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Leading battery-maker Amara Raja Batteries Ltd is investing Rs 750 crore in expanding its manufacturing capacity. This includes the Rs 440-crore outlay, announced recently.
The Hyderabad-based battery major, which is on course to logging revenues of about Rs 2,900 crore in the financial year ending March 31, 2013, projects that it can achieve a turnover of Rs 4,500 crore with the expanded capacity.
In an exclusive interaction with Business Line , Suresh Kalyan, Chief Financial Officer, outlined how the company is devising strategies for the next growth phase.
Excerpts from the interview:
How will you meet the funding requirements for expansion projects?
We are a debt-free company and have good cash-flows and reserves of Rs 350 crore. We will raise about Rs 250 crore through debt and the rest will be met through internal accruals and cash-flows.
Where are you making the current investments? How much capacity will you add?
The company board last month approved an investment of Rs 440 crore. This is in addition to the approved investment of about Rs 305 crore, which is at various stages of implementation.
Of the Rs 440-crore outlay, Rs 390 crore will go towards increasing the four-wheeler battery capacity from six million to 8.25 million at a new location in Chittoor (AP), where expansion of VRLA (value regulated lead acid) batteries has been taken up. About Rs 50 crore is being invested in such batteries for the telecom sector.
Of the Rs 305-crore expansion, the medium-sized VRLA battery capacity will be hiked from 1.8 million units to 3.6 mu by September. This entails an investment of Rs 190 crore, including Rs 50 crore for land.
About Rs 10 crore has gone towards two-wheeler capacity expansion from 4.8 million to 8.4 million units. Another Rs 15 crore will be spent on capacity addition of four-wheeler batteries from 5.6 million to 6 million by April.
When will you see the actual benefits of the expansion?
Since these are being taken up in phases, the first phase investment of Rs 305 crore will show benefits in 2013-14. But once all the expansion is completed, we will be able to reap the benefits by 2014-15. This will help us hit a revenue rate of about Rs 4,500 crore.
How is the business during the year so far?
We have done well in spite of the tough market conditions. We expect to close the year with a growth of about 23-24 per cent, close to Rs 2,900 crore. The diversified portfolio too has helped.
With the cost of diesel and power going up, telecom towers have shown good volume demand for batteries. The replacement business itself is a big opportunity, though the volume demand had shrunk. Our share will go up to over 50 per cent here.
In the case of two-wheelers, we are not present in the original equipment market, which is about 14-15 million units. We expect to garner a big share there.
The UPS market, which was growing at 14-15 per cent CAGR, has decelerated to 11-12 per cent CAGR. We have a share of 32 per cent and hope to increase it to 40 per cent.
The automotive battery segment seems to have been impacted?
The automotive OE business has seen a de-growth of about 1-2 per cent. But the replacement market is big, growing by about 12-13 per cent. However, the overall auto market is cyclic and the country’s long-term story promises good opportunity.
Therefore, the expansion will help address capacity constraints and address long-term business prospects.
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