Corporate File

Exide set for li-on charge

| Updated on October 11, 2021

Production plan: Exide could look at 5-10 GWh capacities

Charging ahead: Subir Chakraborty, Exide MD

The battery maker gets ready for the EV wave with plans of a gigafactory

Soon after taking over as the Managing Director and CEO of Exide Industries in May this year, Subir Chakraborty declared, “Lead acid batteries have been in the market for 100 years and Exide has operated for 75 of those years. So I do not think that lead acid batteries would be scooped out by lithium-ion one fine morning.”

But, he also went on to point out that as and when opportunities would come up, Exide would consider opportunities in lithium ion (li-ion), pointing out that the EV scenario in India was not at a stage where lead acid battery makers need to feel threatened. Meanwhile, competitor Amara Raja was investing nearly $2 billion in the space.

By end-August, sure enough, Exide bit the bullet.

The company announced intentions to set up a Tesla-style gigafactory using the production-linked incentive (PLI) scheme, as it ramped up focus on “rolling out” li-ion batteries.

Days after the announcement, Exide also said it would exit from its non-core life insurance business, Exide Life. The company sold off the subsidiary to HDFC Life for around ₹6,700 crore.

The deal was structured in such a way that HDFC Life would pay ₹726 crore in cash and issue 87 million shares to Exide as the remaining amount, at ₹685 per share, which would give Exide a 4 per cent ownership in HDFC Life.

The insurance business, which Exide had acquired from ING Vysya Life Insurance in 2012 for ₹1,679.59 crore, was a concern for Exide investors, who heaved a sigh of relief. In Q1FY22, the business recorded a pre-tax loss of ₹91 crore. As Motilal Oswal in a recent report pointed out, with Exide looking to invest in li-ion battery manufacturing, this monetisation of the insurance business could not have come at a better time.

Gigafactory plans

Exide, company insiders say, is serious about advanced chemistry cell battery (ACC) making. According to Chakraborty, ACC battery-making is cap-ex intensive and the PLI scheme “will act as a sweetener”.

The Cabinet had in May, approved a PLI scheme with an outlay of ₹18,000 crore to promote manufacturing, export and storage of li-ion cells, essential for developing electric vehicles. Bid documents relating to the scheme are yet to be floated.

According to industry estimates, to build 1 GWh li-ion cell, the manufacturing plant requires an investment of approximately $100 million (₹700 crore) and a company needs to have a minimum capacity of 5 GWh (₹3,500 crore of investments) for it to be feasible.

Depending on feasibility, Exide could look at 5-10 GWh capacities, say company insiders.

Assembling the pieces

All the moves that Exide has been making signal its intent. For instance, it recently infused ₹40 crore for an additional 2.5 per cent stake in its JV — Exide Leclanche Energy — for li-ion batteries, in which the company is open to hiking stake further in the JV.

Exide is also planning to bring on-stream its li-ion battery assembly factory in Gujarat by this fiscal-end.

But there are concerns.

According to a section of analysts, Leclanché has a highly leveraged balance sheet with negative net worth and the company has reported operating loss over the past few years. Moreover, it is very unlikely that Leclanché or Exide have the R&D expertise and balance sheet strength to compete with global players or even existing vehicle-makers who may explore setting up their own facilities.

For investors, imminent technological disruptions in the battery space have been a worry. Rising preference for li-ion batteries pose a risk to the two- and three-wheeler segment and the industrial segment, which contribute around 15 per cent and 26 per cent, respectively, to Exide’s overall revenue.

“The core business is vulnerable to the tech disruption from newer chemistry, with the immediate risk to the 2W/3W battery business. Lithium further poses a risk to the industrial battery business,” Motilal Oswal said.

There may be pressure on profitability in the near-term as the ramp-up in utilisation will depend on original equipment manufacturer (OEM) tie-ups and the pace of EV adoption.

However, Chakraborty says his company already has a tie-up with 100-odd OEMs and different prototypes and testing are being carried out. “We are expecting the products to hit the markets around this fiscal,” he added.

In terms of overall outlook, the demand in both automotive and industrial segments remains strong. The replacement segment is also very resilient for the company.

Lead prices, however, continue to inch up.

In India, around 5.5 per cent price hikes were made in the automotive battery segment (lead acid battery) in FY21; while another 4 per cent has been made in phases already this year. The price movement impacted operating profitability as gross margin contracted 284 bps sequentially for Exide. But, Exide’s MD says, price hikes will be passed on as per agreements with dealers and auto OEMs.

Moving afield

Exide is tapping into export markets as it looks to build deeper presence in its existing 50 markets.

Currently, exports account for about 7-8 per cent of the nearly $1 billion of the company’s turnover. For FY21, exports witnessed a double digit growth, the company said in its annual report.

In India, a slowdown in auto sales notwithstanding, the company entered into tie-ups with Maruti, Nissan and Tata Motors.

But the big question for Exide is how it charges into the e-mobility space. Will it be the ‘lion’ in that space as it’s in conventional batteries?

Published on October 10, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.