Q1 2027 Amara Raja Energy & Mobility Ltd Earnings Call

Speaker #1: Ladies and gentlemen, good day and welcome to the Amara Raja Batteries Ltd. Q1 FY27 earnings conference call, hosted by Elara Securities Pvt. Ltd. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.

Operator 2: Ladies and gentlemen, good day and welcome to the Amara Raja Batteries Limited Q1 FY27 earnings conference call hosted by Elara Securities Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Jay Kale from Elara Securities Private Limited. Thank you and over to you.

Speaker #1: Should you need assistance during this conference call, please signal an operator by pressing star, then zero, on your touch-tone phone. Please note that this conference is being recorded.

Speaker #1: I now hand the conference over to Mr. Jay Kalle from Elara Securities Pvt. Ltd. Thank you, and over to you.

Speaker #2: Good evening, everyone. On behalf of Elara Securities, we welcome you to the Q1 FY27 earnings conference call of Amara Raja Energy & Mobility Ltd. From the management, we have with us today Mr. Y.

Jay Kale [Analyst: Yeah. Good evening, everyone. On behalf of Elara Securities, we welcome you to the Q1 FY27 earnings conference call of Amara Raja Energy & Mobility Limited. On behalf of the management, we have with us today Mr. Y. Delli Babu, Chief Financial Officer, and Ms. Swajitha Rapeti, Head Corporate Finance. I would now like to hand over the call to Mr. Delli Babu for his opening remarks. Over to you, sir.

Speaker #2: Delibabu, Chief Financial Officer, and Ms. Rujitha Rapati, Head of Corporate Finance. I would now like to hand over the call to Mr. Delibabu for his opening remarks.

Speaker #2: Over to you, sir.

Speaker #3: Sajitha, you can go ahead with the opening remarks, please. Yeah.

Y. Delli Babu: Sajitha, you can go ahead with the

Swajitha Rapeti: Yeah.

Swajitha Rapeti: The rest, please. Yeah.

Speaker #4: Good evening, everyone. Thanks for joining the call. Maybe I'll give a brief about the Q1 performance first, and then we can move on to the Q&A session.

Swajitha Rapeti: Good evening, everyone. Thanks for joining the call. Maybe I'll give a brief about the Q1 performance first, then we can move on to the Q&A session. For the quarter ended 30 June 2026, we have achieved a robust growth of around 24% on consolidated basis with revenue of around INR 4,215 crores, with about 95% of the revenue coming from lead acid business, which grew by around 22%. The new energy business grew by more than 70%, recording a revenue of around INR 209 crores. Our revenue growth has remained strong, driven by sustained volume momentum in both aftermarket and OEM segments. We continue to strengthen and deepen our market position in automotive and home energy sectors.

Speaker #4: For the quarter ended June 30, 2026, we have achieved robust growth of around 24% on a consolidated basis, with revenue of approximately ₹4,215 crore. About 95% of the revenue came from the lead-acid business, which grew by around 22%.

Speaker #4: The new energy business grew by more than 70%, recording revenue of around ₹209 crore. Our revenue growth has remained strong, driven by sustained volume momentum in both aftermarket and OEM segments.

Speaker #4: We continue to strengthen and deepen our market position in the automotive and home energy sectors. Four-wheeler and two-wheeler aftermarket volumes have grown by around 15%, and OEM segments continue to retain the volume growth momentum of around 24% in four-wheelers and more than 35% in two-wheelers on a year-on-year basis.

Swajitha Rapeti: Four-wheeler and two-wheeler aftermarket volumes have grown by around 15%, and OEM segments continue to retain the volume growth momentum of around 24% in four-wheelers and more than 35% in two-wheelers on Y-o-Y basis. Further, we also delivered growth of more than 50% in home energy business, both on the tubular batteries and home UPS. During the current quarter, our tubular manufacturing plant operated at 100% capacity. However, we continued to supply traded batteries also for meeting the excess demand. The trading revenue in the current quarter stood at around 15% of the lead acid battery revenue. Our automotive international revenue de-grew by around 20%, owing to significant volume drop in the Middle East market. We are expecting to recover these volumes in these markets in the subsequent quarters. The revenue from industry lead acid battery business grew by around 2% on Y-o-Y basis.

Speaker #4: Further, we also delivered growth of more than 60% in the home energy business, both in tubular batteries and home EPS. During the current quarter, our tubular manufacturing plant operated at 100% capacity; however, we continued to supply traded batteries as well to meet the excess demand.

Speaker #4: The trading revenue in the current quarter stood at around 15% of the lead-acid battery revenue. Our automotive international revenue degrew by around 20%, owing to a significant volume drop in the Middle East market.

Speaker #4: We are expecting to recover this volume in these markets in the subsequent quarters. The revenue from the industry lead-acid battery business grew by around 2% on a year-over-year basis. The volumes in UPS batteries have grown by around 10%, though the telecom lead-acid batteries continue to degrow due to the migration to the lithium-ion sector.

Swajitha Rapeti: The volumes in UPS batteries have grown by around 10%, though the telecom lead acid batteries continued to de-grow due to its migration to lithium-ion sector. Lithium-ion telecom volumes grew by around 60%, and during the quarter, on a combined basis, we maintained a market share of over 60% in telecom segment. New energy business during Q1 continued to deliver strong performance with revenue growth supported by increased demand for telecom packs and three-wheeler packs. Both EV and telecom packs have demonstrated volume growth of more than 60% on Y-o-Y basis. Further, we are happy to share that we have inaugurated our customer qualification plant with multi-form and multi-chemistry capability in 26 July. E-Positive facility, which is our research facility, is also expected to commence operations in the current quarter.

Speaker #4: Lithium-ion telecom volumes grew by around 50%, and during the quarter, on a combined basis, we maintained market share of over 60% in the telecom segment.

Speaker #4: The new energy business during Q1 continued to deliver strong performance, with revenue growth supported by increased demand for telecom packs and three-wheeler packs. Both EV and telecom packs have demonstrated volume growth of more than 50% on a year-over-year basis.

Speaker #4: Further, we are happy to share that we have inaugurated our customer qualification plant with multi-form and multi-chemistry capability on July 26th. The E-positive facility, which is a research facility, is also expected to come into operation in the current quarter.

Speaker #4: Both the first giga cell and the best 10-gigawatt factory are on track and expected to come into operation as per the timeline indicated earlier.

Swajitha Rapeti: Both the first giga cell and DES 10 megawatt hour factories are on track and expected to commence operations as per the timelines indicated earlier. During Q1, the standalone EBITDA margin is around 10.1%, and consolidated margins stood at 9.6%. The margins were impacted during the current quarter due to elevated material costs, increased spending on brand promotions, and strategic initiatives, namely Amaron Assist and Factory of the Future. Considering our long term plans to strengthen our market position at strategic level, we made couple of long term investments in our manufacturing excellence, organizational capabilities, and in our brand promotion. The moderation of Q1 operating margins at standalone level reflects these investments. As communicated in our earlier earning call, we have launched Amaron Assist during Q1 FY27 in Hyderabad, a pilot project focused on providing automotive services to B2C segments, deepening our customer engagement.

Speaker #4: During Q1, the standalone EBITDA margin was around 10.1%, and consolidated margins stood at 9.6%. The margins were impacted during the current quarter due to elevated material costs, increased spending on brand promotions, and strategic initiatives—namely Enno Assist and Factory of the Future.

Speaker #4: Considering our long-term plans to strengthen our market position at a strategic level, we made a couple of long-term investments in our manufacturing excellence, organizational capabilities, and in our brand promotion.

Speaker #4: The moderation of Q1 operating margins at the standalone level reflects these investments. As communicated in our earlier earnings call, we have launched Enron Assist during Q1 FY27 in Hyderabad, a pilot project focused on providing automotive services to B2C segments, deepening our customer engagement.

Speaker #4: Based on the learnings from the pilot, we will formulate our long-term plans for the service business model. Further, to strengthen our market presence in B2C segments and improve our brand equity across all product segments, we've invested in brand presence during various events including the IPL, which also led to some moderation in the margins during the current quarter.

Swajitha Rapeti: Based on the learnings from the pilot, we will formulate our long term plans on this service business model. Further, to strengthen our market presence in B2C segments and improving our brand equity across all product segments, we've invested in brand presence during various events, including IPL, which also led to some moderation in the margins during the current quarter. The other reason that contributed to margin dilution is on account of expenses incurred for improving our manufacturing excellence by way of capacity enhancements in our existing automotive plants. These costs will add to the manufacturing competitiveness in near future. Higher expenses on these strategic initiatives during the quarter led to a margin moderation of around 4.9%. The other important aspect which also led to the moderation in profitability is a significant increase in the procurement cost of alloy, sulfuric acid, and poly.

Speaker #4: The other reason that contributed to margin dilution is on account of expenses incurred for improving our manufacturing excellence by way of capacity enhancement in our existing automotive plant.

