Thread by @marginalideas

Have been studying the battery market in India. Will be posting some of the key learnings and observations in this thread.

The Lead Acid battery market currently is ~35K crore in India with the following industry structure – Bit dated, but should help understand the market.

50% of after market is unorganized with 20% price advantage – Given this high margin untapped market, there is opportunity for listed players –to grow targeting this segment. Share of unorganized players segment wise as below – CVs, Tractors present huge opportunity.

E-Rickshaws, motive power solar applications are key new growth areas – Globally, motive power for warehousing & logistics is ~35% of battery market. This is currently 1% in the country. It could become $25-30 bn opportunity for players, Amara has clear lead here.

While the industry believes that the industrial segment such as Telecom & home inverter has bottomed, demand will pick up, looks difficult with improving power situation in the country (Deficit has declined by more than 60% ) and increasing preference to Li-Ion battery by Jio.

The general expectation is that the organized player will grow at 13-14% CAGR on back of ~9% industry growth till FY22 – Better placed players with more/increasing exposure to replacement market should grow faster.

LAB batteries have undergone remarkable evolution to keep up with changing car manufacturing technologies. Currently, lead-acid batteries serve all the power needs of start-stop vehicles throughout the world and are also becoming common in higher-end hybrid electric vehicles.

Battery cost will be ~20% of overall car costs in FY30 and this means that LAB will continue to exist- Tesla’s FY20 model will use LAB & don’t see it changing sometime after that as well – EV boom will be a tailwind for LAB players, opposite to what the experts are thinking.

Key conclusion is that Lithium Ion and Lead Acid battery will co-exist for the foreseeable future – Given 12V battery usage in EV cars and LAB battery replacement market in auto and newer market in industrial segment, there is enough space for both to grow.

Another competitive advantage which Exide/Amara can create would be to localize manufacturing of Li-ion cells over next 3-5 years, thus ensuring local manufacturing of Li-Ion cells are captured by them.

Cell manufacturing opportunity is ~$15-18 bn by FY30 and it’s anyone’s game currently to capture that.

Close watch and keep investing is the way to go.

The current crop of EV uses lead acid battery and the replacement for this will continue for next 7-10 years, assuming similar life cycle.

One of the most interesting space here is E-Rickshaw segment which is currently around 3,000 Cr size with 2,200 being replacement market. There are usually 4 LAB used in each e-rickshaw and the batteries are required to be replaced every 6-9 months, with a total lifespan of 2-3 y

Unlike normal SLI application, LAB is used for traction in e-rickshaws with driving range of upto 80Kms per charge. This results in very high drain of 80%, resulting in short life of 6-9 months.

With life of e-rickshaw at ~2 years, it has 3 replacement cycles. Each e-rickshaw battery pack (consisting of 4 LAB batteries) cost INR20-28k.

This implies e-rickshaw battery market size of ~INR31b in FY18, which should grow to ~INR41b by FY20E (~16% CAGR).

This would be kicker growth area for both Amara Raja and Exide. Very interesting to see which one captures it. Probably a basket approach is a good idea at this point.