Amara Raja's lithium-ion risk pieces stack costs as margins mocker

Copyright © HT Digital Streams Limit all rights reserved. Amara Raja’s Capeex is tied to £ 1,200-1,300 crore for FY26, of which £ 800-900 will go into the lithium cell and packing industry. (Beeld: Pixabay) Summary investors are caught between a margin-challenging-LOOD-led-acid business and an expensive, uncertain lithium pivot, which seems to be the 17x FY27 PE mates more than unattractive. Amara Raja Energy & Mobility Ltd Juggleren persistent margin pressure at its core-lown-acid battery business, while spending a lot to build capacity in lithium-ion technology, its new energy business. Increased alloy and power costs, together with a higher part of the products with lower margin traded, dropped the operating margin in the June quarter by 220 basis points to 11.5% (Q1FY26). Management expects a gradual margin to restore up to 13% with Q3FY26, using power costs, the reinstatement of the tubular plant, and the beginning of the operations at the new recycling facility, which should reduce input costs. The lead-acid segment, which contributes 96% of turnover, shows mixed demand trends. Two-wheel replacement volumes increased by 5-6% in Q1FY26, while demand for four-wheeler OEM grew 12-13%. Management expects replacement growth to maintain at 10-11% annually for two-wheelers and 6-7% for four-wheel makers. Industrial UPS is led to grow by 5-6%. However, exports were weak, with shipping 7-8% due to tariff-related windwinds, and will probably only recover in H2FY26, as the problems of the supply chain and new markets are open. Several brokers have hampered their earnings estimates for FY26-FY27 after the subdued performance in Q1FY26. But the steep drop of 19% in the calendar year 2025 so far, compared to Exide Industries Ltd’s 6% decline, reflects the concern above the pressure of the margin. Diversification in lithium ion fits with the broader trends in the industry, but the sharpening of prospects and visibility on return relationships in this low-margin business remains dark. Amara Raja has invested £ 1,200 in its Electric Vehicle (EV) arm and needs a similar amount for research labs, a customer qualification plant and working capital. Capital expenses are tied to £ 1,200-1,300 crore for FY26, of which £ 800-900 will go into the lithium cell and packing industry. The first gigafactory line-1GWH of NMC (nickel manganese-kobalt) cylindrical cells is due to the end of the FY27, with a longer-term ambition of 16gWh by FY30. For the time being, however, the company scaled the first phase from 2gWh to 1GWH, while the option was held open to migrate to LFP (Lithium Ironphose) batteries, depending on demand. OEMs are increasingly tilted to LFPs, attracted by their relatively lower cost. Investors are thus caught between a margin-challenging lead-acid business and an expensive, uncertain lithium pivot, which makes the 17x FY27 PE mads look more unattractive. On the income front, Amara Raja’s leading acidic grows faster than that of exide, using a double -digit replacement question, which provides insulation against the cyclicality of OEM and industrial segments, says Elara Securities (India). Further order victories in the production of lithium-ion cells, especially for PV OEM, will drive the valuation in the short term, even if the profitability of lithium-ion cell will initially remain a concern, he added. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #Mark To Make #Amara Raja Batteries Read Next Story