The sense one gets from listening to Amara Raja Management is that they are well aware of the margin, ROE and changing tech landscape challenges in the Li-ion cells segment. However, they have made a modular plan for venturing into the business because lead acid will get replaced incrementally by newer batteries in one form or the other over the next few decades and if they don’t act now, the terminal value of the business will keep declining. However, they are quite cautious about their approach, first setting up a customer qualification plant, then a 2GwH line for 2Ws and then expanding to 7-8 GwH once this stabilizes. They face a difficult, uncertain situation wrt the future of Li-ion technology and viability but I like the way this management is going about it. They aren’t going all in but at the same time they are not failing to act.
Having said that, the economics of Li-ion business are definitely nowhere close to their existing business. But hopefully what they will lose in valuations due to lower ROEs, a part of it will get made up via higher terminal valuations. Also, with the 2 sons involved heavily and the promoter apparently giving up politics to focus on the business, investors can hope they will try will try their best to steer the ship as best as it can be steered in such choppy waters. Over the medium and long term, I would trust Amara Raja to execute better than its Indian peers in this area. I may be biased.
