The battery market in India commands a certain branding power on account of being duopoly in nature with top players’ viz. Exide Industries and Amara Raja Batteries Limited (Amara Raja) controlling ~90 % of the organized battery market. ABRL has strong brand equity in the Indian battery market with flagship brands like Amaron and Power Zone targeting the urban and rural markets, respectively. Amara Raja’s market share in different segments: 4-wheeler (OEM-26 %, Replacement -34 %), 2-wheeler (Replacement – 24 %), UPS (32 %) and Telecom (46 %). The Company derives about 60 % of its revenues from the auto segment and the rest from the industrial division, in which the company primarily makes telecom and UPS batteries. In the automobile segment, Amara Raja has Ford, Maruti, Hyundai, Honda, Mahindra & Mahindra, Tata Motors, and Tafe as its clients. Similarily in the industrial battery business, Amara Raja’s alliance with Bharti Airtel, BSNL, Vodafone, Bharti Infratel, Airtel and Aircel.
Despite the slowdown in new vehicle sales, both Exide and Amara Raja have remained largely unaffected as they have a huge market for replacing old batteries in existing vehicles. The average life span of a battery ranges from 2-4 years and since the battery replacement decision cannot be deferred, companies like Amara Raja and Exide are expected to benefit immensely from the ever increasing number of registered vehicles on the Indian roads. Considering the over 20 % growth in auto sales between 2009 and 2013, the replacement demand for vehicles sold at that time will come in handy now. Amara Raja obtains three-fourths of its auto segment revenues from the replacement markets. It has a market share of 35 % and 25 % in the organised replacement markets for cars and bikes respectively.
Another factor which has helped Amara Raja grow above the industry average in past has been the frequent power cuts. Power cuts will provide a robust demand for Home UPS batteries in the foreseeable future.
Backing on the strong alliances, strong replacement market, distribution network, strong brand equity and opportunity from frequent power cuts in the country, ABRL is expected to maintain its position in the industry and will continue to grow above the industry average in the near future.
Related Company Research Report
14th March 2013
About the Author
Rajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.Follow @SanaSecurities