Exide vs Amara Raja: Which EV Battery Manufacturer Will Lead the Market?

India is preparing to leap forward in developing cleaner energy sources. The electrification of transport is a top priority.

The demand for electric vehicles (EVs) has been surging across India, doubling in the last three years. With 69,012 units of electric vehicles on road in 2017-18, the number has shot up to 167,041 units in 2019-20.

The Government has also been working relentlessly to boost demand in this segment.

In November 2020, it announced incentives worth Rs 3 tn, encouraging sectors to boost local manufacturing and exports. Of this, Rs 180 bn was earmarked towards advanced cell/battery chemistry. This was to help bring at least 50 gigawatts of lithium-ion batteries into the market.

Apart from this, it also increased incentives for electric two-wheelers under the FAME-II scheme from Rs 10,000/kWh to Rs 15,000/kWh.

Even the cap on discounts was pushed up from the previous 20% to 40% of the cost of a vehicle. This will further reduce the price for an electric 2-wheeler.

With rising fuel prices often making headlines, this is music to the ears of potential customers.

Most EVs use lithium-ion batteries. Unlike lead batteries used in conventional fuel-based vehicles, lithium-ion batteries are the heart of an electric vehicle. It is the single largest cost head accounting for about 40%-50% of its cost.

At present, EV manufacturers import lithium-ion batteries from China, the top producer of lithium-ion batteries. But this trend can change.

Earnest policy changes have urged Indian battery manufacturers to accelerate their plans to build lithium-ion batteries. They hope to benefit from the Rs 180 bn opportunity.

We compare the two dominant players from the Indian battery industry. They are well-positioned to ride this EV trend - Amara Raja and Exide Industries.

Background

Exide Industries

A 75-year-old market leader in the lead-battery space, Exide is the largest lead-battery manufacturer in India. It offers the widest range of products to the automotive and industrial sectors.

Exide operates ten manufacturing plants across India with a capacity to produce 57 m units of automobile batteries. All plants are equipped with state-of-the-art technology.

Amara Raja

Amara Raja was founded in 1985 by Amaravati and Rajagopal Naidu. It is the second biggest player in the lead-battery space in India.

With a widespread presence of its Amaron brand of lead batteries, the company caters to the industrial segment across the country. It operates eight manufacturing plants.

Other than catering to the automobile segment, both companies supply batteries to various industrial segments as well. These can be seen below -

Exide vs Amara Raja Core Industrial Sectors

Amara Raja	Exide
Automotive	Automotive
Renewable Energy	Renewable Energy
Railways	Railways
Power	Power
Telecom	Telecom
UPS	UPS
Oil and Gas	Infrastructure
	Material Handling Equipment
	Mining

Data Source: Company Annual Report

Revenue growth

A crucial indicator, past revenue growth can help you analyse the potential of a business.

Exide and Amara Raja have both grown moderately over the last 5 years, clocking a CAGR of around 4.6% and 13.3% respectively.

The higher revenue growth was led by overall economic recovery, fresh demand and increased traction in the replacement market in the four-wheeler and two-wheeler segment. In addition to this, a revival in exports also contributed to higher revenue growth.

Amara Raja's revenue growth came on the back of the strong positions the company enjoys in the automotive (original equipment manufacturer and replacement) as well as the industrial battery space (UPS and telecom).

The company is positioning itself to benefit from the growing EV market in the country. It has recently set up a technology hub to develop lithium-ion batteries, at its Tirupati facility in Andhra Pradesh.

Exide vs Amara Raja Revenue Growth (2018-2022)

	2018	2019	2020	2021	2022
Revenue (Rs m)
Exide	125,334	147,209	144,710	103,594	127,829
Amara Raja	58,853	67,931	68,392	71,498	86,972
Growth YoY%
Exide	22.8%	17.5%	-1.7%	-28.4%	23.5%
Amara Raja	26.5%	15.4%	0.7%	4.5%	21.6%

Source: Equitymaster

On the other hand, Exide Industries' growth came from supplying lead batteries to the dominant auto players across the country.

From Tata Motors in the four-wheeler segment to Bajaj Auto in two and three-wheelers segment, the company is present across the entire automotive value chain.

Apart from this, Exide is making inroads in the EV segment. With the advent of lithium-ion batteries, the company is forging ahead by tying up with international players.

In June 2018, Exide Industries and Leclanche, a world-leading provider of high-quality energy storage solutions, entered a joint venture (JV) agreement to build lithium-ion batteries to cater to India's booming EV market.

Profitability

A company's profitability is best reflected in its operating margin. This is calculated as the operating profit (earnings before interest depreciation tax - EBIDTA) divided by total earnings.

Simply put, it measures the level of profit a company makes on one rupee of sales from its core operations (before interest and depreciation).

A higher operating margin is centered around two crucial factors - either the company is generating higher revenues or is keeping a tight lid on its costs.

Despite being the number two player, Amara Raja's operating margins have been consistently healthy and improving compared to Exide's.

The issue of the lower margins stems from the life insurance business run by Exide.

The insurance business has been a part of the company since 2000. While the business accounts for 30% of the company's total revenue, it only generates an operating margin of around 4%, dampening the total operating margins of the company.

However, the company recently sold the entire Exide Life Insurance business to HDFC Life. So going forward, the company should report healthier operating profit margins.