Speaker #4: These costs will add to the manufacturing competitiveness in the near future. Higher expenses on these strategic initiatives during the quarter led to a margin moderation of around 0.9%.

Speaker #4: The other important aspect which also led to the moderation in profitability is a significant increase in the procurement cost of alloy, sulfuric acid, and poly.

Speaker #4: We did implement some price increases during Q4, FY26. However, subsequently, the procurement costs for sulfuric acid and poly have also risen substantially during the quarter.

Swajitha Rapeti: We took some price increase during Q4 FY26. However, subsequently also the procurement costs for sulfuric acid and poly have risen substantially during the quarter. To absorb these costs, we took further price increase of around 3% in June, which helped offset a portion of these cost rises, although not entirely. Additional price increases of around 2% to 3% will be rolled out during the current month. The above raw material price increases also led to increase in warranty provisioning and further incremental costs during the quarter led to some margin dilution, price cost. At consolidated level, the margins are lower by around 0.5%, which is around 9.6%, which is primarily due to the additional cost at new energy business towards our upcoming giga cell plant and DES plant.

Speaker #4: To absorb these costs, we took a further price increase of around 3% in June, which helped offset a portion of these costs, although not entirely.

Speaker #4: Additional price increases of around 2% to 3% will be rolled out during the current month. Devo raw material price increases also led to an increase in warranty provisioning, and further incremental costs during the quarter led to some margin dilution.

Speaker #4: At the consolidated level, the margins are lower by around 0.5%, at around 9.6%. This is primarily due to the additional costs in the new energy business towards our upcoming Giga One plant and BEST plant.

Speaker #4: And during FY27, we estimate to spend around ₹1,700 crore towards our CAPEX projects, with the major outlay towards the new energy business of around ₹1,300 crore, and the rest of it towards our lead-acid business, including recycling CAPEX.

Swajitha Rapeti: During FY27, we estimate to spend around INR 1,700 crores towards our CapEx projects, with major outlays towards the new energy business of around INR 1,300 crores and rest of it towards our lead acid business, including recycling CapEx. This CapEx outlay is majorly towards our upcoming giga cell plant, which is expected to commercialize during H1 FY28 and towards other projects, including BESS 10 gigawatt hour and E-Positive Energy Labs plant. Out of the planned INR 1,700 crores CapEx outlay during Q1 FY27, we have spent around INR 450 crores with major outlays towards new energy business. We also like to inform you that on 18 July 2026, Andhra Pradesh Pollution Control Board revoked the closure order issued against the company on 30 April 2021, and the company has withdrawn the writ petition filed before the Honorable High Court of Andhra Pradesh. With this, now we can move on to the Q&A.

Speaker #4: This CAPEX outlay is mainly towards our upcoming Giga One plant, which is expected to commercialize during H1 of financial year ‘28, and towards other projects including the BES T 10 gigawatt R&D initiative.

Speaker #4: Plant. Out of the total plant CAPEX outlay of ₹1,700 crore during Q1 FY27, we have spent around ₹450 crore, with major outlays towards the new energy business. We would also like to inform you that, on July 18, 2026, the Andhra Pradesh Pollution Control Board revoked the closure order issued against the company on April 30, 2021, and the company has withdrawn the restitution filed before the Honorable High Court of Andhra Pradesh.

Speaker #4: So, with this, now we can move on to the Q&A.

Speaker #1: Thank you very much. We'll now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone.

Operator 2: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Kapil Singh from Nomura. Please go ahead.

Speaker #1: If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question.

Speaker #1: Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Kapil Singh from Mora.

Speaker #1: Please go ahead.

Speaker #2: Yeah, good evening, Sir. Just on the gross margins, I wanted to understand what price hikes we have taken in Q1 and what kind of cost pressures we are facing now.

Kapil Singh: Yeah. Good evening, sir. Just on the gross margins, wanted to understand what are the price hikes we have taken in Q1 and what kind of cost pressures we are facing now. Have we been able to recover most of the cost pressures?

Speaker #2: Have we been able to recover most of the cost pressures?

Speaker #3: See, as mentioned by Sajitha, we have taken a price increase of around 3% in Q1. Then, with the kind of jump that we are seeing in some of these raw materials, we could not offset it fully.

Y. Delli Babu: As mentioned by Sajitha, we have taken price increase of around 3% in Q1, and then with the kind of jump that we are seeing in some of these raw materials, they could not offset it fully. To further, additionally, this quarter, we will be taking around 2% to 3% further price hikes across product segments. If the current prices were to stay where they are, this might be sufficient, but we are continuously seeing increasing trends both particularly on the poly side and sulfuric acid and also some of the alloys like tin, et cetera, are showing a further tendency to increase. We have to wait and see how those price levels will prevail and take those decisions regarding price at an appropriate time.

Speaker #3: So, to further add, in this quarter we'll be taking around 2% to 3% further price hikes across product segments. If the current prices were to stay where they are, this might be sufficient, but we are continuously seeing increased trends, particularly on the poly side and sulfuric acid, and also some of the alloys like tin, etc.

Speaker #3: ...are showing a further tendency to increase. But we have to wait and see how those price levels will prevail, and take those decisions regarding price at an appropriate time.

Speaker #3: But the B2B segment will continue, as the price hikes in the B2B segment will get delayed because these negotiations have to happen with various B2B customers.

Y. Delli Babu: The B2B segment will continue to. The price hikes in B2B segment will get delayed because these negotiations have to happen with various B2B customers. To that extent, there could be an impact that we may have to see. But most likely we should be able to pull this back in the, if not fully in Q2, in the next quarter, we should be able to do it, yeah.

Speaker #3: To that extent, there could be an impact that we may have to see. But most likely, we should be able to pull this back in, if not fully in Q2, then in the next quarter—we should be able to do it.

Speaker #3: Yeah.

Speaker #2: Thanks, sir. And on the other expenses also, are there any items which we can say are non-recurring? Because other expenses growth has been higher than the revenue growth.

Kapil Singh: Thanks, sir. On the other expenses also, are there any items which we can say are non-recurring? Because other expenses growth has been higher than the revenue growth. Just trying to understand that.

Speaker #2: So just trying to understand that.

Speaker #3: Yes, again, as explained by Sajitha already on the call, some of those initiatives, particularly on brand promotion, will continue for some time. But I'm sure over the next couple of quarters they'll come back to their normal levels.

Y. Delli Babu: Yeah. Again, as explained by Sajitha already in the call, some of those initiatives, particularly on the brand promotion, will continue for some time, but I am sure over the next couple of quarters they will come back to their normal levels. Also the provisioning that I need to do for warranty when the underlying product costs increase. I also need to carry those provisions for the entire unexpired population, so that also kind of becomes a one-time hit on the P&L. If the freight costs, the fuel costs were to persist from here also, again, with the lack of geopolitical issues, then that cost is something might recur in the next quarter as well.

Speaker #3: And also, the provisioning that I need to do for warranty—when the underlying product costs increase, I also need to carry those provisions for the entire unexpired population.

Speaker #3: So that also kind of becomes a one-time hit on the P&L. If the freight costs and the fuel costs were to persist from here also, again, with the lack of—with the geopolitical issues—then that cost is something that might recur in the next quarter as well.

Speaker #3: Beyond that, the other costs are all in line with the volume that has gone up, because substantial tubular volumes that we have seen in the last quarter have also caused a lot of—because they are bigger batteries, we need to incur higher freight costs.

Y. Delli Babu: Beyond that, the other costs are all in line with the volume that has gone up, because substantial tubular volumes that what we have seen in the last quarter have also caused a lot of. Because they are bigger batteries, we need to incur higher freight costs. Rest of the costs are growing in line with the volume throughput enhanced during the last quarter.

Speaker #3: So, the rest of the costs are growing in line with the volume throughput, which was enhanced during the last quarter.

Speaker #2: Yeah, thanks. And just one question I had on the BEST business as well. If you could just outline what kind of asset terms we can expect, and what kind of capex requirement will be there, and margins—in what band will they be?

Kapil Singh: Yeah. Thanks. Just one question I had on the BESS business as well. If you could just outlay what kind of asset turns we can expect and what kind of CapEx requirements will be there and margins, in what band will be there? There is heightened competitive intensity also it seems in this segment. If you could just talk of what will be our competitive advantages here, how you are thinking about it.

Speaker #2: There is heightened competitive intensity also, it seems, in this segment. So if you could just talk about what will be our competitive advantages here?

Speaker #2: How are you thinking about it?

Speaker #3: Yeah, see, the initial capital outlay for the best project could be in the range of ₹250 to ₹300 crore. And then, actually, its capacity will be around 10 gigawatt-hours.

