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MOSL: AUTOMOBILES- Batteries-Huge opportunities, but challenges too-Exide and Amara Raja at the forefront

Automobiles (Batteries: Huge opportunities, but challenges too; Exide and Amara Raja at the forefront)

 

• The battery industry is evolving, led by cyclical slowdown in the auto battery segment as well as competitive pressures in the industrial battery segment.
• GST would drive consolidation in the replacement market of automotive and inverter batteries, leading to strong growth of 16-17% for the organized players.
• New segments in industrial batteries - e-rickshaw, motive power, and solar applications - would drive growth, as conventional drivers of this segment stabilize.
• Electric vehicles (EVs) are unlikely to displace lead acid batteries (LAB), as these are still preferred for SLI (starter, lighting and ignition) application. Manufacturing of Li-ion batteries could be a USD42b opportunity by 2030 (~9x of LAB).
• While we like both AMRJ and EXID, we prefer EXID over AMRJ due to its cheaper valuations (~30% discount to AMRJ after adjusting for insurance business value).

 EVs not to displace lead-acid batteries; to create opportunity to manufacture lithium-ion batteries: Contrary to general perceptions, electric cars (EV) have a 12v lead acid battery (LAB) as auxiliary battery for SLI (starter, lighting and ignition) applications. We believe LAB will remain relevant even in the EV world. We expect localization of Li-ion battery to be highest priority for OEMs to reduce cost of batteries and lower forex exposure. Given the criticality of the battery and scope of differentiation it offers, we expect OEMs to manufacture EV batteries in-house. Li-ion batteries could be a ~USD42b opportunity by 2030 (9x the automotive LAB opportunity). Based on this, the cell manufacturing opportunity would be ~USD15b.