Amara Raja [NSE:ARE&M] - fully charged for the future
When a rationally optimistic management team is presented with boundless growth opportunities
Summary
Amara Raja, India's second-largest automotive battery manufacturer, is pivoting from traditional lead-acid batteries to advanced energy storage solutions, including lithium-ion batteries for electric vehicles. With strong financials, significant manufacturing capacity, and strategic partnerships, the company is well-positioned to capitalize on India's energy transition.
After the recent market downturn, Amara Raja is trading at an attractive valuation, presenting a promising opportunity to gain exposure to India's growing energy and mobility sectors.
Detailed analysis follows, covering:
Industry overview
Business model
Management
Financials
Competitive advantages / moat
Runway / future growth potential
Risks
Valuation
Sources
Industry overview
The global energy storage industry is undergoing a fundamental transformation driven by the rapid electrification of transportation and the growing adoption of renewable energy sources. In India, this transition is accelerating due to government initiatives promoting clean energy and sustainable mobility solutions.
With the upcoming transition from ICE (Internal Combustion Engine) to EV (Electric Vehicle) vehicles, battery producers would be one of the biggest beneficiaries, as batteries make up 25~40% of the vehicle cost and would need to be replaced every 2~3 years.
The broader Indian battery market is expected to grow at ~16% annually, largely fueled by electric vehicle battery demand, which is expected to grow from 4 gigawatt hours (GWh) in 2023 to nearly 139 GWh by 2035 (34% CAGR!). To put this in perspective, China's 2024 lithium-ion battery production reached 1,170 GWh, 8 times India's projected 2030 demand!
Amara Raja’s business model
Amara Raja Group, founded in 1985 by RN Galla, has evolved from a traditional battery manufacturer into a diversified energy and mobility enterprise. The company rebranded from "Amara Raja Batteries" to "Amara Raja Energy & Mobility" in 2023, signaling its broader vision and commitment to India's energy transition.
The company’s core business revolves around manufacturing and selling automotive and industrial batteries. Its flagship brand, Amaron, holds the position of second-largest automotive battery brand in India, after Exide. Amara Raja operates eight manufacturing facilities across India and exports to over 50 countries (exports are 12.6% of revenue).
While lead-acid batteries remain the foundation of its business (96% of revenue in Q3 FY25), Amara Raja is diversifying into "next-generation energy storage" solutions. The company is establishing its first giga-factory in Mahbubnagar, Telangana, for lithium-ion cell and battery pack manufacturing, with an initial capacity of 16 GWh for lithium cells and 5 GWh for battery packs. In a significant move to accelerate its lithium-ion capabilities, Amara Raja signed a technical licensing agreement with Chinese battery giant Gotion High-Tech in June 2024.
Beyond batteries, the Amara Raja Group has diversified into related sectors, like packaged food and lubricants. However, these are not significant to either the top line or bottom line at the moment, with almost all of the planned CAPEX going into the battery segment.
Management
Jay Galla, the founder’s son, currently serves as Chairman and Managing Director, with the Galla family controlling around 33% of the shares outstanding. The management team has an excellent track record with no significant controversies in their 40-year history. Jay Galla and his mother Aruna Kumari were active in politics - they were previously elected officials in the Andhra Pradesh state government. However, in 2023, Jay Galla stepped away from politics to focus on running the company
The company had partnered with Johnson Controls, the largest lead acid battery company in the world, but realized that it needs to take risks and make a strong pivot to newer technologies like Lithium in the last few years.
The fact that Amara Raja is part of Nalanda Capital's portfolio suggests a strong endorsement of its management's quality and fiduciary responsibility.
Competitive environment
Amara Raja and Exide are the two major players in the Indian automotive and industrial battery segments, controlling over 50% of the production. Exide had a clear majority prior to 2008 but had put their CAPEX on hold due to the 2008 financial crisis, which allowed Amara Raja to rapidly gain market share.
Today, Exide is still larger, but both are at comparable volumes in the automotive segment. In the industrial segment, Exide is far larger, with more than twice the production capacity compared to Amara Raja. Both companies have announced plans to ramp up Li-Ion cell production, which is expected to be the fastest-growing segment.