Y. Delli Babu: Yeah. See, the initial capital outlay for the BESS project could be in the range of INR 250 to 300 crores. Then it can actually. Its capacity will be around 10 gigawatt hour. With the current base price at the containerized solution level could be anywhere between $100 to $120. Asset terms wise, it will be definitely higher. But operating margin wise, it might mimic the way the current PAC business is doing. Around 5% to 6% or 6% to 7% kind of level. But as we localize more and more components, the margin profile might change a bit. But still, it will continue to have that kind of operating margin levels of about. At best margin could be around 7% to 8% and the conservative margin could be around 5% to 6% could be the possibility.

Speaker #3: So, with the current day's price, at the containerized solution level, it could be anywhere between $100 to $120. So, asset terms-wise, it will be definitely higher.

Speaker #3: But operating margin-wise, it may not—it might mimic the way the current PAC business is doing. So, around 5% to 6% or 6% to 7% kind of level.

Speaker #3: But as we localize more and more components, the margin profile might change a bit. But still, it'll continue to have that kind of operating margin levels—at best, the margin could be around 7 to 8 percent.

Speaker #3: And the conservative margin could be around 5 to 6 percent; that could be the possibility. As far as competitive intensity is concerned, I think this project should also, over a period of time, help us bring the cell production into the country.

Y. Delli Babu: As far as competitive intensity is concerned, I think this project should also, over a period of time, help us bring the cell production into the country, and I am sure, in line with the government's support as well, in terms of localizing the supply chains for these BESS systems. It would augur well for us to establish the customer relationships for all these products, and eventually leading to our own cell localization required for this BESS program. So we have to think long-term, and I am sure the increased demand in energy storage requirements in the country, not only at the grid level but also at the C&I level, will definitely help fill this capacity. Then it should also feed in well for our cell program expansion.

Speaker #3: And I'm sure, in line with the government's support as well, in terms of localizing the supply chain for these BES systems, it would augur well for us to establish that customer relationship for all these products.

Speaker #3: And eventually leading to our own cell localization required for this best program. So we have to think long term, and I'm sure this is the increased demand in energy storage requirements in the country, not only at the grid level, but also at the C&I level, which will definitely help fill this capacity.

Speaker #3: And feed him well for our cell program expansion.

Speaker #2: So this will be LFP, right?

Kapil Singh: This will be LFP, right?

Speaker #3: Yeah, yeah. It will be an LFP right now. People use 314 cell, and there can be suitable modifications in future. Yeah.

Y. Delli Babu: Yeah. It will be an LFP. Right now we will use 340Ah cell, and there can be suitable modifications in future. Yeah.

Speaker #2: Sure. Thank you. Welcome back to the queue.

Kapil Singh: Sure. Thank you. I will come back in the queue.

Speaker #4: Thank you. The next question is in the lineup. We have Zubshi from JP Morgan. Please go ahead.

Operator 2: Thank you. The next question is from the line of Vibhav Rungta from JP Morgan. Please go ahead.

Speaker #2: Yes. Hi. Thanks for the opportunity. Just going a bit deeper into these other expenses, and the 0.9% hit which you called out, which is around ₹35 crores.

Vibhav Rungta: Yes. Hi. Thanks for the opportunity. Just going a bit deeper into this other expenses, and the 0.9% hit which you called out, which is around INR 35 crores. Can you just provide a broad split between these costs for the brand presence, warranty, freight, and the manufacturing processes, please?

Speaker #2: Can you just provide a broad split between these costs for the brand presence, warranty freight, and the manufacturing processes?

Speaker #5: Yeah, I think the overall number is already.

Y. Delli Babu: Yeah, I think overall number is already given. It is split between the brand promotion activities and the Amaron Assist pilot project, and also some of the Factory of the Future that is basically enhancing the throughput across our manufacturing plants, where we are doing certain initiatives. From an accounting balance, though the throughput is enhanced, I cannot capitalize them. I need to treat them as revenue expenditure. Those are the three major initiatives which have caused a higher increase in the expenses, apart from the warranty expenses provisioning that I have told, and also other power and freight-related expenses owing to the volume increase, what we have seen in the last quarter.

Speaker #3: It is split between the brand promotion activities and the Amaron Assist pilot project. And also, some of the 'Factory of the Future' initiatives that are basically enhancing the throughput across our manufacturing plants, where we are doing certain initiatives.

Speaker #3: From an accounting perspective, though the throughput is enhanced, I cannot capitalize them. I need to treat them as revenue expenditure. So those are the three major initiatives which have caused a higher increase in the expenses.

Speaker #3: Apart from the warranty expenses provisioning that I have mentioned, and also other power and freight-related expenses incurred in the last quarter.

Speaker #2: Okay. Okay. Got it. So just a broader question, just a follow-up here. I mean, in the last few years, our other expenses as a percentage of sales used to be somewhere around 12 and a half percent.

Vibhav Rungta: Okay. Got it. Just a broader question, just a follow-up here. In the last few years, our other expenses as a percentage of sales used to be somewhere around 12.5%. This has been going up, and obviously there have been multiple cost increases, including power and fuel as well. Where do we see this stabilizing, say, over the next few quarters? Can this come down to 13%, or should we expect some elevation?

Speaker #2: This has been going up. And, obviously, there have been multiple cost increases, including power and fuel as well. So, I mean, where do we see this stabilizing, say, over the next few quarters?

Speaker #2: Can you just come down to 13%, or—I mean, should we expect some elevation?

Speaker #3: Yeah, because see, some of these initiatives are big-ticket items. Once we stabilize our promotion expense and all these upgradation or de-bottlenecking expenses we are incurring on the capex, I think we will see a reducing trend.

Y. Delli Babu: Yeah. Because see, some of these initiatives are big-ticket items. Once we stabilize our promotion expense and all these upgradation of debottlenecking expense we are incurring on the CapEx, I think we will see a reducing trend. But there are a couple of expenditure like freight, because of the higher fuel costs that we are currently having, and also the warranty expenses because of higher raw material cost that what we are seeing. These things will come down only when the bottom cost drivers actually come under control. But otherwise, the other expenses what we are looking at, whether it is in terms of employee cost or admin expenses, et cetera, they will continue to be under moderation as we go ahead. But these exceptional items which I am seeing now will get reduced once these projects are fully done.

Speaker #3: But there are a couple of expenditures, like freight because of the higher fuel costs that we are currently having, and also the warranty expenses because of higher raw material costs—that's what we are seeing.

Speaker #3: These things have to will come down only when the bottom cost drivers actually come under control. But otherwise, the other expenses what we are looking at, whether it is in terms of employee cost or admin expenses, etc., they will continue to be under moderation as we go ahead.

Speaker #3: But these exceptional items which I am seeing now will get reduced once these projects are fully done.

Speaker #2: Okay, okay, got it. So, second question is on the whole EV and lithium business. Firstly, have we received equipment for the 2 GWh NMC line?

Vibhav Rungta: Okay. Got it. Now second question is on the whole EV and lithium-ion business. Firstly, have we received equipment for the 2 gigawatt hour NMC line? I think last quarter you mentioned the order has been placed. Just want to understand the current status.

Speaker #2: I think last quarter, you mentioned the order has been placed, so I just wanted to understand the present status.

Speaker #3: Yeah, they are due for delivery in Q3.

Y. Delli Babu: Yeah. They are due for delivery in Q3.

Speaker #2: Okay, okay. Got it. And just a follow-up here: the BES facility—so, I mean, how do we see this ramp-up happening? Do we have customer commitments?

Vibhav Rungta: Okay. Got it.

Y. Delli Babu: Yeah.

Vibhav Rungta: Just a follow-up here. The BESS facility. How do we see this ramp-up happening? Do we have customer commitments? What is the utilization level going to be like, assuming that this gets commissioned over the next couple of quarters?

Speaker #2: What is the utilization level going to be like, assuming that this gets commissioned over the next couple of quarters?

Speaker #3: Yeah, see, initially I think there is enough visibility with major EPC players who are actually installing projects for various power-generating stations. There is a reasonable order book that we are seeing in India itself.

Y. Delli Babu: Yeah. Initially, I think there are enough visibility with major EPC players who are actually installing projects for various power generating stations. There is a reasonable order book that we are seeing in India itself, and it may also throw some export opportunity as we move ahead in other markets as well. I do not see a major challenge of maybe within a period of about six months from the time the factory is completed, at least getting to a level of 5 gigawatt kind of a utilization. From there, it depends on how the market moves from there. But the capacity can be made of, because the line capacity itself is at a 10 gigawatt hour, so that is the reason we have gone ahead with a 10 gigawatt of line capacity.

Speaker #3: And it may also throw up some export opportunities as we move ahead into other markets as well. So I don't see a major challenge, maybe within a period of about six months from the time the factory is completed.

Speaker #3: At least getting to a level of 5 gigawatt-hour kind of a utilization. From there, it depends on how the market moves. But the capacity can be made up because the line capacity itself is at 10 gigawatt-hour.

