A First-Hand Insight into the EV Disruption from a Remote Location in Andhra Pradesh

Jul 31, 2019

Sarvajeet Bodas, Research analyst, The 5 Minute Wrapup

The AGM season is here!

I've been attending annual general meetings (AGMs) of some very high-quality companies. It's certainly been a deep learning experience.

If you've been to AGMs, you'll know that you get to ask questions to the top management.

Yes. Directly to the managing director, CEO and the Chairman. They listen to all the questions patiently and answer them.

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But what do people ask?

Normally, shareholders ask for more dividend payments, bonus shares, gifts etc.

But some shareholders ask really tough questions.

They grill the management about capital allocation decisions, related party transactions, key revenue drivers, new business opportunities, and capital expenditures.

I want to share my experience of one AGM in particular. It was really special.

Why?

The company is foraying into the Electric Vehicle (EV) space.

It has even set up a pilot plant! Here, the company will assemble battery packs with lithium-ion technology. This is to serve the 2-wheeler and 3-wheeler EVs.

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Similarly, development work is underway for E-bus and passenger car segments too.

But just attending the AGM was a tough task for me.

I had to travel to a remote location in Andra Pradesh. It was difficult to get there.

Travelling to this Remote AGM was Difficult

Travelling to this Remote AGM was Difficult

But it was totally worth it.

Why? Allow me to explain...

The company is preparing a road map to foray into the EV space. To begin with, the management is focused on the e-rickshaw.

E-rickshaws have gained significant traction in tier-2 cities. They are replacing the cycle rickshaw for last-mile connectivity.

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This is a good opportunity for the company due to the high replacement cycle of e-rickshaws and the large presence of unorganised players.

They're ready with the first flat plate battery for e-rickshaws.

Similarly, they've developed several lithium-ion products too and are in talks with several e-rickshaw OEMs.

Now if you're thinking this is an opportunity to make fast profits, think again. The management is very careful about investing in the EV space.

You see, investing early could be risky. The company will end up with a huge asset base and high interest cost.

On the other hand, investing late would be a case of missing the boat. However, at this stage, the risk of investing early is higher than the risk of investing late.

That said, the management is actively looking at many opportunities such as e-rickshaws, electric bikes etc.

Overall, I got positive vibes of the management's capabilities to ride the EV boom in India.

My colleague Tanushree also believes in this company.

In fact, she believes the demand for lithium-ion batteries from both the automotive and industrial sectors will be a big tailwind for this company.

This is a key technological catalyst for the Rebirth of India which she is closely tracking.

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Chart of the Day

Despite the slowdown in the auto sector, the sales volume of electric vehicles (EVs) are growing at a robust pace.

Look at the chart below.

Electric Vehicle Sales on a High Growth Trajectory!

Electric Vehicle Sales on a High Growth Trajectory!

Electric-2 wheelers sales volume registered rose 130% YoY in FY19. 4-wheeler EVs grew by 200% YoY.

Similarly, electric three-wheelers reported the highest sales volume of 630,000 units. It is important to note that the electric three-wheeler industry has been growing without government support.

The base is quite low compared to the internal combustion engine (ICE) vehicle sales. However, you cannot ignore the growing momentum in EV sales.

The recently announced government incentives will give a further boost to EV sales.

Warm regards,
Sarvajeet Bodas
Sarvajeet Bodas ,
Co-editor and Research Analyst, Smart Money Secrets

PS: Tanushree will be live talking all about the huge money-making opportunity called Rebirth of India in an exclusive online summit. She has already identified 7 great stocks to ride this boom. Book your free seat for the summit here.

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1 Responses to "A First-Hand Insight into the EV Disruption from a Remote Location in Andhra Pradesh"

Karl Lobo

Jul 31, 2019

Hi Sarvajeet,

I was eager to know the name of this Company that plans a calculated foray into EV's. But you are gonna make me wait. As I hear, many companies are dreaming of making it big in EV's, but are yet to find a sweet spot for various reasons. If I were you, I would focus on companies that are within reach of making it big in EV's than go for those merely dabbling with ideas - unbelievably equitymaster even touted the fact that a company called kabra extrusionik was venturing into lithium ion battery making with an investment of 70 crores or something...can you believe it! They will probably finish the 70 crores with a couple of battery coverings itself. The scale of investment needed is such that eight or something companies have been chosen for transfer of lithium ion tech by ISRO among them Tata Chem, Thermax and other big boys notably Nalco which has the financial muscle and intent to make it big in lithium ion cell production. Nalco is also the lead player among three psu's to source lithium mineral and other strategic minerals worldwide. Tata Chem is setting up plant with investment of 4000 cr for lithium ion batt making, so forget the 70 crore its probably just a fit of an announcement by somebody with vested motive, but you never know what disruption can do..70 crore is a laugh though!!.

Coming back, I would rather choose for analysis two companies that are already there as far as localising production for EV's- Greaves cotton which has acquired Ampere Pvt. Ltd for electric scooters (which is a bigger market than e-ricks) and Ampere is in the EV market for the last 10 years, so its quite tried and tested. With the G. Cotton acquisition one can now grab a listed company, that's around since 1922 or some such, into EV making in India than go for dreamers like the company you alluded to. The second is Bharat Forge which has acquired a large stake in Tork Motorcycles and is making most of the components for them. BF is also gonna introduce commercial vehicles/buses. You can visit their webspace for details. So these two are high quality companies with good dividend payouts that merit coverage your side. But I don't decide that.

Since EV's are going to be the next big thing and we are still not clear what will happen if for example two EV's meet with an unfortunate accident-do the occupants get electrocuted-no answers. Also, lithium ion is prone to heating and there have to be vents for that, so in flood conditions what happens if water enters the battery...so I agree that this dreamer company in going slow. But one has to start big somewhere. Hence, I'd rather go for those who have already hit the market with some degree of experience for coverage.

That is my world view on your article and please dont take it adversely or personally and there is no need to reply. But if you cover the big boys into this EV space it would be good.

Warm Regards,

Karl Lobo

Ps: On an unrelated point, I had a chance to view your recommendation of CDSL. I read adverse coverage on the internet of what CDSL does with its huge cash on book. It does not share it in better proportion with its shareholders and read that they invest in low yielding debt and some equity. So whats the point of stashing the cash and me holding the stock looking skyward?

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