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Unformatted text preview: October 25 2021 Powered by: TABLE OF CONTENTS
Stock # 1 Amara Raja Batteries
Stock # 2 Fiem Industries Ltd
Stock # 3 Minda Corporation Ltd 3
6 12 23 Disclosures under SEBI (Research Analysts) Regulations 40 Disclaimer 42 3 Backdoor Stocks to Play the 15x EV Opportunity | 2 Stock 1 Amara Raja Batteries
ISRO-Backed EV Battery Player on the Fast Lane of Wealth
In January 2019, the Indian Space Research Organisation (ISRO) selected ten companies
for transfer of its Lithium-ion cell technology.
One of them was Amara Raja Batteries.
India’s premier space research organisation, ISRO, has supported the successful deployment
of indigenous lithium-ion batteries in various missions for a long time.
It believes the lithium-ion (Li-ion) cell technology is one of the most promising electro
chemical energy storage technologies. Due to its high voltage, high energy density, long
life cycle, and good storage characteristics, it finds application in many industries.
In fact, it already finds wide applications in electronic gadgets, tele-communication, and
industrial as well as aerospace applications.
Recent progress in Li-ion battery technology has made it the favourite power source for
electric and hybrid electric vehicles.
Why did ISRO select Amara Raja Batteries?
The company has been at the forefront of producing such batteries for several years now.
The agreement with ISRO for the lithium-ion cell technology transfer is without any royalty
Amara Raja Batteries is one of the country's biggest battery manufacturer and supplier. It’s
the largest supplier of industrial storage batteries in India.
As Amara Raja Batteries' website points out: Every second telecom tower in India runs on
Amaron batteries, as does every third car in Singapore.
Over 14 million Amaron batteries power Indian vehicles. Every minute, there are five Amaron
batteries being fitted in vehicles in India (excluding two-wheelers). 3 | Stock 1 - Amara Raja Batteries Currently Amara Raja supplies auto batteries to Ashok Leyland, Ford India, Honda, Hyundai,
Mahindra & Mahindra, Maruti Suzuki, and Tata Motors. It also exports industrial and auto
batteries to countries in the Indian Ocean rim.
In January 2019, ISRO named 10 companies from a list of 141, to which it proposed to transfer
the technology to manufacture lithium-ion cells developed by the Vikram Sarabhai Space
Centre (VSSC), Thumba, as part of the government's effort to push electric mobility.
The 10 companies that got the tech licence from ISRO only 4 are listed entities:
• Amara Raja Batteries • Bharat Electronics • Tata Chemicals • Thermax However, among them, Amara Raja Batteries is the first one to set up the lithium battery
Under the tech transfer, ISRO will help these companies set up lithium-ion cell manufacturing
units and train their staff.
Under the new policies taken up by the government, adoption of Li-ion batteries will grow
at a tremendous pace in the coming years.
Rising sales of EVs and huge investments in clean energy sources will boost the demand
for Li-ion batteries.
Amara Raja Batteries, the country’s second largest auto battery maker and owner of brand
Amaron, is at an inflection point in its business.
The company is transitioning from being a lead acid batteries (LAB) maker to a new
energy player. It’s diving into growth segments such as lithium ion batteries and solutions
for electric storage.
It’s also evaluating plans for a giga factory to produce batteries for EVs at scale.
By repositioning Amara Raja Batteries as an Energy and Mobility player, the group is
essentially future proofing the business. Stock 1 - Amara Raja Batteries | 4 Amara Raja Batteries’ New Energy Portfolio Source: Company data The company has established a New Energy business unit for lithium cell and battery packs,
EV chargers, Energy Storage Systems, Advanced Home Energy Solutions, and related
products and services.
In a conference call, the management confirmed it has committed a US$1 bn investment
over next 5 years for a 10-12 GWh (gigawatt hours) lithium-ion battery facility.
This is under the Advanced Chemistry Cell (ACC), PLI (Production Linked Incentives) scheme
of the government.
But that’s not all.
Amara Raja Batteries is also betting big on startups that are innovating disruptive
technologies for EV batteries. Its 12% stake in battery innovator Log 9 Materials is a case in
Log 9 Materials is a startup incubated at IIT Roorkee. It has developed rapid-charging
batteries for electric two- and three-wheelers.
It’s also developing an aluminium fuel-cell technology aimed at long-haul electric mobility
as an alternative to diesel generators. The company won the Top Innovator Award at the
ET Startup Awards 2021. 5 | Stock 1 - Amara Raja Batteries So, it’s not just the business transformation for a battery assembler to green energy
powerhouse that could propel Amara Raja Batteries into a new orbit of wealth creation.
