The EV Battery Race is Speeding up with this Multibagger Stock's Entry

There has been an explosion of interest in the EV battery space over the past few months.

More so in recent days after the Indian government extended the PLI benefits for additional segments of batteries.

The interest in the EV battery segment had also picked up pace after India discovered lithium reserves.

Our top analyst Tanushree Banerjee is already calling this the beginning of India's lithium gold rush. She believes investors who get on to the EV lithium battery megatrend early could reap the richest dividends.

So, it shouldn't come as a surprise that Indian companies, big and small, are scrambling to figure out how they can make the most of this technology in differentiated ways.

Yesterday, a specialty chemical company committed to invest a huge-sum to set up a manufacturing facility for lithium-ion battery components.

Himadri Specialty Chemical's Foray into EV Batteries

Earlier this week on 6 December 2023, Himadri Speciality Chemical said it will invest Rs 48 billion (bn) over the next 5-6 years to set up a manufacturing facility for lithium-ion battery components.

The board meeting was held on 5 December 2023 to approve this proposal.

The company will set up a manufacturing facility for production of lithium battery components with total annual production capacity of 200,000 tonnes, either directly and/or through its subsidiaries.

In an exchange filing, the company said that this will help in indigenisation of lithium-ion battery raw materials for global and India's electric vehicle (EV) & energy storage system (ESS).

Gearing up for the Next Leg of Growth

Currently categorised as a smallcap, Himadri Specialty Chemicals is transforming into a diversified chemical company with its toes dipped in niche segments.

The company manufactures speciality chemicals used in various sectors, including carbon black, coal tar pitch, and advanced carbon materials.

In 2023 so far, shares of the company have seen a remarkable run, all thanks to consistent improvement in financials and because of its foray into the EV battery space.

Earlier this year, Himadri Specialty Chemicals was involved in a strategic acquisition of an Australian startup - Sicona Battery Technologies.

The investment of Rs 580 million (m) in a series A round of investment translated into a 12.8% stake in the startup.

Sicona Battery Technologies specialises in high-capacity silicon anode technology for lithium-ion batteries used in EVs.

As part of this strategic investment, Himadri will have two nominee directors on Sicona's board, fostering close collaboration and synergy between the two companies.

This partnership will solidify Himadri's position in the speciality chemicals sector and enable them to actively contribute to the advancement of lithium-ion battery technology for the electric vehicle industry.

This way, Himadri intends to expand its product line by developing items for the renewable energy and EV markets.

Himadri also has eyes set on tyre business. Along with Dalmia Bharat Refractories, Himadri acquired Birla Tyres for somewhere around Rs 3.5 bn.

Under this resolution, Himadri will be the majority player in the entire scheme of things.

According to the company's MD, this acquisition will help securing Birla Tyres' passenger car radial plant, where it will be investing a small amount as capital expenditure to make it operative.

The Numbers Don't Lie

Himadri Specialty Chemicals has been consistently reporting good numbers in its quarterly earnings. Compared to 2021, the recent quarterly figures clearly show a spike.

Quarterly Results Trend

Data Source: Ace Equity

In the past two years, the company's revenue share for the specialty carbon black segment has improved which has supported its operating profitability.

The company operates the largest coal tar distillation plant in India which gives it an upper hand compared to peers.

Even if we look at its full year financials, the company has bounced back sharply from the prolonged slowdown it saw in 2020 and 2021.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	24,224	18,058	16,795	27,913	41,718
Growth (%)	20%	-25%	-7%	66%	49%
Operating Profit	5,676	2,883	1,450	1,633	4,272
OPM (%)	23%	16%	9%	6%	10%
Net Profit	3,243	2,055	475	409	2,160
Net Margin (%)	13%	11%	3%	1%	5%
ROE (%)	21.3	12.2	2.7	2.1	10.7
ROCE (%)	25.5	11.5	4.1	3.6	12.5
Dividend (Rs)	0.2	0.2	0.2	0.2	0.3
Debt to Equity (x)	0.3	0.3	0.4	0.3	0.4

Data Source: Ace Equity

The funding required for the lithium-ion battery manufacturing facility would largely be from internal accruals, according to the company filings. This takes out the risk of heavy debt on its balance sheet.

As per its latest investor presentation, Himadri is also in talks with Ministry of Power for applying under the PLI for grid scale batteries.

Coming to the stock's valuations...

At the current price of Rs 306, Himadri is trading at a price to earnings (PE) multiple of 39x and a price to book value (P/BV) multiple of 5.1x.

This compares with an industry average PE and P/BV of 37x and 4.7x.

Compared to its 3-year and 5-year average PE of 30.2x and 21.7x, Himadri shares are currently trading at a significant premium.

Here's a table comparing Himadri with its peers.

Comparative Analysis

Company	Himadri	Fine Organic	GHCL	Laxmi Organic
ROE (%)	10.7	49.4	31.8	9.4
ROCE (%)	12.5	65.4	36.8	11.6
Latest EPS (Rs)	7.5	149.7	109.5	3.7
TTM PE (x)	39.1	29.4	5.1	75.3
TTM Price to book (x)	5.1	7.9	1.9	4.4
Dividend yield (%)	0.1	0.2	3.2	0.2
Industry PE	36.9
Industry PB	4.7

Data Source: Ace Equity

In Conclusion

The role of EV battery technology in India's clean energy transition is getting hyped day by day.

To me at least, it has become obvious that lithium-ion and EV batteries are essential components of India's ambitious goals.

We need more Indian companies building EV batteries, lithium-ion batteries, and its components.

Local governments can play a crucial role in supporting their battery industry by providing regulatory clarity.

They can also help by investing more in infrastructure, offering tax incentives, promoting education and research, collaborating with industry associations, and supporting entrepreneurial initiatives.

All of this will help ensure a resilient supply chain, promote economic vitality, and maintain technology leadership in this rapidly growing industry.

Happy Investing!

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...