Speaker #3: So, that's the reason we have gone ahead with a 10 gigawatt-hour line capacity. But I think we should be able to ramp up, considering the way the requirement for solar energy is growing in this country.

Y. Delli Babu: But I think we should be able to ramp up considering the way the requirement on the solar energy is growing in this country.

Speaker #2: Okay, great. Thank you, Selena. All the best.

Vibhav Rungta: Okay, great. Thank you, sir, and all the best.

Speaker #4: Thank you. The next question is from the line of Muksh Mandesha from Anand Rathi Institutional Equities. Please go ahead.

Operator 2: Thank you. The next question is from the line of Mumuksh Mandlesha from Anand Rathi Institutional Equities. Please go ahead.

Speaker #2: Yeah, thank you, sir, for the opportunity. Just to clarify—so, the base area you mentioned in the next one is the plant starts. Within six months, we can ramp up the utilization towards 5 gigawatts.

Mumuksh Mandlesha: Yeah. Thank you, sir, for the opportunity. First to clarify, on BESS area you mentioned once the plant starts, within the next six months we can ramp up the utilization towards 5 GW. Is it right, sir?

Speaker #2: Is it right, sir?

Speaker #3: Yeah, yeah. Depending on how we see the market and what kind of order flow we observe, I believe that within about six to seven months, we should be able to ramp it up to that level.

Y. Delli Babu: Yeah. Depending on how we see the market and then what kind of order flow that we see, our belief is within about six, seven months, we should be able to ramp it up to that level. Thereafter, it is a question of how demand moves from there.

Speaker #3: Thereafter, it's a question of how demand moves from there.

Speaker #2: Got it. Got it. So, that much order is packed within the capacity.

Mumuksh Mandlesha: Got it. So that much order is packed with that capacity.

Speaker #3: No, based on the market demand we are seeing today, there is a possibility that we can reach that kind of level.

Y. Delli Babu: No, I am saying based on the market demand, what we are seeing today, there is a possibility that we can reach that kind of level in a span of six months or so because of existing various order book that we have seen in this country. And we also should find a way to feed the market in other geographies as well, so that we increase the utilization level and also keep them consistently growing.

Speaker #3: In a span of six months or so, because of the existing various order book that we have seen in this country. And we also should find a way to seed the market in other geographies as well.

Speaker #3: So that we increase the utilization level and also keep them consistently growing.

Speaker #2: Perfect, sir. Thank you for this. Also, this quarter, there was a traded mix of around 15% of the revenue. I just want to understand how this traded mix will go ahead, and how much was the impact because of that in this quarter.

Mumuksh Mandlesha: Got it, sir. Thank you for this. Also, this quarter, there was a credit mix of around 15% of revenue. I just want to understand how this credit mix will go ahead and how much was the impact because of that in this quarter. Also, just any update how this new tubular and recycle plants are supporting margins, sir.

Speaker #2: And also, just any update on how these new tubular and recycle plants are supporting margins, sir.

Speaker #3: See, as far as trading is concerned, this quarter, because we had a big tubular season—which is where our tubular plant, as Sajitha was mentioning earlier, we are fully using the plant.

Y. Delli Babu: Well, as far as trading is concerned this quarter, because we had a big tubular season, which is where our tubular plant, as Sajitha was mentioning earlier, we are fully using the plant. In addition, we had to do the trading of inverter batteries and also the HFPS systems. That's where being a tubular season, the trading revenue percentage is higher. Naturally, at the gross margin level, trading will show a dilution on the gross margin because you incur the manufacturing cost also as a purchaser of stock in trade. Whether the same percentage revenue will continue in the subsequent quarters may not be, because now in the subsequent quarters, the tubular requirements will be met from our own manufacturing plant. The second part of your question as far as recycling is concerned, the battery breaking operations is still in the trial production.

Speaker #3: And in addition, we had to buy—we had to do the trading of inverter batteries and also the HUPS systems. That's where, being a tubular season, the trading revenue percentage is higher.

Speaker #3: Naturally, at the gross margin level, trading will show a dilution on the gross margin because you incur the manufacturing cost also as a purchase of stocking trade.

Speaker #3: Now, whether the same percentage revenue will continue in the subsequent quarters may not be, because now in the subsequent quarters, the tubular requirements will be met from our own manufacturing plant.

Speaker #3: The second part of your question, as far as recycling is concerned, the battery breaking operations are still in trial production. Also, recently, the way the scrap prices in the country have moved, they've gone substantially higher.

Y. Delli Babu: Also recently, the way the scrap prices in the country have moved substantially higher. Right now, if you do a purchase of scrap and then reprocess the lead, the costs are almost either equal or little higher than what the LME lead is. To that extent, in this quarter, there was a bit of a cost pressure on the recycling plant. Otherwise, the battery breaking plant, once it gets stabilized, our own batteries that we procure from the market for satisfying our EPR obligation should be good enough to feed that plant. The recovery from that plant, if it is higher than what we are getting today, then it should help contributing to overall operating margins as well.

Speaker #3: Right now, if you purchase scrap and then reprocess the lead, the costs are almost either equal to or a little higher than what the LME lead is.

Speaker #3: To that extent, in this quarter, there was a bit of cost pressure on the recycling plant. But otherwise, the battery breaking plant, once it gets stabilized, and our own batteries that we procure from the market for satisfying our EPR obligation, should be good enough to feed that plant.

Speaker #3: And if the recovery from that plant is higher than what we are getting today, then it should help contribute to the overall operating margins as well.

Speaker #3: I think I'll be able to put a little more perspective into the bigger picture. Even in the earlier calls, we said it could improve the material cost over and above what we are buying today.

Y. Delli Babu: I think I'll be able to put a, while at a larger picture, even in the earlier calls, we said it could improve the material cost over and above what we are buying today, but provided the local scrap costs are within the earlier limits. We have to wait and see to put a clear number to it once our battery breaking operations stabilize. That's when I think we'll be able to give you a correct number so that can be clear.

Speaker #3: But provided the local scrap costs are within the earlier limits, we have to wait and see to put a clear number to it once our battery breaking operations stabilize.

Speaker #3: That's when I think we'll be able to give you a correct number, so that can be clear.

Mumuksh Mandlesha: Got it, sir. Thank you for the opportunity.

Speaker #2: Got it, sir. Thank you for the opportunity.

Speaker #4: Thank you. The next question is from the line of Raghunandan from Novama Research. Please go ahead.

Operator 2: Thank you. The next question is from the line of Raghu Nandan from Nuvama Research. Please go ahead.

Raghu Nandan: Good evening, sir. Thank you very much for the opportunity. For Q1, can you indicate on the export side, there was a muted performance. How do you see the trend going forward? And also within industrial, if you can talk about various categories like UPS and others, how have you seen the performance across segments?

Speaker #2: Good evening, sir. Thank you very much for the opportunity. For Q1, can you indicate on the export side, there was a muted performance. How do you see the trend going forward?

Speaker #2: And also, within industry, if you can talk about various categories like UPS and others, how have you seen the performance across segments?

Speaker #3: Yeah, I think as Sajitha articulated in the opening remarks, the overall automotive exports, on a year-over-year basis, we have seen a 20% volume de-growth predominantly because of lower shipments to Middle Eastern markets, as the alternative sea routes are quite costly from a freight point of view.

Y. Delli Babu: Yeah, I think as Swajitha articulated in the opening remarks, the overall automotive exports on a Y-o-Y basis, we have seen a 20% volume degrowth, predominantly because lower shipments to Middle Eastern markets, because the alternative sea routes are quite costly from a freight point of view. We are expecting that there is some normalcy that will get restored in the coming quarters, and then we will be able to recover this loss of volume in the subsequent quarters and still go back to our regular volume throughput, what we have seen in these markets. That is one thing, of course, is dependent on how the evolving geopolitical situation turns from here. As far as industrial is concerned, again, the UPS batteries have grown around 10% during the current quarter, while the telecom continues its shift to lithium-ion.

Speaker #3: We expect that some normalcy will be restored in the coming quarters, and then we'll be able to recover this loss of volume in the subsequent quarters.

Speaker #3: And still go back to our regular volume throughput, which we have seen in these markets. That is one thing, of course, which is dependent on how the evolving geopolitical situation turns from here.

Speaker #3: As far as industrial is concerned, again, the UPS batteries have grown around 10% during the current quarter, while telecom continues its shift to lithium-ion.

Speaker #3: But still, even the lithium-ion offtake was also substantially higher during the quarter, which is why the new energy business has grown by almost 60% to 70% over the previous year as revenue.

Y. Delli Babu: But still, even the lithium-ion offtake was also substantially higher during the quarter, which is why the new energy business has grown by almost 60% to 70% over the previous year as a revenue. As far as the other segments, they are growing in the range of 5% to 6%. Of course, they are all smaller railways and power control. They are smaller volume segments. There, the growth is in line with our earlier estimates of 5% to 6% kind of a number.