By being in the right place at the right time, in the EV ecosystem, the company is an ideal
backdoor play in the massive EV gold rush.
With sufficient comfort in financials and valuations at current levels, the stock is one of
the best bets for investors seeking long-term gains from India’s massive EV megatrend.
Plus, there are few very long-term upsides… Global Supplier of the Lead Acid Batteries
Having worked on and built expertise in the lead-acid battery space for more than three
decades, Amara Raja Batteries is at an opportune position to seek global expansion in this
segment of the business
The global market for lead acid batteries in FY20 was estimated in the range of US$ 38-42
bn, of which 66% was Automotive and 29% Industrial.
Amara Raja enjoys very strong positions in the Automotive (OE and Replacement) and
Industrial battery space (UPS and Telecom).
Even as India transitions to e-mobility, lead-acid battery demand could continue to grow
alongside the internal combustion vehicle. Moreover, the growing traction of hybrid vehicles
will further enhance volumes for lead-acid batteries.
After having gained a healthy global presence, Amara Raja Batteries plans to consider
inorganic opportunities to accelerate market share acquisition. The management has set a
target of topline growth of 15-17% over the next five years, driven by organic growth in the
domestic market and international expansion. Stock 1 - Amara Raja Batteries | 6 Lead Acid Batteries Could Continue to Dominate Industrial Uses Source: Company data Energy Storage Vertical a Gamechanger
India, unlike other developed economies, has not been able to standardise the types of
plugs, voltages, etc.
In keeping with this reality, Amara Raja Batteries has developed an entire charging portfolio
that will be able to deliver charging and swapping solutions as well as AC charging for
The company plans to offer a host of charging solutions as well as the battery management
system, seamlessly connecting the user to the charging stations, the distribution,
transmission and generation of renewable power (predominantly solar and wind).
Presence in energy storage business will allow the company to offer round charging
solutions for the electric vehicles. The company is evaluating the possibility of setting up a
Giga factory. Typically, a large Giga factory of about 8-10 GW could require an investment
of about US$ 1 bn over 5-10 years. 7 | Stock 1 - Amara Raja Batteries India’s Lithium Ion Battery Market to Grow 5x by 2030 Source: Company data Risk to Our Assumptions
Although Jaydev Galla and the management of Amara Raja Batteries have put forth a solid
business transformation plan for the electric vehicle foray, their involvement in regional
politics could have a bearing on the company’s growth.
The Galla family have strong political presence in the state of Andhra Pradesh. Managing
Director Jayadev Galla is the MP from Guntur representing TDP in the Lok Sabha, His
mother Galla Aruna Kumari was a minister in the N Chandrababu Naidu government.
In recent past, the family has been accused of land grabbing by the local government,
and also received pollution control notices. Political repercussion could strongly impact the
growth prospects of the business. Financial Profile of Amara Raja Batteries
Amara Raja Batteries has grown its sales and profits at a compounded rate of around 13%
over the past decade. With minimal leverage on its books, the company has sustained
average return on capital of 31% during this period.
While growth in lead acid battery business could recover strongly, achieving the
management’s target of 15-17% CAGR in volumes over five years is largely dependent on
successful execution of its export strategy.
While its entry in the New Energy business is a step in the right direction, its success will be
dependent on the technology partnership with ISRO, cost competitiveness etc.
Stock 1 - Amara Raja Batteries | 8 For lithium cell manufacturing, it is targeting 8-10 GW capacity to attain global competitiveness.
Considering that that US$ 1 bn capex in the New Energy business will be over 5-10 years,
Amara Raja Batteries can fund this capex through free cash flows of the core business,
while keeping its balance sheet lean. At What Price Would the Stock be Attractive?
Amara Raja Batteries has traded at an average PE multiple of 24 times over last 5 years and
29 times over last 10 years. The stock is currently trading below its 5-year average multiple.
I have valued the stock at 20 times forward earnings.
Since the bet on the electric vehicle megatrend is a very long term one, as per my
estimates, the stock can be expected to compound at average annual rate of 14 to 15%
over the next decade.
This means, from the current levels, the stock can at least triple over the next decade.
Given the elevated valuations of the broader markets, I recommend taking a partial
exposure (50% exposure) to the stock at the current price of 690 or lower.
The best buy price (for full exposure) for the stock is Rs 600.
