 1989.
- Exide Industries Ltd started its operations in 1947.
- Exide Industries have a lead of almost 42 years over Amara Raja Batteries in the batteries industry. Still, both the companies share the same market share.
- Earlier, Exide Industries was an undisputed king in this industry. It also enjoyed a lot of benefits post the liberalisation in 1991 which brought a boost in the auto-ancillary sector. But still Amara Raja Batteries have shown more aggressiveness in their business.
5. Comparison of Financial Numbers : Amara Raja Batteries Vs Exide Industries
- As per the market capitalization, Exide Industries is a bigger company.
- Amara Raja Batteries look slightly more attractive in terms of PE ratio.
- From the point if view of ROCE & ROE as well Amara Raja Batteries scores better.
- Virtually, both companies are debt free.
- None of the promoters of these companies have pledged any percentage their, which is very positive factor. This means that the promoters have their complete focus over their core battery business.
- Amara Raja Batteries is just marginally over that of Exide Industries. Thus, both the companies are almost at par in this parameter.
6. Sales & Profit Growths
- The battery companies have experience a growth in their sales numbers of around 13%-14% in the last 3 years. But the growth in the profits of these companies is only around 3%-4%. What is the reason behind this?
- These companies majorly have lead based batteries, which are also the main products of the companies. And in the last 3 years the prices of lead have increased significantly. As a result of this, the Net profit margins of these companies have gone down.
- This why we can see a growth in the sales but not in the profits because there was a continuous inflation in the lead prices which looks like has cooled down currently. Hence, the profits margins of the companies can improve in the future and they may experience profit growth too along with sales growth.
Auto Sector Slowdown
- Auto sector is a cyclical industry with a cycle of 4-5 years. The sector has seen downturn in the recent times. This has directly impacted the auto-ancillary companies, battery companies included.
- Hence, this is also another reason behind the decreased growth of the battery companies. But the auto sector will reach a consolidation in the next couple of quarters after which it may experience a revival. The cycle of the auto sector will take turn toward the positive side. Thus, with the growth in the auto sector battery companies will also benefit from it.
- In a financial analysis, PE ratio, ROCE & ROE all 3 parameters are considered very important. And in all these 3 parameters Amara Raja Batteries is performing better.
- In terms of technology support and technology partner too, Amara Raja Batteries seems to have an upper hand over Exide Industries.
- But all these things does not mean that Exide Industries is a bad company. Just that, the company does not look as aggressive as Amara Raja Batteries.
- The profitability growth of the battery companies looks better in the coming time.
- When the auto sector will experience a positive growth cycle, that time these battery companies will also have a positive impact on them.
- The numbers that are used are approximate and have been rounded for presentation purposes.
- We are not in any way saying that these are bad companies or the stock of these companies are bad.
- We are also not suggesting anyone to immediately go and buy the stocks or invest in the stock markets.
- Only an analysis has been presented here. No judgments or final statements are being made here.