Exide vs Amara Raja Profit Margins (2018-2022)

	2018	2019	2020	2021	2022
Operating Profit (%)
Exide	10.7%	11.1%	9.7%	13.2%	11.6%
Amara Raja	15.0%	14.0%	16.1%	15.6%	11.8%

Source: Equitymaster

The biggest cost head for a lead battery manufacturer is the cost of the material that goes into the battery. Batteries used in fuel engines are made of lead, making companies susceptible to any swift movements in lead prices.

Inflationary pressures on input costs have affected the company's margins in the financial year 2022.

Despite large volumes to facilitate discounts and economies of scales, battery manufacturers lack bargaining power with their buyers. Mainly because they are in the auto ancillary sector. Therefore, they operate with subdued margins. But what they lose in margins, is made up in volume.

Dividend

The dividend yield ratio measures the additional income an investor can make, other than the appreciation in the value of the share. The higher the ratio, the better the return for the shareholders.

Exide vs Amara Raja Dividend Yield (2018-2022)

	2018	2019	2020	2021	2022	5Yr Average
Dividend Yield%
Exide	1.1%	1.0%	2.3%	1.1%	1.2%	1.3%
Amara Raja	0.5%	0.9%	1.9%	1.5%	0.6%	1.1%

Source: Equitymaster

The five-year average dividend yield is not very different for both companies with Exide's being slightly higher at 1.3% compared to Amara Raja's at 1.1%. However, both are higher than the current industry average of 1%.

Return on Equity (RoE)

Return on equity is one of the most meaningful indicators of a company's profitability and efficiency.

An excellent tool for analyzing the returns of a company, it tells you the amount of money a company can generate on the shareholder capital invested (shareholders equity).

Exide vs Amara Raja Return on Equity (2018-2022)

	2018	2019	2020	2021	2022
Return on equity%
Exide	12.8%	13.9%	11.8%	10.6%	6.6%
Amara Raja	16.0%	14.5%	18.1%	15.4%	13.1%

Source: Equitymaster

The 5-year average for Amara Raja stands at 15.4%, which is higher than Exide's which stands at 11.1%.

A higher number indicates that Amara Raja is generating more returns by employing its capital efficiently.

Valuation

The most common and effective ratio for comparative analysis and valuation is the price to earnings (PE) ratio. The PE ratio uses the company's earnings to find the value a shareholder is willing to pay for one rupee of earnings.

The PE ratio for Exide currently stands at 3.2.. This is much lower than its 10-year average of 22.5, implying that the stock is undervalued. However, this is not an accurate conclusion.

The company's sale of insurance business is affecting its profitability and skewing its PE number. Hence, a better valuation metric to analyse it's the companies would be price to book value.

The P/BV ratio uses the company's net worth to find the value a shareholder is willing to pay for one rupee of the company's net worth.

The P/BV ratio for Exide currently stands at 1.4. This is much lower than its 10-year average of 3.4, implying that the stock is undervalued.

The P/BV ratio for Amara Raja is 2.1, which is lower than its 10-year average of 5. This also indicates that the stock is undervalued.

Bright Prospects

The vital role played by lead-battery technology across a variety of applications provide significant growth opportunity in the domestic and international markets.

Besides, the emergence of lithium as an alternative energy technology opens up exciting growth opportunities for battery manufacturers.

By 2030, India is expected to accelerate the adoption of electric mobility at varying degrees across vehicle categories, rising from about 6% of the on-road vehicle population to about 33% in 2040.

As India transitions to cleaner energy transportation, lead-battery demand will continue to grow alongside the EVs.

More so, the growing traction of EVs should further enhance volumes for lead batteries as auxiliary batteries in the EV.

Another driver of growth can be the significant opportunities in Europe in UPS and telecom applications where lead batteries will continue to grow, despite lithium gaining traction.

In India, lead-battery demand will remain robust in certain segments such as telecom, which is to witness an annual growth rate of 10% into 2025.

Although currently nascent, the data center market in India, promises exciting prospects for lead battery manufacturers. Having grown 500% since 2014 (against a global average growth of 100% over the same period), albeit, on a smaller base, this trend is expected to accelerate going forward.

With leading corporate announcing large investments in the data center infrastructure over the coming years, it can be a big opportunity for backup power.

All of this bodes well for the two dominant players in the industry - Exide and Amara Raja.

Exide or Amara Raja: Which is better?

While both the companies registered steady revenue growth, Amara Raja has expanded its profit margins.

However, Exide should not be behind, after hiving off its insurance business. The operating margins of the company are expected to grow.

When it comes to return on equity, Amara Raja has been reporting higher numbers than Exide, offering investors more bang for their buck.

From a valuation perspective, the shares of both companies are trading at a discount to their historical valuations.

Still, wondering which is better?

Use our feature-rich comparison tool, which draws a detailed comparison between any two companies.

This tool also includes a graphical analysis making it easy for you to see trends!

You can also compare companies with their peers.

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For a more detailed analysis of the mentioned IT, check out the Exide factsheet and Amara Raja factsheet.

You can also check out the latest quarterly result for Exide and Amara Raja.

Since stocks from the auto ancillary sector interest you, check out the top auto ancillary companies in India.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...