Speaker #3: As far as the other segments, they are growing in the range of 5 to 6%. Of course, they are all smaller—railways and power control.

Speaker #3: They are smaller volume segments. There, the growth is in line with our earlier estimates of 5% to 6% kind of a number.

Speaker #2: Thank you, sir. That's helpful. On the best revenue potential, you indicated that $100 to $120. If you can, could you indicate—for this ₹300 crore kind of investment—would you be looking at something like a 3 to 4 times gross asset turnover?

Raghu Nandan: Thank you, sir. That's helpful. On the BESS revenue potential, you indicated that $100 to $120. If you can indicate, for this INR 300 crore kind of investment, would you be looking at something like a 3 to 4 times gross asset turnover? Would that be possible?

Speaker #2: Would that be possible?

Speaker #3: See, I think I wouldn't want to jump to conclusions around the numbers because some of this will also depend on the product mix that will eventually come in.

Y. Delli Babu: See, I think I wouldn't want to jump on conclusion around the numbers because some of this will also depend on the product mix that will eventually come in. I'm just giving you an overall unit metric from an overall industry point of view. So once we actually, as I was indicating, if we actually run this plant for about six months or so, I think that's when the picture will be clear. But I would say its economic metrics will be more or less in line with how the pack business is behaving at this point of time. But any improvement from there will only depend on how much content you can actually localize.

Speaker #3: I'm just giving you an overall unit metric from an overall industry point of view. So, as I was indicating, if we actually run this plant for about six months or so, I think that's when the picture will be clear.

Speaker #3: But I would say its economic metrics will be more or less in line with how the packed business is behaving at this point of time.

Speaker #3: But any improvement from there will only depend on how much content you can actually localize.

Speaker #2: Noted, sir. Thank you. On the lithium cell side, you will be starting that customer qualification plant and sample supplies to customers. So is the acceptance faster for telecom stationary applications in comparison to automobiles?

Raghu Nandan: Noted, sir. Thank you. On the lithium cell side, you will be starting that customer qualification plant and sample supplies to customers. So, is the acceptance faster for telecom stationary applications, in comparison to automobiles? How much time do you think a customer testing and homologation process will take? By when do you expect clarity on new orders from customers?

Speaker #2: How much time do you think the customer testing and homologation process will take? By when do you expect to have clarity on new orders from customers?

Speaker #3: See, currently, the 2170 cells are what we are making the B samples with, which we would like to provide to the OEMs that we are discussing, who need those MMC cells.

Y. Delli Babu: Currently, the 21700 cells is what we are making the B samples, which we would like to provide to the OEMs that we are discussing who need those NMC cells. They will take the EV side, as you know, there will be an extensive testing of those cells. Then, eventually, when our giga cell is ready, the C-sample testing and other processes will also take some time. It will definitely reduce some amount of time taken by OEMs for completing their homologation even when the C sample is ready. This customer qualification plan not only helps the approval process acceleration, it also helps to understand the production process better and also see how we can arrest some of those ramp-up costs in the first giga cell. That is the dual purpose for which we have constructed that facility.

Speaker #3: And they will take the EV side. As you know, there will be extensive testing of those cells, and then eventually, when our gigafactory is ready, the C-sample testing and other processes will also take some time.

Speaker #3: So, it will definitely reduce some of the time taken by OEMs for completing their homologation, even when the C sample is ready. And these customer qualification plans not only help accelerate the approval process, they also help us understand the production process better and see how we can arrest some of those ramp-up costs in the first gigafactory.

Speaker #3: That's the real purpose for which we have constructed that facility. So, right now, the MMC cells are being produced. And after the internal testing is over on those cells, we'll be giving them to the OEMs for their testing.

Y. Delli Babu: Right now, the NMC cells are being produced, and after the internal testings are over on those cells, we will be giving them to the OEMs for their testing. Now, coming to the storage side of it, any LFP cell that we generate by our own technology effort can be tested in this plant. If we are able to convince the B2B customers on the energy storage requirements, then because some of these packs also go with a warranty promise to the energy storage customers, there the time taken for acceptance by the customers might be substantially lower than what an EV customer would take. But for certain critical installations like telecom, customers will ask for the extensive testing before they actually accept any particular cell, because any cells that are made by any supplier for that matter, require to be approved by the customer.

Speaker #3: Now, coming to the storage side of it, any LFP cell that we generate by our own technology effort can be tested in this plant.

Speaker #3: And if we are able to convince the B2B customers on the energy storage requirements, then, because some of these packs also go with a warranty promise to the energy storage customers, the time taken for acceptance by the customers might be substantially lower than what an EV customer would take.

Speaker #3: But certain critical installations, like telecom, people will—customers will ask for extensive testing before they actually accept any particular cell, because any cells that are made by any supplier, for that matter, are required to be approved by the customer.

Speaker #3: But, relatively, the time taken by these energy storage customers is definitely lower than the EV customers.

Y. Delli Babu: But relatively, the time taken by these energy storage customers is definitely lower than the EV customers.

Speaker #2: Noted, sir. And on the PLI, there is that 10-gigawatt bid which has opened. I mean, in the sense that the tender application process has started.

Raghu Nandan: Noted, sir. On the PLI, there is that 10 gigawatt bids which have opened. I mean, the sense the tender application process has started. Would you be considering it? How are you looking at that?

Speaker #2: So, would you be considering it? How are you looking at that?

Speaker #3: Yes, we are looking at the tender documents and then, depending on the qualification criteria that they have put in, we will be participating in that tender.

Y. Delli Babu: Yes. We are looking at the tender documents, and then, depending on the qualification criteria that they have put in. We will be participating in that tender, while we are now weighing our options in terms of how to go about it. But it is an opportunity that we will definitely try to participate in.

Speaker #3: While we are now weighing our options in terms of how to go about it, it's an opportunity that we'll definitely try to participate in.

Speaker #2: Thank you very much, sir. This is very helpful. Wishing you all the best.

Raghu Nandan: Thank you very much, sir. This is very helpful. Wishing you all the best.

Speaker #3: Thank you.

Y. Delli Babu: Thank you.

Speaker #1: Thank you. The next question is from the line of Shubham from Investech. Please go ahead.

Operator 2: Thank you. The next question is from the line of Shubham from Investec. Please go ahead.

Speaker #4: Hey, hi. Thank you for the opportunity. My first question is on your lithium-ion cell. Earlier, you had indicated that your Gaussian type did not go through as planned.

[Analyst] (Investec): Hey. Hi. Thank you for the opportunity. My first question is on your lithium-ion cell foray. You had earlier indicated that your Gotion tie-up did not go through as planned. Can you please clarify if that is the case with your NMC tech partner as well? Are you looking for any new tech partnership with a non-Chinese player for LFP?

Speaker #4: Can you please clarify if that is the case with your NMC tech partner as well? Also, are you looking for any new tech partnership with a non-Chinese player for LFP?

Speaker #3: See, right now, from the beginning, there is a clear plan B because we know that any technology support we get from external sources needs to be augmented with our own internal capability.

Y. Delli Babu: See, right now, from the beginning, there is a clear plan B because we know that any technology support we get from the external sources need to be augmented with our own internal capability. So on the NMC cell, whatever earlier relationship we had, we got that technology in, and then our own team was able to improve the cell beyond what we have actually taken based on the current customer requirements. So to that extent, there is a bit of de-risking that has happened on the technology talent point of view and our own ability to adapt or develop technologies for the requirement of this market. As far as newer technology relationships are concerned, I wouldn't say we are not looking at it, but we'll definitely be on a need base wherever we think any external help augments our own internal capability.

Speaker #3: So on the NMC cell, whatever earlier relationship we had, we got that technology in, and then our own team was able to improve the cell beyond what we had actually taken.

Speaker #3: Based on the current customer requirements, there has been a bit of de-risking that has happened from a technology talent point of view, and regarding our own ability to adapt or develop technologies for the requirements of this market.

Speaker #3: But as far as newer technology relationships are concerned, I think we—I wouldn't say we are not looking at it, but we'll definitely be on a need basis, wherever we think any external help augments our own internal capability.

Speaker #3: We will definitely be working on a case-to-case basis. But, at this point of time, given the geopolitical restrictions, I don't think a broad-based technology arrangement with anyone from China is possible.

Y. Delli Babu: We will definitely be working on a case-to-case basis. But at this point of time, given the geopolitical restrictions, I don't think a broad-based technology arrangement with anyone from China is possible.

Speaker #4: Okay. Okay. Also, in your PPT, you had indicated your plans to set up 16 gigawatts by FY30. Given that there has been some delay and there have been some challenges from China, is that still on track?