Other domestic competitors
Several other competitors operate in the Indian battery market across various segments:
Reliance recently won a PLI award for 10 GWh and have announced 30 GWh total production capacity
Tata Green Batteries - announced 20 GWh Li-ion capacity plant
HBL Power Systems Ltd - Specializes in batteries for aviation, railways, defense, and heavy industries
Eveready Industries India Ltd - Known for dry cell batteries and lighting products
Indo National Ltd - Offers a range of battery products
Okaya Power Pvt. Ltd - Focuses on solar and inverter batteries
Luminous Power Technologies Pvt. Ltd - Provides home solutions including inverter and UPS batteries
Base Corporation - Manufactures batteries for various industries
Su-Kam Power Systems - Specializes in solar power solutions
Some OEMs like Ola Electric and TVS have also announced that they will add Li-ion capacity, to secure the supply for their EV production
International competitors
Some international competitors include:
Clarios (formerly Johnson Controls) is the largest Lead-Oxide battery producer
Panasonic, Duracell, Energizer and Eveready are the largest zinc-carbon producers
Alcad, Enersys and HBL Power Systems are the largest nickel cadmium producers
The largest Li-Ion producers are shown below; The biggest player, CATL, has 242 GWh of capacity, almost 10 times India’s entire capacity (approx. 25 GWh as of 2025)!
In 2024 global Li-ion battery manufacturing capacity reached 2800~3000 GWh. This is expected to scale up in the coming years to meet the demand of ~4700 GWh in 2030.
Moat
Established Market Position: high market share in various battery segments:
Automotive aftermarket: 33% ~ 34%
Automotive OEMs: 25% in two wheelers & 35% in four wheelers
Telecom batteries: 57% ~ 58%
UPS batteries: 42% ~ 43%
Inverter batteries: 10% ~11%
Distribution Network: 39 Distribution points across India, 550+ Amaron franchisees and 100k+ POS locations. Provides a great platform to launch new product lines and service existing customers
International Presence: The company exports to over 50 countries
Strategic Partnerships: The technical licensing agreement with Gotion High-Tech (Lithium-Ion technology), €30m EUR investment in InoBat and venture investment in log9 (Amphion)
First-Mover Advantage: By establishing India's first lithium-ion gigafactory, Amara Raja is securing a leadership position in the country's emerging EV battery market
Manufacturing Excellence: With eight advanced manufacturing facilities across India, the company has developed considerable expertise in battery production, quality control, and operational efficiency. These capabilities can be leveraged as it expands into lithium-ion technology.
Large CAPEX requirements: A 3 GWh Li-ion plant costs $300mn (₹25bn), and subsequent 1GWh takes $100mn (₹8.3bn). So, small players find it difficult to compete with large scale incumbents in the space
Financials
Amara Raja has grown revenues at 12% CAGR in the last 6 years, outpacing Exide, which managed only a 3% growth in the same period. In terms of operating margins, Amara Raja's 12%~16% operating margins since 2019 are also slightly better than Exide, who averaged around 10% margins.
This has translated to better ROCE & ROE figures for Amara Raja , as compared to Exide:
Amara Raja is also net debt-free, only having used operating cash flow to add capacity.
Capital allocation and dividend
Over the last 10 years, majority of cash flow was used for capacity expansion.
Break-up of capital allocation:
78% - capex (majority of which was for capacity addition)
16% - dividend (have commented that they will maintain around 15% dividend payout in the future)
3% - debt repayment
4% - build-up of net-cash position
Their CAPEX has been well spent, resulting in an average ROCE of around 19% in the last 5 years, even though they are only operating at 65%~80% utilization at their existing plants.
ROCE among leading global Li-ion producers has shown substantial variability, ranging from 5% to as high as 20%:
Runway / future growth potential
Their management team have announced a ₹95bn investment target to establish a Li-Ion Gigafactory corridor in Telangana by 2029. This figure equates to 8~9x of their operating cash flow. Hence, they will look into a external funding options such as debt, equity, or a mix of both to achieve their planned capacity of 16 GWh in cells and 5 GWh in packaging. A bulk of the investment is going towards cell making rather than packaging, as many OEMs want to do packing in-house.
Apart from this, the company continues to invest in tubular and lead-acid battery capacity, equating to around ₹3~₹4bn annually. The company is also bullish on the future of the lead-acid industry, with strong demand expected from data centres and automotive auxiliary power (both EV & non-EVs).
The Indian government has announced PLI (Production Linked Incentive) schemes for “Advanced Chemistry Cell (ACC) Battery Storage”
The Indian government has announced a total of ₹181bn under the Production Linked Incentive (PLI) scheme for Advanced Chemistry Cell (ACC) battery storage. This scheme, approved in May 2021, aims to establish a manufacturing capacity of 50 GWh for ACC batteries in India. ARE&M have been conservative while bidding for these grants and haven’t been successful so far.