We will let subscribers as and when the stock offers an opportunity to take full exposure. Action to Take
• Recommend buying Amara Raja Batteries (50% exposure) at current
price of Rs 690 or lower. • Best buy price for 100% exposure is Rs 600 • Target price Rs 2,300 (from 10-year perspective) A Gentle Reminder About Asset Allocation
In a scenario of ideal allocation of funds, I recommend holding at least 60% of one's total
equity portfolio in bluechip stocks. 9 | Stock 1 - Amara Raja Batteries Further, we believe that a single bluechip stock should ideally not form more than 5-6% of
the total portfolio.
However, please note that this allocation will vary from person to person. For something
that works best for you, we recommend you talk to your investment advisor. Market Data
Price on 25 Oct 2021 (Rs)
52-week High/Low (Rs)
No. of Shares (m) 690
1,025 / 665
170.8 Face value 1.0 FY21 DPS 11 Dividend Yld (FY21 at current prices)
Market Cap (Rs m)
Price to earnings (25 Oct 2021, x) Stock 1 - Amara Raja Batteries 1.6%
16.6 | 10 Shareholding (Sept 2021)
Category (%) Promoters 28.1 FPIs 20.8 Banks and MFs 34.8 Public 16.3 Total 100 Financials at a Glance
FY17 FY18 FY19 FY20 FY21 Net Sales Growth 15.1 14.0 12.1 0.7 4.5 Net Profit Growth (2.7) (1.5) 2.6 36.7 (2.1) Net Profit Margin 9.0 7.8 7.1 9.7 9.0 Return on Equity 18.5 16.0 14.5 18.1 15.4 Return on Capital 29.2 25.4 23.1 23.9 22.0 Debt to Equity (x) 0.1 0.1 0.1 0.1 0.1 11 | Stock 1 - Amara Raja Batteries Stock 2 Fiem Industries Ltd
EVs Transition is a Gamechanger for this Smallcap Auto
Few years ago, a study was done in the auto segment trying to decipher what influences
vehicle buying decision in Indian markets.
The study had some very concrete results.
It turned out that one of every three Indians had turned down a vehicle he/she liked, for
another that on account of one factor.
Could you guess?
The answer is mileage.
To appeal to mileage conscious nation, the very famous Maruti Suzuki India came up with
a series of ‘Kitna deti hai’ promotions.
The auto sector may go through a wave of digital and electric vehicle disruption. But
mileage will continue to remain an obsession for a vehicle buyer.
And this is where lies a great opportunity for companies supplying LED based automotive
lighting products and solutions. The Connection between Mileage and LED-based Auto Lights
In a conventional vehicles, the lights could be halogen or LED based.
In an ICE fuelled vehicle, the reasons for choosing LED could be better style and aesthetics.
For EVs, this is a functional need. That’s because LED car bulbs typically consume much
And the energy saved on LED based vehicle lighting can add multiple miles to the journey
as compared to traditional lights.
No wonder then almost all EV models, existing and to be launched in future, are going with
LED based lights.
Stock 2 - Fiem Industries Ltd | 12 In short, EVs disruption comes with a huge opportunity for auto LED makers.
And could be a game changer for Fiem Industries. You see, 2 wheelers are likely to be the
most promising segment for EV transition. The company derives almost 96% revenue from
Fiem Industries was the first to introduce LED lights in 2-wheelers. Unlike other players that
have been sourcing the technology, the company is reliant on in-house R&D.
The company is one of the leading manufacturers of automotive lighting (headlamps, tail
lamps, and blinker lamps, fog lamps, warning triangles, interior lamps, and beacon lights),
signalling equipment and rear view mirrors in India.
While its products could be classified as EV agnostic, the EV transition and incremental
demand for auto LEDs has been a big inflection point for the business.
The realisations in conventional or halogen auto lamps range from Rs 800 to Rs 1,500.
In case of LED, the realisations are more than double – Rs 2,000 to Rs 5,500 or even Rs
6,000 – depending on the design and configuration.
The business is 1.8 times to 2 times in LED-based electric vehicle as compared to an ICE
based vehicle, along with better yields and margins.
While higher realisations/yields on LEDs will benefit the company from a value perspective,
even volume wise, the opportunity is huge. Sole Supplier to Ola Electric – A Game Changing Proposition
Fiem has been selected by Ola Electric as the sole supplier for headlamp, tail lamp, indicator,
rear fender assemblies (all LED based products) and mirror for its electric 2-wheelers.
Ola Electric is setting up a facility near Bangalore to churn out 10 million electric 2-wheelers
by 2022. This is more than half of annual ICE based 2-wheelers sales in India.
Such scale will catapult the company to be the world’s largest e-scooter maker. Fiem could
be a perfect proxy play to ride this opportunity. Fiem’s plant at Hosur is strategically located
to cater to Ola’s requirements.
