From Amaron to EVs: Amara Raja’s Strategic Energy Pivot

Amara Raja’s Strategic Energy Pivot

Empowering India's Future:

Why Amara Raja Energy & Mobility is a Long-Term Value Play Amara Raja Energy & Mobility Ltd. (ARE&M), formerly known as Amara Raja Batteries Limited, is a name synonymous with power and reliability in India’s energy landscape. For decades, it has been a leading force in the lead-acid battery sector. However, the company is now making a significant strategic pivot, embracing the New Energy Revolution with ambitious plans in lithium-ion technologies. This dual focus, combined with operational strengths and a commitment to sustainability, positions ARE&M as a compelling long-term value idea, despite current market dynamics.

About the company:

Incorporated in 1985, ARE&M is the flagship company of the Amara Raja Group. It has grown to be one of India's largest manufacturers of lead-acid batteries, catering to both industrial and automotive needs. The company diversified into automotive batteries in 1996 through a technical collaboration with Johnson Controls Inc., steadily gaining market share since then. ARE&M's presence extends globally, with exports to over 60 countries and plans to expand to over 80 by FY30. Their flagship brands, ‘Amaron’, ‘PowerZone’, ‘Elito’,and ‘Quanta’, enjoy strong recall in the Indian domestic market. The recent name change in 2023 reflects ARE&M's broader vision to lead India’s energy transition by providing comprehensive energy solutions across the energy and mobility sectors.The company boasts 12 manufacturing facilities, including two plastic units and two new energy plants, showcasing its robust operational footprint. Financially, ARE&M maintains a strong position with a minimal debt profile and an AA+ Credit Rating by CRISIL.

Market Position & Financial Snapshot:

ARE&M holds significant market shares across various segments: approximately 60% in Telecom, 35% in UPS, 35% in 4W OEM, 35% in 4W Replacement, 15% in 2W OEM, and 33% in 2W Replacement, contributing to an overall market share of 30-35%.In Q4 FY25, the company reported a consolidated revenue of INR 3,060 crore, a 5% year-over-year (YoY) increase. The traditional Lead Acid Business (LAB)continues to be the primary revenue driver, contributing approximately 95% of the total revenue, while the New Energy Business (NEB) saw a robust 35% YoY growth in Q4 FY25. For the full year FY25, consolidated revenue grew by 10% YoY. However, Q4 FY25 margins were impacted by higher material costs, particularly antimony alloys, elevated power costs due to regulatory issues, a higher trading revenue mix (15% in Q4 vs. 10% in Q3 FY25), and increased warranty and employee costs, leading to an overall margin impact of 1.5-2%. The company has implemented a 2% price hike in April 2025 to partially offset these pressures and maintains an internal target of a 14% EBITDA margin. Despite these near-term headwinds, the company's financial estimates project continued revenue and profit growth. Anand Rathi Research expects a 10% revenue CAGR and 15% EBITDA CAGR for the parent company over FY25-27.

The Enduring Strength of Lead-Acid Batteries:

While the spotlight often falls on new technologies, ARE&M's core lead-acid battery (LAB) business remains a stable and profitable foundation. Lead-acid batteries continue to be a reliable and cost-efficient auxiliary power source for conventional vehicles, hybrids, and increasingly for certain EV applications. Key application areas include data centers, energy storage solutions, telecom, and industrial uses.The Indian lead-acid battery market is projected to grow from $4.6 billion in FY25to $5.8 billion by FY30, at an estimated 5% CAGR. Globally, the market is expected to reach $61.2 billion by FY30. ARE&M is actively enhancing its LAB operations, with Q4 FY25 volumes showing strong growth in 4W (aftermarket up 9%, OEM up 15%) and 2W (OEM and aftermarket up 13%) segments. While the industrial segment was muted due to a 15% decline in telecom volumes (attributed to the shift towards lithium-ion), growth in UPS and data centers provided some offset. To bolster its LAB business, ARE&M is investing in capacity expansion and efficiency improvements. A new 50,000 MTPA lead acid recycling plant commenced commercial production in December 2024, with battery breaking expected from Q2 FY26. This initiative is crucial for resource security and cost efficiency. The company is also reinstating its tubular battery plant, with

commercial production starting in June 2025, which will help reduce reliance on traded goods and improve margins. Furthermore, throughput enhancements through "Industry 4.0" initiatives have enabled ARE&M to add significant battery capacity without substantial additional capital expenditure.

Powering the Future: New Energy Business:

ARE&M's strategic move into the New Energy Business (NEB) through Amara Raja Advanced Cell Technologies (ARACT), a wholly-owned subsidiary established in November 2022, is a game-changer. The company has laid out an ambitious capital expenditure plan of INR 9,500 crore to establish the "Amara Raja Giga Corridor" (ARGC) in Telangana, which includes a gigafactory for lithium cells and battery packs. The first phase, estimated at INR 1,200-1,500 crore, is planned to be funded through internal accruals.

The gigafactory, with ground broken in early 2025, aims for an initial capacity of 16GWh for cells and 5 GWh for battery packs by FY30. Phase 1, focusing on 4 GWh of cylindrical cells (NMC and LFP chemistry), is now expected to commence operations in Q3 FY27, a slight delay from previous targets. While ARE&M did not qualify for the central Production-Linked Incentive (PLI) scheme, its expansion plans are backed by support from the Telangana state government. The company has also formalized a licensing deal with China's Gotion for lithium-ion cell manufacturing, bolstering its production capabilities.