[Analyst] (Investec): Okay. Also, in your PPT, you had indicated your plans to set up 16 gigawatt by FY30. Given that there has been some delay and there have been some challenges from China, is that still on track? Should we expect a lower capacity coming on stream by FY30 than 16 gigawatt?

Speaker #4: Should we expect a lower capacity coming on stream by FY30 than 16 gigawatts?

Speaker #3: Yeah, I'd like to clarify that the 16 gigawatt we have coined was based on our initial strategy when we said that there would be a need to put close to 9,000 crores of rupees of investment into this business and then we need to there is a possibility of reaching that 16 gigawatt hour given the fact that India could be a market size of 100 to 130 gigawatt hour and then we felt there is a reasonable chance for us to achieve a market share given that there are some EV requirements met by the OEMs by themselves.

Y. Delli Babu: Yeah, I would like to clarify that the 16 gigawatt we have coined was based on our initial strategy when we said that there would be a need to put close to INR 9,000 crores of rupees of investment into this business, and then there is a possibility of reaching that 16 gigawatt hour, given the fact that India could be a market size of 100 to 130 gigawatt hour. Then we felt there is a reasonable chance for us to achieve a market share, given that there are some EV requirements met by the OEMs by themselves. So this potential, as it changes its mix, we also need to change our plans. It is not that I will build the capacity irrespective of what demand signals that I am getting and which cells that are being required by the customers.

Speaker #3: So, as this potential changes its mix, we also need to change our plans. It's not that I will build the capacity irrespective of what demand signals I am getting and which cells are being required by the customers.

Speaker #3: Because we have to carefully invest behind capacity because any redundant capacity that we create will be highly taxing on the financials. So we have to be sure about the standard cells that we are going to build to start with have sufficient demand and then accordingly we'll expand the capacity.

Y. Delli Babu: Because we have to carefully invest behind capacity because any redundant capacity that we create will be highly taxing on the financials. So we have to be sure about the standard cells that we are going to build to start with, have sufficient demand, and then accordingly, we will expand the capacity. Even today, if we were to rate the risks of lithium-ion business, obviously I would intuitively say that demand is not the highest of it. Maybe it is definitely at the bottom quartile because there are demand coming from both EVs and ESS segment as well. So given our program, maybe we will now prioritize a ESS cell over a standard EV cell because that could actually uptick our demand much faster.

Speaker #3: Even today, if you were to rate the risks of the lithium-ion business, obviously, I would intuitively say that demand is not the highest of them.

Speaker #3: Maybe it is definitely at the bottom quartile because there is demand coming from both EVs and the ESS segment as well. So, given our program, maybe we will now prioritize an ESS cell over a standard EV cell because that could actually uptake our demand much faster.

Speaker #3: So, while the milestone for a given capacity can definitely change, our broad strategic direction of targeting, let's say, a 15% to 20% kind of market share on the available potential of lithium cells still remains intact.

Y. Delli Babu: While the milestone for a given capacity can definitely change, our broad strategic direction of going behind, let us say, a 15% to 20% kind of a market share on the available potential of lithium cells still remains intact. And timings can definitely change based on the demand as well as the product mix that is being required by the market.

Speaker #3: And timings can definitely change based on the demand, as well as the product mix, that is being required by the market.

Speaker #4: Okay, thanks for clarifying. Also, just one clarificatory question—on your lithium pack revenues, these get booked entirely in your subsidiary, right? None of it is captured in your standalone business?

[Analyst] (Investec): Okay, thanks for clarifying. Also this one clarificatory question. On your lithium pack revenues, it gets booked entirely in your subsidiary, right? None of it is captured in your standalone business.

Speaker #3: In the standalone, in this quarter, there was some quantity which we have booked in our standalone entity because the product approval was earlier taken in the standalone entity. Similarly, even last year, we had the spreading activity happening in the holding company.

Y. Delli Babu: In the standalone in this quarter, there was some quantity which we have booked in our standalone entity because of the product approval was earlier taken in the standalone entity. Like the way even in the last year, we had the trading activity happening in the holding company. Now, I think we have migrated. From the coming quarters, we will not have substantial lithium trading revenue coming in the holding company. It will all move to the subsidiary only. But yes, there could be some other segments, let's say commercial and industrial or some of the segments which we deal with through our industrial channel, there could be a smaller volume. But essentially, all the telecom packs will move to the subsidiary completely.

Speaker #3: Now, I think that from the coming quarters, we will not have substantial lithium trading revenue coming in at the holding company. It will all move to the subsidiary only.

Speaker #3: But yes, there could be some other segments—some of the, let's say, commercial and industrial, or some of the segments which we deal with through our industrial channel. There, there could be a smaller volume, but essentially all the telecom packs will move to the subsidiary completely.

Speaker #4: Okay, okay, okay. Thanks for clarifying. Thank you.

[Analyst] (Investec): Okay. Thanks for clarifying. Thank you.

Speaker #1: Thank you. The next question is from Rishi Vora of Kotak Securities. Please go ahead.

Operator 2: Thank you. The next question is the line of Rishi Vora from Kotak Securities. Please go ahead.

Speaker #2: Yeah, hi. Thank you for the opportunity. My first question is just on the growth expectations for, let's say, the business. Obviously, in Q1 we have seen very strong growth.

Rishi Vora: Yeah, hi. Thank you for the opportunity. My first question is just on the growth expectations for lead acid business. Obviously, Q1, we have seen a very strong growth. OE obviously we know is doing well and replacement continues to do well. So sir, how should we look at full year growth expectations in terms of volumes for the lead acid business? And mainly just trying to get a sense on the replacement market share.

Speaker #2: And I know OE, obviously, we know is doing well, and replacement continues to do well. So, sir, how should we look at full-year growth expectations in terms of volumes for the, let us say, business?

Speaker #2: And mainly just trying to get a sense of the replacement market strength.

Speaker #3: See, I think the domestic growth in the aftermarket, as we have mentioned in the earlier calls as well—I mean, we can't go by one single quarter as the long-term guidance.

Y. Delli Babu: See, I think with the domestic growth in the aftermarket, as we have mentioned in the earlier calls as well, we cannot go by one single quarter as the long-term guidance. So naturally, around lower double digit kind of a number is possible in the two-wheeler side. As far as four-wheeler, it may be a tad lower than the two-wheeler. So our estimation was it could grow anywhere between 7% to 8% kind of a number. That kind of a growth is possible. But considering the large base that we are seeing today, those numbers will moderate as we move ahead and also as we see higher penetration on the EV side of it. But our lead acid growth also should get further boost once the international business comes back on track.

Speaker #3: So naturally, around lower double-digit kind of a number is possible on the two-wheeler side. As far as four-wheelers, it may be a tad lower than the two-wheelers.

Speaker #3: So, our estimation was that it could grow anywhere between 7 to 8 percent, kind of a number. And that kind of growth is possible.

Speaker #3: But considering the large base that we are seeing today, those numbers will moderate as we move ahead, and also as we see higher penetration on the EV side of it.

Speaker #3: But our lead-acid growth should also get a further boost once the international business comes back on track. That's where we have been—our forecast or our thought process is that the lead-acid battery business as a whole, both industrial, mobility, exports, every opportunity put together, can still achieve revenue growth rates anywhere between 9% to 10% in the coming, at least in the medium period.

Y. Delli Babu: That is where we have been. Our forecast or our thought process is lead acid battery business as a whole, both industrial, mobility, exports, every opportunity put together can still achieve a revenue growth rates anywhere between 9% to 10% in the coming, at least in the medium period. That is the sense that we are getting.

Speaker #3: That's the sense that we are getting.

Speaker #2: Okay, thanks for this guidance. Just for volumes, right? So, whatever price hikes you have taken should further add to the revenue growth.

Rishi Vora: And sir, this guidance is for volumes, right? So whatever the price hikes you have taken should further add up to the revenue growth.

Speaker #3: No, I'm not saying this is guidance, but this is the overall industry growth estimate possible. But this is predominantly on the volumes; any price changes will depend on how much you are able to actually pass on to the customer.

Y. Delli Babu: I am not saying this is a guidance, but this is the overall industry growth estimate possible. But this is predominantly on the volumes. Any price changes, it will depend on how much you are able to actually pass on to the customer. We have seen B2B segment have its own challenge of passing it on fully, and in B2C with a lag, we are able to pass on. You are right. Much of this, I am talking from the volume lens.

Speaker #3: So, we have seen that the B2B segment has its own challenge of passing it on fully. And in B2C, with the lag, we are able to pass it on.

Speaker #3: So you are right. Much of this, I'm talking from the volume lens.

Speaker #2: Thanks for your comment regarding LFP. Maybe incrementally, the focus would be on the energy storage segment, so I just wanted to get a sense—given that now we don't have a partner.