The first phase in Ola Electric manufacturing facility itself is aimed to produce 2 million
vehicles, which is significant. The existing base is just 1.5 lakh electric 2-wheelers. The
revenues from this alliance are likely to figure from second half of FY22.
13 | Stock 2 - Fiem Industries Ltd Ola Electric will have a learning curve in terms of technology, investments, and competition
to deal with. But Fiem, as its sole supplier, has latched on to a huge growth opportunity. It
could also offer company huge visibility in the global electric market in the long term.
Besides this big win, the company is already a supplier to Revolt, Okinawa, Hero Electric,
Electrotherm and Ampere. It’s the sole supplier to Electrotherm and Okinawa.
The management has suggested there are more customers in the EV segment in the
pipeline and expects EV-based opportunity to grow at a CAGR of 20%-25% year on year.
Overall, the management expects the share of LED in automotive lighting segment to grow
from 40% to up to 70% over next three to four years.
With higher yields, the shift in the product mix expands the opportunity for revenue and
profit growth for the company. About the Company
Founded in 1989 by Mr JK Jain, a first generation entrepreneur, Fiem Industries is a leading
manufacturer of automotive lighting (headlamps, tail lamps, and blinker lamps, fog lamps,
warning triangles, interior lamps and beacon lights),signaling equipments and rear view
mirrors in India.
It was among the first to introduce LED lights in 2 vehicles. Besides, its products find use
in integrated passenger information systems for railways and buses with LED display (IPIS.
Here’s a snapshot of product profile: Most of the company’s products are EV agnostic, i.e, they find usage in both internal
combustion engine (ICE) and electric vehicle. Stock 2 - Fiem Industries Ltd | 14 In the plastic moulding parts, the company has over 450 injection moulding machines that
make parts ranging from 20 gms to 2.5 kgs. Plastic parts are integral part of auto lamps and
rear view mirrors, and needed in the final assembly for all products.
2 Wheelers account for 96% of company’s revenue. The rest comes from the 4 wheeler
segment. Revenue Contribution in Automotive Segment (FY21)
7% 4% Honda Motorcycle 7%
8% TVS Motors
Others 13% Replacement
Eicher Royal Enfield
26% In four wheeler space, its top clients are Tata Marcopolo, Force Motors, Honda Siel, Hyundai,
Daimler, Mahindra Reva etc.
Domestic OEMs contribute to 91.2% of revenue, while exports comprise 2.2%. The export
markets include Japan, Austria, UK, Germany, Thailand, Indonesia and Vietnam. The
domestic replacement market contributes to the remaining 7% share.
The company has three world class R&D/Design centres (in India, Italy and Japan) and
testing facility with inhouse capabilities in LED technology and manufacturing. It has also
entered strategic technological tie ups with global players for advance and cost efficient
Its wholly owned subsidiaries include Fiem Inds Japan Co (Japan), Fiem Research and
Technology SRL (Italy). Further, it has two joint ventures (JVs) – Asian Fiem Automobiles
India and Fiem Kyowa (HK) Mould Company Ltd (Hong Kong).
15 | Stock 2 - Fiem Industries Ltd The company has 9 manufacturing facilities for automotive lightning in states of Haryana,
Tamil Nadu, Himachal Pradesh, Rajasthan and Gujarat. The facilities are strategically
located to offer logistic efficiency and just in time deliveries. About the Management
Mr JK Jain, Chairman and Managing Director, has over four decades of experience in
manufacturing of automotive lighting and signaling equipment. He is involved in advising
on business strategies and growth and expansion plans of the company.
Mr Rahul Jain, Whole time Director, is involved in strategic affairs and corporate planning,
apart from customer interaction and initiatives of new projects. Reasons to Invest
• Strong Tailwinds for Auto LED business
Over the next three years, the management expects auto LEDs to contribute to
60% of revenue from 40% in a normal year. Such shift in the product mix will be
positive for company’s growth and profitability. That’s because the realisations in
conventional or halogen auto lamps range from Rs 800 to Rs 1500. In case of LED,
the realisations are more than double- ranging from Rs 2,000 to Rs 5,500 or Rs
6,000, depending on design and configuration.
A typical EV has a lot lesser moving parts than ICE based vehicle. But auto lights
is one area where design, aesthetics and fuel economy requirements will ensure
premiumisation of content. As such, EV transition will be positive for the product
mix. It is worth noting here that order from Ola is for LED based products. In fact, all
the lighting products for EV based vehicles are LED based. • Strong Potential Upside from Existing Capacities
The capex this year is projected at Rs 350 m (150 m for new line and rest for
maintenance) that could be met from internal accruals. Th...
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