In the most recent round of bidding for 10 GWh of ACC capacity, Amara Raja Advanced Cell Technologies (a subsidiary of ARE&M) was placed on the waitlist (Rank 2) after Reliance Industries was awarded the capacity. Despite this, Amara Raja has stated that its business model and growth plans, including its upcoming Gigafactory in Telangana, are not dependent on receiving PLI incentives and will proceed independently.
The company is also active in battery recycling, with a dedicated recycling facility in Tamil Nadu, which began operations in November 2024. This facility has an initial recycling capacity of 150,000 metric tons per annum, with plans to increase capacity in phases.
In summary, the company has various avenues for growth:
Transportation
Passenger vehicles (2 / 3 / 4 wheelers)
Commercial vehicles
Railway
Marine
Off Highway Equipment
Defense
Industrials & Utilities
BESS (Battery Energy Storage System)
EV Charging
Telecom
Data centres
Renewable energy storage and grid supply
Hybrid power generation
Microgrids
The company has been exploring ways to increase exports (current 12% of revenue), with a focus on Europe, Americas, SE Asia, West Asia and Africa.
Risks
Competitive Intensity: there is currently oversupply in Li-Ion batteries in India , as India’s EV production volumes are in the nascent stages. Global battery manufacturers are aggressively expanding capacity, potentially creating oversupply situations and pricing pressure in the future as well. There are also non-traditional players like Reliance looking to aggressively expand in battery production
Environmental Compliance:
In 2021, the Andhra Pradesh Pollution Control Board (PCB) issued closure orders for Amara Raja Batteries' plants in Karakambadi, Tirupati, and Nunegundlapalli, alleging violations of environmental regulations. The PCB claimed excessive lead contamination in nearby water bodies and elevated lead levels in employees' blood samples. However, the company has refuted these claims and seems to have been successful in defending their case.
in Jan 2023, a fire broke out at one of the manufacturing facilities of the Company at Chilloor, Andhra Pradesh which caused damages of ₹4.4bn, but no human casualties
Execution Risk: Establishing gigafactories and scaling lithium-ion production involves complex manufacturing processes that differ significantly from traditional lead-acid battery production. Any execution missteps could delay production ramp and market penetration.
Low utilization of new energy plants, leading to low ROCE.
Equity dilution to fund capacity expansion - the company has grown the number of shares outstanding by 7.1% in 2024 to fund their acquisition and CAPEX
Raw Material Supply: Lithium-ion batteries require specific raw materials that face supply constraints and price volatility. The company is looking to reduce its dependence on China for raw materials, exploring alternatives such as buying lithium and cobalt from countries like Australia. However, the reality is that China dominates the supply chain, and companies may be forced to deal with them for the next decade, despite efforts to invest in domestic production and sourcing
Technological Disruption: Newer battery technologies (e.g. Hydrogen, Sodium-Ion) could emerge that render current investments obsolete
Traditional Business Erosion: As the market shifts toward EVs, the traditional lead-acid battery business could face declining demand faster than anticipated, potentially affecting cash flows needed to fund new initiatives
Management team: Jayadev Galla and the current team at the helm have over 20 years of experience scaling up their battery business. However, the next stage of growth is highly complex. So, it will require continued rational decision making and course correction, as it is difficult to predict the demand-supply equation in 5~10 years from now. They also have a complicated relationship with the Telangana and AP governments, having previously been active in politics. However, with My. Galla’s exit from politics in Jan 2024, some of these conflicts seem to have been resolved.
Technological advances combined with large capacity additions have dropped Li-ion battery prices by ~90% since 2013:
Valuation
The two main factors influencing future value are the re-investment rate and ROCE - I’ve simulated 3 cases below to determine a valuation range.
The stock seems reasonably priced at 19x earnings (5% earnings yield). The current valuation seems to assume a growth rate of 9~11% in the next 10 years, which is fairly conservative given the various growth avenues available to the company.
Details can be found in the sheet below.
Conclusion
Amara Raja seems to be one of the best-run businesses in India with a promising runway ahead. For a long-term investor, this represents an opportunity to gain exposure to India's energy transition at a reasonable price. However, there are multiple risks involved and strong execution is needed to capitalize on the tailwinds. I personally like the risk-reward equation, and the company forms around 5% of my India portfolio, with an average investment price of ₹868.
Thanks for reading and let me know what you think!
Disclaimer: The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. I may from time to time have positions in the securities covered in the articles on this website. I use company declarations and open source information sources believed to be reliable, but their accuracy cannot be guaranteed. The author, shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.
Sources
https://www.tijorifinance.com/company/amara-raja-batteries-limited/
https://forum.valuepickr.com/t/amara-raja-energy-mobility-limited-powering-ahead/
Taking the bull by the horns, legacy takes the future head on | Amara Raja Batteries