Rishi Vora: Thanks. Sir, just on this, your comment around LFP, like incrementally the focus would be on the energy storage segment. Just wanted to get a sense, even that now we don't have partner and maybe in the future we might get one, but how easy it is difficult to develop LFP technology? How much R&D investments, which we need to do incrementally? Does it also take time to develop this technology or within a year or two, we can come up with a product and start supplying to the customers? Any sense around that would be helpful.

Speaker #2: And maybe in the future, we might get one. But how easy or difficult is it to develop LFP technology? How much R&D investment would we need to do incrementally?

Speaker #2: And does it also take time to develop this technology, or within a year or two can we come up with a product and start supplying to the customers?

Speaker #2: Just any sense around that would be helpful.

Speaker #3: Yeah, there is enough investment that we have made into both the skill as well as the facilities required for research. There are teams in place working on these product developments today.

Y. Delli Babu: Yes, there is enough investment that we have made into both the skill as well as facilities required for research. There are teams in place working on these product developments today. Obviously, I can't give a timeline around every product that we are dealing with. I can only say that there is enough capability in the company and also, certain other relationships that we are working on will definitely help develop the products that are required for us. From a timeline point of view, I think it would be premature for me to comment on any specific timeline, because it will depend on the development program that we will chart for a given cell type.

Speaker #3: Obviously, I can't give a timeline around every product that we are dealing with. I can only say that there is enough capability in the company, and also certain other relationships that we are working on will definitely help develop the products that are required for us.

Speaker #3: From a timeline point of view, I think it would be premature for me to comment on any specific timeline, because it will depend on the development program that we will check for a given cell type.

Speaker #3: So, I would say there is a plan B in place. Even if there is a bit of a delay here and there, we will be able to do things with our own capability, which will definitely help us develop products that are more suitable for this market.

Y. Delli Babu: I would say there is a plan B in place, while even if it is a bit of a delay here and there, we will be able to do things with our own capability, which definitely help us develop products which are more suitable for this market. Also the key is basically to get the industrialization right, because product recipe is one thing, but getting the industrialization right at the right throughput level and right process scrap level is important. Currently, the teams are engaged in both aspects of this, which is where we are spending our resources. Even in this year, towards the R&D of cell development, we may spend close to about INR 100 to INR 150 crores kind of money. So that kind of expenses we need to incur, until some of these cells that we are currently talking about are available for us for commercialization.

Speaker #3: And also, the key is basically to get the industrialization right, because product recipes are one thing, but getting the industrialization right at the right throughput level and the right process craft level is important.

Speaker #3: So currently, the teams are engaged in both aspects of this, which is where we are spending our resources. Even in this year, towards the R&D of cell development, we may spend close to about ₹100 to ₹150 crore kind of money.

Speaker #3: So those are the kinds of expenses we need to incur until some of these cells that we are currently talking about are available to us for commercialization.

Speaker #2: Understood. Just two clarifications. One, on the capex side, right? When we talked about 200, 300 crores of KPIs, there will also be a working capital requirement, right, for this business pertaining to cell?

Rishi Vora: Yes, sir. Just two clarifications. One on the BESS site. When we talked about INR 200, INR 300 crores of CapEx, also there will be a working capital requirement for this business pertaining to sale. What would be that number or in number of days, if you could guide us, that would be helpful.

Speaker #2: So, what would be that number, or in number of days? If you could guide us, that would be helpful.

Speaker #3: See, it depends again on what customer mix we are dealing with, right? So if it is a containerized solution that I am giving to an EPC player, then what kind of business models will evolve?

Y. Delli Babu: See, it depends again, what is the customer mix we are dealing with, right? If it is a containerized solution that I am giving to an EPC player, then what kind of business models that will evolve. See, it really depends on what kind of projects to which we are supplying. If I were to take a cue from my current pack business that I am doing to a B2B segment, my working capital days could be around 90 days, give or take. But it also depends on what kind of credit arrangements we will have for the cell procurement from China. I do not think I can give you 100% sure number at this point of time. But, if I were to give an estimate, 90 to 100 day kind of a cash conversion cycle is not impossible to achieve.

Speaker #3: See, there could be it really depends on what kind of projects to which we are supplying. So if I were to take a Q from my current pack business that I am doing to a B2B segment, my working capital base could be around 90 days.

Speaker #3: Give or take. But it also depends on what kind of credit arrangements we will have for the cell procurement from China. So I don't think I can give you a 100% sure number at this point in time, but if I were to give an estimate, a 90- to 100-day kind of cash conversion cycle is not impossible to achieve.

Speaker #2: Understood. And so last thing, just on the warranty side, between lithium and lead, whenever we ship to lithium manufacturing, will the warranty provisioning be different or will it be higher or lower than lead-acid?

Rishi Vora: And sir, last thing, just on the warranty side, between lithium and lead, like whenever we shift to lithium manufacturing, will the warranty provisioning be different or will it be higher or lower than lead acid?

Speaker #3: See, warranty obligations for any of the lithium packs today are actually at the pack level. The cell makers are giving back-to-back warranty assurance on the cells, and that should be the same even when we make domestic cells also.

Y. Delli Babu: See, warranty obligations for any of the lithium packs today are actually at the pack level. Cell makers are giving back-to-back warranty assurance on the cells, and that should be the same even when we make domestic cells also. How do we provision it? How do we calculate the material cost? What could be the failure percentage? These are things that I cannot disclose or discuss today for the simple reason that we have to wait and see for the first commercial cell to come out. I think it will be too premature for me to put a number around them.

Speaker #3: So, how do we provision it? How do we calculate the material cost? What could be the failure percentage? These are things that I cannot disclose or discuss today.

Speaker #3: For the simple reason that we have to wait and see for the first commercial cell to come out. So, I think it would be too premature for me to put a number around them.

Speaker #2: Understood. Thank you. Thank you for your answers.

Rishi Vora: Understood, sir. Thank you. Thank you for your answers.

Speaker #1: Thank you. The next question is from the line of Depeche Joshi from Indira Securities. Please go ahead.

Operator 2: Thank you. The next question is from the line of Dipesh Joshi from Indira Securities. Please go ahead.

Speaker #2: Okay. Unfortunately, so my first question is regarding the lithium and facility ramp up. So how should we think about the price discipline going forward and what do you believe will be the primary basis of competition over the next few years?

Dipesh Joshi: Thank you for the opportunity. My first question is regarding the lithium-ion facility ramp-up. How should we think about the credit discipline going forward, and what do you believe will be the primary digital competition over the next few years?

Speaker #3: See, in the lithium and EV side, you know, some OEMs are building their own plants, and there are core battery manufacturers who are currently in the lead-acid space and are also in the lithium space.

Y. Delli Babu: See, lithium and the EV side, some OEMs are building their own plants, and there are four battery manufacturers who are currently in the lead acid space, are also in the lithium space. By and large, if you ask me, it could be a place where still you may see at the best a three to four player kind of a market on the sell side, is what is our estimation going by the announcements that we are seeing today. From a pricing competitive point of view, I think I am sure, I do not think people in India will compete with each other, but rather both of us have to, or all of us have to continue to compete with the imports that are going to come into this country. To that extent, yes.

Speaker #3: By and large, as if you ask me, it could be a place where still you may see, at the best, three- to four-player kind of a market on the cell side.

Speaker #3: Is what is our estimation going by the announcements that we are seeing today? So from a pricing competitive point of view, I think I am sure I don't think people in India will compete with each other, but rather both of us have to or all of us have to continue to compete with the imports that are going to come into this country.

Speaker #3: To that extent, yes, when you are looking at competing with China, we are clearly at a price disadvantage, which is what we have discussed in the earlier calls also—that that disadvantage could be in the order of 15% to 20% today.

Y. Delli Babu: When you are looking at competing with China, we are clearly at a price disadvantage, which is what we have discussed in earlier calls also that that disadvantage could be in the order of 15% to 20% today, simply because of the strong supply chain that exists in that country. Then we are still in the nascent stage of developing this market. Until we are able to have our own depth in the supply chain, and then there is a bit of a production coming from the government, I think we should be able to stabilize this industry in this country.

Speaker #3: Simply because of the strong supply chain that exists in that country, and then we are still in the nascent stage of developing this market.

Speaker #3: So, until we are able to have our own depth in the supply chain, and then there is a bit of production coming from the government, I think we should be able to stabilize this industry in this country.

Speaker #2: Okay. And so regarding you did say that there might be some changes to the 16 gigawatt plant capacity. But even if for the new capex coming in, do you have any planning for the back to equity or the ratio in mind?

Dipesh Joshi: Regarding, you did say that there might be some changes to the 16 gigawatt plant capacity. Even if for the new CapEx coming in, do you have any planning for the debt to equity or the funding ratio in mind? Are you going to fund the next coming investment?

Speaker #2: How are you going to fund the upcoming investment?

Speaker #3: Yeah, there are obviously multiple options on the table. The cash flows from the existing business are strong enough, which we can use for funding this business.