ARACT is developing a diverse portfolio of products (0.5Kwh to 21.0Kwh) for e-mobility and energy storage, having already received certifications and approvals for various battery packs for 2W, 3W, and telecom applications. The company has invested in a state-of-the-art R&D pilot plant for prototyping Li-ion cells and has successfully designed Nickel-rich 21700 NMC cylindrical cells (NMC 811). An R&D facility and a customer qualification plant (CQP) are slated to be operational by the end of calendar year 2025.

The Indian lithium-ion battery market is projected to expand significantly from ~10GWh in FY25 to 100GWh by FY30, with automotive applications driving 80-85% of demand. ARE&M is preparing for this growth by expanding its battery pack assembly capacity to 2.5 GWh across two plants for mobility and stationary applications.

Furthermore, ARE&M holds an 11.3% stake in Log9 Materials, an Indian nanotechnology company specializing in rapid charging LTO and LFP battery technologies. This strategic investment aligns with ARE&M's commitment to advanced chemistry development and a broader ecosystem approach. While initial costs for localized cells might be 15-20% higher than imports, this is expected to reduce as the domestic ecosystem matures. The company aims to achieve breakeven EBITDA of $4-5/kWh at an 8-10 GWh scale, provided a gross

margin of $20-25/kWh over material costs.

Why ARE&M presents a compelling long-term value proposition:

1. Quality Business at Reasonable Valuations: Despite recent margin pressures, the company’s underlying business quality remains strong. As of June 2025, ARE&M trades at ~17x FY26E EPS and ~2.3x book, compared to its 5-year average P/E of ~20x. This offers reasonable entry for a business with both stability and optionality, especially when the lithium-ion capex is largely pre-funded.

2. Strategic Optionality of New Energy Business: The significant investments in lithium-ion cell manufacturing, gigafactories, and R&D facilities provide substantial growth optionality that could unlock considerable value in the future. The company's proactive approach to new energy, including strategic partnerships like the one with Gotion, mitigates the risk of being left behind by the EV transition.

3. Resilient and Evolving Legacy Business: The lead-acid battery market, while mature, continues to show growth in India and globally, especially in automotive and industrial applications. ARE&M's initiatives in recycling and advanced lead-acid technologies (like AGM/EFB to Lithium-Ion 12V batteries) demonstrate its commitment to evolving its core business.

4. Expanded Export Opportunities: Post its dissociation from Johnson Controls, ARE&M has a wider scope for international expansion. The ambitious target to increase international sales from 13.3% in FY23 to 50% in the next 5-7 years highlights a strong global growth strategy.

5. Strategic Investments and Diversified Growth Drivers: Investments like the stake in Log9 Materials give ARE&M exposure to cutting-edge rapid-charging battery technologies. Furthermore, growth drivers such as 5G rollout in telecom, increasing demand from data centers, and the broader push for Battery Energy Storage Systems (BESS) offer diversified avenues for expansion.

6. Operational Excellence and Sustainability: The company's focus onoperational efficiencies through initiatives like the Amara Raja Operating System (AROS) and its strong commitment to ESG principles—including being 12X water positive, high recycling rates for lead-acid batteries, and ambitious Net Zero targets by 2050—underscore a robust and responsible business mode.

Addressing Key Risks:

While the path forward is promising, certain risks are being proactively managed:

Accelerated EV Transition: Instead of being a threat, the EV transition is being embraced as a core growth area through massive investments in the New Energy Business .

Technology Partnering: The licensing deal with China's Gotion and ongoing development with Highstar demonstrate secured technology partnerships for Li-Ion cell manufacturing.

Heightened Competition: ARE&M is building scale, investing in deep design expertise, and in-house Battery Management System (BMS) capabilities to compete effectively and engage with OEMs.

Lead Metal Prices: The company’s new recycling unit and in-house alloying capabilities aim to mitigate the impact of volatile lead prices and ensure resource security.

Capex Funding: While ambitious, the initial phases of New Energy capex are planned to be funded through internal accruals, with future phases potentially leveraging external funding once customer accounts are established and operations stabilize.

The Investment Lens: Legacy Cash Flows + Future Optionality:

The way I see ARE&M is as a two-engine story.On one hand, you have the legacy lead-acid business—a solid, cash-generating,well-run operation that’s available at attractive valuations. While not headline-grabbing, it provides stability, predictability, and a margin of safety. With efforts in backward integration (recycling), digital manufacturing (Industry 4.0), and global expansion, this legacy business is far from being a sunset play. On the other hand, you have deep, strategic optionality in the New Energy Business. Lithium-ion gigafactories, early OEM relationships, investments in R&D and BMS, and alliances with global technology leaders are laying the groundwork for a potentially transformative future. If ARE&M executes even moderately well in this vertical, the market may have significantly under appreciated the upside. Valuing ARE&M purely on the basis of today’s earnings misses the forest for the trees. The lithium-ion business might be sub-scale today—but so were most multi-baggers in their infancy. With time, execution, and scale, what seems like a cost center today can become the engine of disproportionate value tomorrow. ARE&M’s early investments in technology and manufacturing give it a real shot at being among the first scaled Indian cell makers.

Final Thoughts:

In a world chasing what’s new, sometimes the best bets are the ones quietly building both today’s cash flows and tomorrow’s upside. ARE&M is one of them. ARE&M stands out as a business with both grounded resilience and strategic ambition. It’s a classic case of buying a quality legacy business at fair value—with the lithium optionality thrown in for free.Yes, execution risk exists. Yes, competition is intensifying. But for patient investors who can see beyond quarterly numbers and zoom out into the 5–10 year arc of India’s energy transition, Amara Raja Energy & Mobility is more than just a battery manufacturer—it’s a potential enabler of India’s electrified future.

⸻

Saurabh Ved