Since most of the upside going forward is projected to come from the battery chemicals division (mostly electrolytes), it is important to understand dynamics of that industry :
- “The manufacturing of electrolyte is considered “easy” with a short construction period of 6- 12 months, according to the company. According to Mr. Han Heng, Board Secretary of Tinci, making electrolyte is as simple as making Coca-Cola, which simply involves mixing flavourings and sugar with carbonated water.” This indicates that the barriers to entry globally are low.
- Electrolyte manufacturing in China is fragmented, with Tinci and Capcem accounting for 36% and 12% of domestic market share in 2022, respectively, with a long tail of manufacturers beyond that.
- The entry barriers to manufacturing electrolyte are therefore not in the production itself, but in the sourcing of raw materials – Source: Daiwa Capital Markets.
NCL imports >50% of Lithium Carbonate and Lithium Hydroxide in India, so it could be at an advantaged position here.
Competition:
Indian companies that have announced plans for Electrolyte Manufacturing:
- Ami Organics (MCap: INR 4,200Cr): Has signed a non-binding MoU with a global manufacturer of electrolytes and will build a dedicated manufacturing facility at a cost of ₹300 crore.
- Gujarat Fluorochemicals (MCap: INR 35,000Cr) will manufacture batteries for electric vehicles using its fluorine chemistry skills for making battery chemicals.
Planned capex for GFCL: FY24: ~ Rs 800 cr , FY25: ~ Rs 900 cr , FY26: ~ Rs 1500 cr
Asset turnover expectation of 2x and EBITDA margin expectation of over 25% at full capacity utilization of these capex.
(3Q24) Starting with the three products right now where we have gone commercial LiPF6, LIF and high-grade HF. Electrolyte plant is also ready.
These 2 are the only companies that have announced and set up capacity for electrolyte manufacturing in India. The commitment by Ami Organics is much smaller at INR 300Cr.
Indian companies that have announced plans for other battery parts Manufacturing:
- Aether Industries (MCap : INR 11,000Cr) - : Has announced (3Q24) a strategic agreement with a global lithium-ion battery producer to expand into the electrolyte additives market. No CapEx for this has been announced yet.
- Himadri Speciality Chemicals (MCap : INR 16,000Cr) : is also planning to establish a manufacturing facility for lithium-ion battery components with a total capacity of 2 lakh tonnes per annum. Over a roughly six-year period, an estimated Rs 4,800 crore will fund this project. They have not made any announcement about manufacturing electrolyte. They plan to manufacture Cathode material (LFP) Lithium Iron Phosphate. Facility to be live by 2025-26.
- Tata Chemicals (MCap: 29,000) : While the company has not explicitly spoken about making EV chemicals, they have been on the radar since the Tata Group signed up for the $1.6 billion EV battery plant. Every tonne of Lithium Carbonate requires two tonnes of Soda Ash, which may translate into a significant opportunity for them.
While it needs to be seen how NCL will respond if competition were to increase going forward, as electrolyte manufacturing doesn’t seem to have high barriers to entry, and management’s current projections are based on NCL getting 25-40% market share in electrolyte manufacturing in India.
Discl : Invested
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