Y. Delli Babu: Yeah. There are obviously multiple options on the table. The cash flows from the existing business are strong enough, which we can use for funding this business. As indicated earlier, the initial risk capital that we agreed was about INR 2,500 crores, with which we are able to at least complete these five facilities that we are talking about. Thereafter, any future CapEx requirement, we have to explore our options. One, the holding company can continue to fund it. Obviously, there is a limitation on the debt to equity number, but I wouldn't want to put a number at this point of time because I need to see each of these business cases and accordingly decide whether a leverage is good or should I look at some other options for funding this kind of expansion. These are questions that are definitely there on the table.

Speaker #3: But as indicated earlier, the initial risk capital that we agreed was about ₹2,500 crores, with which we are able to at least complete these five facilities that we are talking about.

Speaker #3: And thereafter, any future capex requirement we are to explore our options. One, the holding company can continue to fund it. Obviously, there is a limitation on the debt-to-equity number, but I wouldn’t want to put a number at this point of time because I need to see each of these business cases and accordingly decide whether a leverage is good or should I look at some other options for funding this kind of expansion.

Speaker #3: So, these are questions that are definitely there on the table, but I think we'll be able to give a broad guideline as and when those new capex programs are announced, in terms of how we achieve the financial closure of it.

Y. Delli Babu: I think we'll be able to give a broad guideline as and when those new CapEx programs are announced in terms of how do we achieve the financial closure of it. Suffice to say that considering the INR 700 to INR 800 crores at the minimum as a cash generation post-tax and post-dividend as well, I think that means there is enough gunpowder left in the holding company for us to fund this new energy business for some time to come. That doesn't mean we will be completely free with our capital allocation. Those decisions will be taken based on what investments that we are making into which cell capacities and what are the risk factors of that business. At an appropriate time, those capital structuring decisions have to be modified.

Speaker #3: But suffice to say that, considering ₹700 to ₹800 crores at the minimum as a cash generation post-tax and post-dividend as well, I think that gives—there is enough control left in the holding company for us to fund this new energy business for some time to come.

Speaker #3: But that doesn't mean we will be completely free with our capital allocation. So, those decisions will be taken based on what investments we are making into which cell capacities, and what are the risk factors of that business.

Speaker #3: And at an appropriate time, those capital structuring decisions have to be modified.

Speaker #2: Okay. Thank you for this question.

Dipesh Joshi: Thank you for this opportunity.

Speaker #1: Thank you. The next question is from the line of Kapil Singh from Nomura. Please go ahead.

Operator 2: Thank you. The next question is on the line of Kapil Singh from Nomura. Please go ahead.

Kapil Singh: Sir, just trying to understand, when we talk of lithium-ion cells, is the product continuously evolving, or we are seeing technology at a relatively stable level for NMC? Because the products are also evolving, so I am just trying to understand whether there are significant R&D requirements here or once you have acquired a technology, we can continue supplying for next few years without any major changes.

Speaker #2: Sir, just trying to understand, when we talk of lithium-ion cells, is the product continuously evolving, or are we seeing technology at a relatively stable level for NMC?

Speaker #2: Because the products are also evolving, I'm just trying to understand whether there are significant R&D requirements here, or once you have acquired a technology, can we continue supplying for the next few years?

Speaker #2: Without any major changes.

Speaker #3: See, I can only say that the speed of change—definitely, I would sense that. While I may have to again discuss with my technology team before I give a conclusive answer.

Y. Delli Babu: Well, I can only say that the speed of change, definitely, I would sense that while I may have to again discuss with my technology team before I give a conclusive answer. But my understanding is the speed of change has definitely moderated. So that is why when we approach a particular cell program, we have to be clear that the CapEx, what we are incurring, provides us the opportunity to serve that product for a reasonable time in the future. Secondly, if not, then we should also build the plant or work with the equipment vendors in such a manner that any fungibility between one product type to another can be done easily. So that way, the capital requirement for any creating fungible lines should be factored in whenever we do these new cell commercialization plans.

Speaker #3: But my understanding is the speed of change has definitely moderated. So that's why, when we approach a particular cell program, we have to be clear that the capex we are incurring provides us the opportunity to serve that product for a reasonable time in the future.

Speaker #3: And secondly, if not, then we should also build the plant or work with the equipment vendors in such a manner that any fungibility between one product type to another can be done easily.

Speaker #3: So, that way, the capital requirement for any creating fungible lines should be factored in whenever we do these new cell commercialization plans. So, that way, now, coming to the R&D investment that we need to make, that is something that we have said from the beginning—that we would want to create a capability within the company which can actually deliver the required goods that are required for this market.

Y. Delli Babu: Now, coming to the R&D investment that we need to make, that is something that we have said from the beginning, that we would want to create a capability within the company which can actually deliver the required goods that are required for this market. That effort cannot be reduced just because we are able to commercialize couple of standard cells which are not changing. I think technology requirements will continue in this business, and it is not something that we can wish away just because we have some capacity of regular standard cells that can be manufactured.

Speaker #3: So that effort cannot be reduced just because we are able to commercialize a couple of standard cells which are not changing. I think technology requirements will continue in this business, and it is not something that we can wish away just because we have some capacity of regular standard cells that can be manufactured.

Speaker #2: Thanks, sir. And on the raw material availability, what kind of risks are there, and how are you thinking about managing those risks?

Kapil Singh: Thanks, sir. On the raw material availability, what kind of risks are there and how you are thinking about managing those risks?

Speaker #3: See, clearly on the supply chain, particularly on the cathode material, we have to depend on China for our procurement. There are no two ways about it.

Y. Delli Babu: Clearly on the supply chain, particularly on the cathode material, we have to depend on China for our procurement. There are no two ways about it. There are also efforts happening within the country by various players to localize some of that supply chain. So we have to wait and see how those plans come to some level of maturity. I think in the long term, I think industry as a whole will definitely strive for localizing these required supply chain in this country. Otherwise, substantial value cannot be completely residing out of India, and even government's direction and the policy push also is going in that direction. So I am hopeful that in the long term, we will be able to bring a large portion of the supply chain into the country.

Speaker #3: But there are also efforts happening within the country by various players to localize some of that supply chain. So we have to wait and see how those plants come to some level of maturity.

Speaker #3: But I think, in the long term, industry as a whole will definitely strive to localize these required supply chains in this country.

Speaker #3: Otherwise, substantial value cannot be completely receded out of India. And even the government's direction and policy push are also going in that direction. So I'm hopeful that in the long term, we'll be able to bring a large portion of the supply chain into the country.

Kapil Singh: There are supposed to be some restrictions from China for exporting some of the materials, like cathode materials or even graphite. So any risk that we need to monitor here? Because something came out in October 25, then it was delayed for 1 year. So is there a risk on account of that also or not?

Speaker #2: So, there are supposed to be some restrictions from China for exporting some of the materials, like cathode materials or even graphite. So, are there any risks that we need to monitor here?

Speaker #2: Because something came out on October 25 when it was delayed for one year. So, is there a risk on account of that also or not?

Speaker #3: See, regarding the process for battery materials, at this point in time we have not heard anybody saying that they will not supply. But from a broader supply chain development point of view, it is definitely a factor that needs to be monitored not only by any one company, but at the industry level.

Y. Delli Babu: Processed battery material at this point of time, we have not heard anybody saying that they will not supply. From a broader supply chain development point of view, it is definitely a factor that need to be monitored, not only by any one company, but at the industry level. At this point of time, I am not aware of any specific restrictions. While there were restrictions on certain core material, but not on the battery cathode material or anode material. So that I have not come across any specific restriction, but I will double-check once again, and if I have any news, I will update you. Yeah.

Speaker #3: At this point in time, I am not aware of any specific restrictions. While there were restrictions on certain core materials, there were none on battery cathode material or anode material.

Speaker #3: So, I have not come across a specific restriction, but I will double-check once again. If I have any news, I'll update you.

Speaker #3: Yeah.

Kapil Singh: Okay. Thank you, sir.

Speaker #2: Okay. Thank you, sir.

Speaker #1: Thank you, ladies and gentlemen. We will take that as the last question of the day. I now hand the conference over to the management for closing comments.

Operator 2: Thank you. Ladies and gentlemen, we take that as the last question of the day. I now hand the conference over to the management for closing comments.

Speaker #3: Yeah. Thanks again, everybody, for coming in, and thanks for your questions. Over to EJ.

Y. Delli Babu: Yeah. Thanks again for everybody for coming in and thanks for your questions. Over to you, Jay.

Speaker #4: Yeah. Thank you. On behalf of Elara Securities, that concludes the call. Thank you all for joining in. Have a good evening.

Jay Kale [Analyst: Yeah. Thank you. On behalf of Elara Securities, that concludes the call. Thank you all for joining in. Have a good evening.

Operator 2: On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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