‘Expansion will help consolidate the business across segments'

Armed with a Rs 90-crore capacity expansion, batteries major Amara Raja Batteries Ltd, is bracing itself to consolidate its market share across segments of automotives, both four and two wheelers, OEM supplies and aftermarket, industrial business including UPS.

The company is now considering expansion of its UPS battery facility. “While the macro economic conditions have been a matter of concern due to general slowdown, high interest rates impacting sale of new vehicles and high input costs, we are confident of growing revenues by 15 per cent and 25 per cent this year. Last fiscal, we closed with gross sales of Rs 2,076 crore,” Mr Suresh Kalyan, Chief Financial Officer of ARBL, said

During an interaction with Business Line, Mr Kalyan outlined the general trends and market challenges from the company's perspective. Undeterred by the market conditions, he felt that as the country's automotive story unfolds the battery business has an extremely exciting future.

The company paid the last instalment of a foreign currency loan and is free of interest bearing debts and enjoys free cash flow. Excerpts.

How do you see the expansion strategy paying back?

Amara Raja has expanded the four wheeler battery manufacturing capacity from 4.2 million units a year to 5.6 mu a year . Alongside, the two wheeler battery capacity was increased from 3.6 mu to 5 mu. The expansion, completed last month, would help consolidate the battery business across segments. The company's manufacturing capacity utilisation is about 80 to 85 per cent in the automotive sector. The UPS battery capacity now at 1.8 million is likely to be taken up for capacity expansion.

The mix of industrial versus automotive seems to be changing?

The industrial and automotive business is now in the 50:50 ratio. This was about 55 automotive and 45 industrial a year ago. The office automation business is being driven by sectors such as IT and ITES, and BFSI, apart from the telecom sector, which is also a major consumer of batteries.

According to estimates, the Indian lead acid battery industry is estimated to be Rs 13,000 crore as of March, 2011. Of this, Rs 4,800 crore comes from the industrial segment and Rs 8,200 crore from the automotive segment. This includes Rs 3,500 crore from the unorganised market. Overall, we have a market share of about 16-17 per cent and hope to further consolidate this business.

What has been the impact of slowdown in the automotive sector?

There are two major aspects in the automotive business. One is the original equipment maker (OEM) market and the other, aftermarket.

Due to the slowdown, the OEM business would be partially impacted. But the aftermarket business would be fine as it is predictable. Further, in the two wheeler segment, we see ourselves playing a bigger role in the OEMs. Hitherto, the focus was on aftermarket.

Will growing input costs impact margins?

The prices of lead have fluctuated both ways. Lead prices went up to $2,600 a tonne and later retraced to $2,000 due to the slowdown in the Eurozone. This impacted us in several ways, positively at times and negatively in other times leading to higher forex outgo. However, overall this is part of the business cycle.

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